False Rumors Hit U.K. Bank's Stock Hard; Officials Pursue 'Market Abuse'
Updated: Seeking to profit from the current climate of financial uncertainty, unscrupulous traders have allegedly spread false rumors that banks in the United Kingdom are in trouble and then profited from short sales of their stock on the London market in a “trash ‘n cash” scheme.
A false rumor yesterday morning concerning HBOS forced the Bank of England to step up and publicly deny the widespread lie that HBOS had sought a big emergency loan, reports the London Times. Such a denial has never been made before, the newspaper says.
Within a 20-minute period between 8:30 and 9 a.m. yesterday, “HBOS’s shares had plunged by more than 17 percent as investors dumped their stakes. An hour later, the Bank of England announced that no bank needed emergency funding, while the FSA issued a statement warning investors to stop spreading false accusations,” the Times recounts.
The country’s Financial Services Authority says it will pursue a “market abuse” investigation against traders who have spread false rumors that banks were about to collapse.
Regulators in the U.S. are investigating similar false rumor-mongering concerning the Bear Stearns and Lehman Brothers investment banks, the newspaper says. As discussed in an earlier ABAJournal.com post, Bear Stearns has agreed to a buyout by JPMorgan Chase at a fire-sale price, after a run on the bank by worried customers last week reduced its capital from $17 billion to $2 billion in just a few days.
As far as Bear Stearns is concerned, the Securities and Exchange Commission is investigating an unusual surge in options contracts which, as the Wall Street Journal (sub. req.) explains, are essentially bets “that the investment bank’s share price would drop precipitously.”
“Regulators face a delicate task when dealing with rumors,” says the Wall Street Journal (sub. req.) in another article. “Issuing public statements denying there is trouble could set a precedent. Saying nothing could be interpreted as a signal that the speculation is true.”
HBOS owns owns Halifax, the biggest mortgage lender in the U.K., as well as the Bank of Scotland.
Updated at 2:55 p.m., central time, to include Wall Street Journal coverage.
Write a letter to the editor, share a story tip or update, or report an error.
