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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) 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.

Hedge funds are some of the best investment resources around. Ask any veteran journalist covering stocks, and he or she likely will agree on this point.

The simple reason is that the analysts and portfolio managers working at hedge funds typically command the highest salaries in the investment world. Why? They tend to be the smartest investors around.

They are skeptical of management, realize the conflicts inherent to published sell-side Wall Street research and even go to great lengths to ferret out information that isn't in SEC filings (by hiring private investigators, for example).

The problem is not short-sellers, it's the perception of short-sellers. They are viewed by common folk and unscrupulous public company CEOs as the

monsters hiding under the bed

. Their fangs are wicked and sharp, and all they care about is profiting off other people's pain, or so the foolish theory goes.

In reality, any reasonable person would agree that short-sellers perform an essential service, since they add to the efficiency of the stock market.

As a journalist, being able to tap into these investors' minds is a luxury that the average retail investor doesn't have. Instead, many retail investors are forced to listen to the endlessly bullish forecasts offered by public company CEOs and the sell-side analysts who brown-nose with them.

The aforementioned source of mine, with whom I have been speaking on a regular basis for the past year and a half, is now much more hesitant to chat because of his boss' orders. Rather than the regular phone calls we used to have, he says he's now more inclined to meet for a beer.

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


( TARR), 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




American Capital Strategies





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.