Regulators have questioned former Lehman Brothers Holdings executives over their marketing of auction-rate securities, the Wall Street Journal reported, citing people with knowledge of the matter.

Prosecutors from the U.S. attorney's office in Brooklyn and Securities and Exchange Commission lawyers have interviewed several former Lehman employees about the securities, to try to determine whether these people defrauded customers, the newspaper said.

The securities were billed as safe, cash-like instruments bought and sold in weekly or monthly auctions. Big banks stopped supporting these auctions in early 2008 as investor demand for the debt dried up, part of a wider slump in financial markets.

The regulators want to know if the Lehman executives were aware the market was in trouble and if they sold their own holdings of the securities, the WSJ said, citing people familiar with the matter.

(Reporting by Elinor Comlay; Editing by Gary Hill)

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