Could Lehman (LEH) trap Short Sellers?

After Bear Stearns the next player picked to exit the game was Lehman Brothers Holding Inc (NYSE:LEH).  The Street is loving the chatter about LEH going private today sending shares from $12 to just under $14 this morning.  But is their enough steam left at Lehman to justify a "Buy" rating?

It's a dangerous game to pick up shares today, but with the share price so beat up, you have to take a look.

New York Post reports that Lehman Brothers (LEH) CEO Dick Fuld is seriously mulling a way to take itself private and out of the public eye.

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According to sources, NYP says talks internally centering on privatizing LEH have gotten very serious consideration after a blistering onslaught of rumors and questions about the firm's solvency have caused the venerable bond shop to shed more than 79% this year. S&P maintains hold.

According to NotableCalls today:

WSJ reports the U.S. Securities and Exchange Commission (SEC) has sent subpoenas to more than 50 hedge-fund advisers as it investigates whether individuals spread false rumours to manipulate shares in two Wall Street firms. The subpoenas, sent as recently as Monday, are seeking trading and communications data related to short-selling and options trading in Bear Stearns Cos or Lehman Brothers Holdings Inc (LEH), the person told the paper. Rumours have been blamed for the collapse of investment bank Bear Stearns and for the 40 percent slide in Lehman shares this month.

Notable's take is the following:
The actions taken by the SEC create a situation where the short sellers are forced out of the game. If they stick around pressing their bets & talking about it loudly (a.k.a spreading rumours) they risk getting caught. The good people at the SEC will show little mercy. So they are likely to fold and step aside. That takes the pressure off the stock.

Looks to me like a good risk/reward trade

Fellow Masters, we advise extreme caution getting bullish on Lehman but the 12%+ movement in share price is something to note, even if it is only temporary.

Other Sources:

Speculation Builds on Lehman Going Private at CNBC(Tue 11:05am)