While John McCain may think that Andrew Cuomo would be a fine choice for the next SEC Chairman, the fiery and politically-astute Democratic Attorney General of New York State has no intention of waiting on election returns to get involved in one of the most significant financial crises of our lifetime.

Last week, the Wall Street Journal reported that Mr. Cuomo has begun a “wide ranging investigation into short selling in the financial market.” In the wake of near collapses at Lehman Brothers, Morgan Stanley, and Goldman Sachs, Cuomo’s office has received a number of complaints about short sellers spreading disinformation to ensure profitable transactions.

While short selling is perfectly legal – and available to any investor, big or small – spreading false rumors that drive down stock prices is not. And in a dismal economic environment in which everyone is looking for someone to blame, anyone suspected of fueling further economic turmoil for personal financial gain will be confronting a legal and reputational crisis of epic proportions.

This is not your average financial downturn, and the penalties for those deemed to have caused or illegally profited from it won’t be in for average penalties. The economic hardship born of lost pensions and flattened portfolios – as well as the public outrage surrounding a proposed $700 billion federal government rescue – is all the reason that Cuomo and SEC regulators need to take a no-holds-barred approach.

There is already talk of new regulations and shutting down short selling for the near term (markets in the U.K. have already banned the practice until January 2009). Where wrongdoing has been alleged, heavy fines and jail time will be in the offing, as will accusations of “recession profiteering.” People and brands have been known to come back from the former. The latter represents uncharted territory from which a return may prove impossible.

More than 50 hedge funds have already received subpoenas from the SEC, which is currently conducting its own rumor mongering investigation. To keep those subpoenas from evolving into indictments, companies caught in the crosshairs must first and foremost communicate to authorities and external stakeholders that they will be fully cooperative with any investigation.

That being said, they should also be prepared to respond – through both traditional and digital channels – to allegations of spreading false information the moment they arise to keep any negative story from gaining traction.

Furthermore, they should be proactively talking – preferably through disinterested third parties – about how short selling is a time-tested mechanism by which all investors can make the most of weak economic conditions, while acting within the established legal framework.

And most importantly, to protect their brands, these companies should be at the forefront of promoting strong industry standards that – through credible self-regulation or government mandate – will help prevent false information from reaching the marketplace in the future.

The credit crisis currently gripping the American consciousness will soon be the subject of a very public postmortem. Those that already know they have a bull’s eye on their back should take to the Court of Public Opinion to protect against financial and brand loss in a court of law.