My finance view

NEW YORK — The state is launching an investigation into whether some traders used illegal tactics to drive down the stock price of several Wall Street firms.

Attorney General Andrew Cuomo told reporters Thursday that his office has received a "significant number" of complaints about short sellers, or investors who hope to profit by placing bets that a financial company’s stock will fall.

Short-selling is not illegal. But Cuomo said he will focus on whether short sellers engaged in conspiracy or spread rumors and bad information to influence the stock prices of Lehman Brothers Holdings Inc., American International Group Inc., Goldman Sachs Group Inc., Morgan Stanley and others.

Short-selling occurs when traders borrow shares of a stock they expect will fall and sell them cash advance loans. If the stock does indeed fall, the traders buy the cheaper shares to cover the borrowed ones and profit from the difference.
Naked short-selling occurs when sellers don’t actually borrow the shares before selling them. It’s a practice some say is partially responsible for the huge drop in the shares of investment banks such as Lehman, Merrill Lynch and Bear Stearns Cos., which JPMorgan Chase & Co. bought this year.

Cuomo said he believes the federal government has been "ineffective" in dealing with short sellers and said his office would go after traders found to be illegally using the practice to manipulate markets.

On Wednesday, the Securities and Exchange Commission a