The Securities and Exchange Commission has stepped up its efforts to curb and prosecute what its chairman, Christopher Cox, has called the “witches brew” of damaging market rumors and short selling. After issuing an emergency order yesterday that limits speculators from selling short the stock of certain major financial institutions, including investment banks and the troubled mortgage dealers Fannie Mae and Freddie Mac, the SEC has subpoenaed several prominent hedge funds and investment banks, demanding information on emails and trading records, Bloomberg News reported today.

RELATED: U.S. To Curb Some Naked Short Selling | Christopher Cox’s Shorts.

The subpoenas are part of an investigation into whether criminal rumor mongering played a role in the near collapse of Bear Stearns and the precipitous fall of Lehman Brothers’s share price. Short sellers make money by borrowing stock at a high price, then returning it at a low price, and pocketing the difference. This process creates a financial incentive for a person shorting a company’s stock to spread damaging information about that company. If a short seller spreads information he or she knows is false, he has broken the law. The SEC is investigating whether this took place at Lehman Brothers and Bear Stearns.

The SEC’s subpoenas are targeted at several prominent investment banks, including Goldman Sachs, Deutsche Bank, and Merrill Lynch, according to Bloomberg. Meanwhile, the emergency order issued yesterday is designed largely to protect Freddie Mac and Fannie Mae from the same practice the SEC is investigating.

Though the emergency measure won’t go into effect until July 21, it appears to have made an impact. Freddie Mac’s stock price rebounded 12% to $5.91 on the New York Stock Exchange as of 9:37 a.m, while the value of Fannie Mae increased 11%, Bloomberg News reported.