July 14 (Bloomberg) -- Lehman Brothers Holdings Inc., the securities firm that tumbled 81 percent in New York trading this year, should go private to end rumor-mongering about its shares, Fox-Pitt Kelton Cochran Caronia Waller analyst David Trone said.

``Lehman's best course of action would be a `going private' transaction, since it is the public equity markets that are the threat to the company's survival,'' Trone wrote in a note today. ``Without a public stock, there would be no shorting, thus no motivation for rumor-mongering, thus no source to spook the counterparties and creditors.''

Lehman, which has a market capitalization of $8.6 billion, should be bought for 25 percent more than its shares are trading, Trone said. The shares fell as much as 15 percent today, sliding for a fourth day, amid concern bank failures will spread. The shares lost about 37 percent of their market value last week on speculation mortgage buyers Freddie Mac and Fannie Mae might fail. Lehman spokesman Mark Lane declined to comment.

``This would eliminate the disconnect between Lehman's true financial condition and current stock price by eliminating the run-on-the-bank discount in the process of the buyout,'' Trone wrote. ``This value-release would be big enough to avoid the need for leverage.''

Lehman employees own about $2.5 billion of the current market capitalization, according to Trone. The company could be taken private through a buyout consortium, sovereign wealth funds or other purchasers, he said.

Enough Capital

Lehman has enough capital to survive, Morgan Stanley analyst Patrick Pinschmidt wrote in a note today.

``While we recognize it is difficult to focus on fundamentals in the current market backdrop, we believe Lehman has both the capital and liquidity to weather near-term headwinds,'' Pinschmidt wrote. He retained his ``overweight'' rating on the shares.

``A return to profitability -- in the context of a healing credit market backdrop -- should be sufficient to drive valuation closer to book value,'' he added.

Lehman fell $2.03, or 14 percent, to $12.40 at 4:15 p.m. in New York Stock Exchange composite trading, the lowest in almost nine years.

The Securities and Exchange Commission's inspections unit, the Financial Industry Regulatory Authority and the New York Stock Exchange's regulatory arm are checking whether firms have controls to prevent the intentional spread of misinformation, the SEC said in a statement yesterday. The regulators will also look into whether employees have been adequately trained.

Regulators are already hunting for traders who may have sought to profit from the credit crisis by stoking panic about companies including Bear Stearns Cos., which collapsed in March amid speculation clients were pulling business.

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net.

Last Updated: July 14, 2008 16:23 EDT