OPINION: SEC Hunt Silences Bank Watchdogs

Subpoenas are flying around Wall Street as the Securities and Exchange Commission embarks on a furious hunt to get to the bottom of the alleged "rumor-mongering" related to Lehman Brothers (LEH Quote) and Bear Stearns.

Numerous hedge funds and Wall Street investment banks have been targeted so far. On the face of it, the investigation is certainly a good thing, since the public markets can't function well if in fact stocks are being manipulated by false information.

Unfortunately, the SEC's broad sweep has already had another, not-so-positive effect: hampering the dialogue between hedge funds and journalists.

First, some background: In July, the SEC sent out subpoenas to various hedge funds and Wall Street trading desks to try to determine the root of possible unfounded rumors and manipulation that may have contributed to the severe declines in shares of Lehman and Bear Stearns this year.

The result is that some general counsels inside hedge funds are now telling their analysts and portfolio managers to be more tight-lipped -- especially with journalists.

One of my best sources, an analyst at a hedge fund that has been subpoenaed in the Lehman probe, says he has been told by his superiors to not talk with the media -- not even on background. (In the interest of disclosure, this source and I speak about stocks other than Lehman, a company and stock I've never even written an article about.)

For financial writers like me, who like to dig into public companies and provide the information or angles that some CEOs may not want to hear, this breakdown in dialogue is a detrimental development.