He will assist the state in its investigation of naked short selling — in particular, negative rumors reported by The Colonial BancGroup Inc. of Montgomery, Ala., about the short selling of its stock.

Mr. Pitt will continue to serve as chief executive of Kalorama Partners LLC, a Washington consulting firm.

“He will be coming in [to Alabama] on a regular basis,” said Joseph Borg, director of the Alabama Securities Commission in Montgomery.

“I went to our [attorney general] and said, 'I want Harvey; he knows his stuff,'” Mr. Borg said.

With the appointment as deputy attorney general for Alabama, “we can share all our investigative materials with him, and it's protected” legally, Mr. Borg said.

Mr. Borg said Colonial BancGroup had approached him about false rumors regarding short selling of its stock.

“We want to see where these rumors start,” he said.

Naked short selling is selling short without borrowing the stock to be sold, and failing to deliver it.

In Alabama, spreading false information about a financial institution can be a criminal offense, Mr. Borg said.

He added that he has contacted other firms known to be subject to naked shorting, but most don't want it known that they are the targets of short sellers.