New York AG Cuomo to short sellers: 'I am watching'

NEW YORK -- New York's attorney general says he's launching an investigation into whether some traders used illegal tactics to drive down the stock price of several Wall Street firms.

"I want the short-sellers to know today that I am watching," Attorney General Andrew Cuomo said on a conference call with reporters Thursday. "If it is proper and legal then there is nothing to worry about."

Cuomo said his office has received a "significant number" of complaints about short sellers, or investors who hope to profit by placing bets that a 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 bad information to influence the stock prices of Lehman Bros., American International Group and other firms that have been hammered in the ongoing financial crisis.

Short-selling has been blamed for steep drops in the stock price of several companies, most recently Goldman Sachs Group and Morgan Stanley.

Short-selling occurs when traders borrow shares of a stock they expect will fall and sell them. 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.

Britain's Financial Services Authority said Thursday it is temporarily banning short-selling of shares in publicly traded financial companies.

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