SEC Issues Subpoenas in Banking Probe

Ex-Bear Stearns CEO Alan Schwartz and Lehman CEO Richard Fuld separately confronted Goldman CEO Lloyd Blankfein about the rumors about the firm's potential role, the Journal reported.

Goldman Sachs benefited from the downfall of Bear Stearns as it picked up a large amount of prime brokerage business. Sources at the former Bear Stearns had previously confirmed that Goldman Sachs was only too eager to assist hedge funds in moving money out of Bear.

A JPMorgan spokesman declined to comment. CEO Jamie Dimon, however, last week expressed support for the SEC probe. "I think the Securities and Exchange Commission should investigate it, okay?" Dimon said. "I think if someone knowingly starts a rumor or passes on a rumor, they should go to jail."

Goldman Sachs did not return a phone call.

Hedge fund Paulson & Co., run by former Bear executive John Paulson, is said to be in the group that reduced its exposure to Bear. A spokesman for Paulson would not say if the firm -- which produced 550% returns last year largely though its short bets against subprime mortgages -- received a subpoena.

Spreading rumors one knows to be false with the intention of manipulating a public company's price is illegal.

On Monday, NYSE Regulation Inc., the regulatory unit of stock-exchange parent NYSE Euronext(NYX Quote), sent a letter to a number of its "largest member firms" asking for information regarding the firm's policies surrounding the circulation of false and misleading rumors. The letter gives the firms a July 28 deadline in which to deliver the materials and said the review was being coordinated with the Financial Industry Regulatory Authority, a Wall Street self-regulatory agency.