U.S. regulators are investigating whether traders spread false rumors about Lehman Brothers Holdings Inc.'s financial soundness to profit from a drop in the company's share price, two people familiar with the probe said.

The Securities and Exchange Commission has expanded an inquiry into whether investors including hedge funds tried to manipulate Bear Stearns Cos. stock to also review a decline in Lehman's shares, said the people, who declined to be identified because the inquiry isn't public. The Lehman probe examines short sales of the company's stock, one of the people said.

Lehman, the fourth-largest U.S. securities firm, has tumbled 26 percent this month amid speculation that Wall Street firms can't fund their operations. A run on Bear Stearns two weeks ago forced the fifth-largest U.S. securities firm to sell itself to JPMorgan Chase & Co. at a fraction of its market value with financial support from the Federal Reserve.

``It makes a lot of sense to me to look at Lehman if you see the same movements,'' said Tamar Frankel, a law professor at Boston University. ``If someone is spreading baseless or misleading rumors in order to profit from the impact on the market, that's really a threat to the system.''

Lehman spokesman Brian Finnegan declined to comment. John Nester, a spokesman for the Washington-based SEC, said the agency doesn't confirm or comment about ongoing investigations.

Probe Confirmed

Two people familiar with the Bear Stearns probe confirmed its existence March 18. The investigation looks at short sales and trading in put options, one of the people said at the time.

In a statement that day, the SEC said it may look for signs of market manipulation or insider trading when examining incidents such as the near collapse of Bear Stearns. Such inquiries may focus on ``the dissemination of false or misleading information to investors by companies or other market participants,'' the agency said.

Lehman stock plunged March 17, falling as much as 48 percent on speculation it would face a cash shortage similar to the one at Bear Stearns. The shares recouped all their loss and then some by the next day's close of trading, after the firm announced first-quarter earnings and its cash position.

The stock slipped 84 cents to $37.87 in composite trading on the New York Stock Exchange today.

On March 18, Lehman said it had $30 billion of cash and $64 billion in assets that could easily be turned into cash. The stockpile of cash, money-market instruments, corporate bonds and equities available for sale is the largest among the five biggest U.S. brokers, according to Sanford C. Bernstein & Co. analyst Brad Hintz.