OPINION: SEC Hunt Silences Bank Watchdogs

The last and only time we met for a beer was in early 2007, when I was working on a story about real estate developer Tarragon (TARR Quote), which was facing numerous headwinds. My source was short the stock and supplied me with numerous pieces of background information on the company, including a 1994 letter from the Office of Thrift Supervision barring Bill Friedman, Tarragon's CEO, from working in the savings and loan industry because of his involvement with a prior real estate investing fund that went bankrupt.

Tarragon's stock now trades for roughly $1, compared to the $10 where it was trading when my first article on the company appeared in April 2007.

Since working on that story, my regular discussions with the source and others within his circle of hedge fund analysts have helped me research and write numerous early-warning-sign articles on Wachovia (WB Quote), American Capital Strategies (ACAS Quote), Aircastle(AYR Quote) and others --- shares of which have fallen sharply over the past year.

In almost every case, sell-side analysts were asleep at the wheel. They were not willing to criticize management and ended up downgrading the stocks only once the shares had already fallen.

Back to Lehman Brothers.

I have no opinion on the company and whether there was manipulation involved. Hopefully, the SEC will figure out the issue.

The SEC declined to comment on the matter and still won't even confirm that it has sent out subpoenas.

In the meantime, what I do know is that the SEC has made my job much more difficult -- even if just temporarily so.

I imagine other financial journalists are facing similar hesitation. The SEC is supposed to be a watchdog of the public markets, but journalists and hedge funds often end up aiding in this watchdog role.

So far, the SEC's investigation looks like a broad witch hunt. The subpoenas are planting fear in the heads of hedge fund analysts who in most cases are just doing their job: searching for the truth and exposing public companies that mislead.