Let’s play a game of hypotheticals: what if the fall of Bear Stearns was really due to market manipulation by Goldman Sachs Group Inc. (GS) and other Wall Street firms, directly or indirectly spreading false rumors that sent the company’s shares into a tailspin? And what if the same sort of chicanery were now responsible for tanking shares at Lehman Brothers Holdings Inc. (LEH)? It may sound almost like a movie script, but those are the real-life questions being asked by some on the Street — and, perhaps more importantly, by the Securities and Exchange Commission. A Bloomberg News report on Wednesday offered a glimpse into that shadow world of heated competition between investment banks, and said that the SEC had subpoenaed Goldman, Deutsche Bank AG (DB) and Merrill Lynch & Co. (MER) over possible market manipulation claims. The broad sweep — which does not yet target any specific firm — comes as SEC chairman Christopher Cox told legislators on the Senate Banking Committee in testimony yesterday that his agency is looking into possible illegal trading activity as the driver of Bear Stearns’ collapse and Lehman’s recent market woes. And the sweep doesn’t just involve the big names on Wall Street; more than 50 hedge funds have been subpoenaed by the SEC in the investigation, as well. The Wall Street Journal reported on the hedge fund queries Tuesday afternoon, citing sources close to the investigation, and said that among the firms included are Citadel Investment Group LLC and SAC Capital Advisors. A separate Journal report said that former Bear CEO Alan Schwartz and Lehman CEO Richard Fuld have personally phoned Goldman CEO Lloyd Blankfein to ask if there was any truth to the rumors; both men allegedly weren’t accusing Blankfein but wanted the truth, according to the Journal. Goldman’s press representatives have since responded vigorously to even the mere mention that the firm’s traders may have had something to do with the demise of Bear Stearns. “We went out of our way to be supportive of Bear and were rigorous about conducting business as usual,” spokesman Lucas van Praag told the Journal. Naked short selling halted on battered GSEs, Lehman Towards that end — and perhaps giving significantly more credence than would otherwise flow towards an investigation that has yet to really gather any real evidence — the SEC’s Cox said yesterday that the securities regulator was implementing an emergency measure to limit so-called naked short selling in shares of Fannie Mae (FNM), Freddie Mac (FRE) and Lehman. Other companies included in the emergency order are most of the usual Street suspects: UBS AG (UBS), Credit Suisse Group (CS), Deutsche Bank Group AG (DB), JP Morgan Chase & Co. (JPM), Morgan Stanley (MS), and even Bank of America Corp. (BAC), among others. But BofA is the only commercial bank holding company on the SEC’s list. Notably absent from the order were both Wachovia Corp. (WB) and Washington Mutual (WM), two banks that have seen their shares battered in recent weeks by investors as concerns over each bank’s credit exposure has intensified. We can’t help but wonder what the CEOs of both of those two banks are thinking this morning, given that Bank of America got the SEC safety blanket and their firms did not. Disclosure: The author was long FRE and held various put option contracts on WB when this story was originally published; no other positions of relevance, although some firms may be held indirectly via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.