And a Little Blog Shall Lead the SEC

The SEC today is trumpeting -- replete with quotes from Chris Cox and head of enforcement Linda Thomsen -- a routine enforcement action against a guy who spread false rumors about The Blackstone Group's acquisition of Alliance Data Systems (ADS) while selling ADS short.

The SEC complaint says that "the media and certain subscriber-based news services quickly picked up the 'story' and further disseminated it throughout the marketplace."

But what neither the release nor the complaint points out is that the media also swiftly -- and I mean immediately -- debunked the rumor. The falsity of this rumor was revealed not by our magnificent securities watchdogs but the media, such as the Wall Street Journal's Deal Journal Blog, which snared the false rumor in its tracks on the same day, in an item entitled "Anatomy of a Bum Rumor."

The blog didn't name exactly who spread the rumor (a pretty near impossibility under the circumstances), and the SEC certainly deserves kudos for finding the guilty party. But I think it was a bit ungentlemanly for the SEC not to give a nod to the media for immediately exposing a market-manipulating rumor for what it was.

By the way, contrast the SEC's swift action in this case with its dropping an investigation of Bear Stearns over valuing debt securities -- and refusing to cooperate with congressional investigators. The Hill probers should use their full powers to get at the truth.

© 2008 Gary Weiss. All rights reserved.