Subject: File No. 4-652
From: William Michael Cunningham, MBA, MA
Affiliation: Social Investing Advisor

September 24, 2012

The overriding public interest is in fair, efficient, fully functioning markets. Fully functioning securities markets minimize informational asymmetries. Indeed, free, clear, and fully functioning markets operate as price discovery mechanisms via the process of determining the price of an asset in the marketplace through the interactions of informed, rational buyers and sellers.

The SECs regulatory approach facilitates the continuation of informational asymmetries, since security buyers use information on regulatory compliance and legal standing to determine, in part, with whom to conduct business. Without reform, buyers are likely to continue to be at the mercy of powerful, unethical sellers. The informational asymmetries at the center of the market reassert themselves. Market failure, at some point, results.

In this matter, the lack of rational market regulation cost the nation $19.2 trillion, increased the speed with which China will overtake the U.S. in GDP terms and set the stage for the replacement of the US dollar as global reserve currency.

These events tend not to be in the public interest.

Background on the commenter (from:

In September, 1998, Mr. Cunningham opposed the application, approved by the Federal Reserve Board on September 23, 1998, by Travelers Group Inc., New York, New York, to become a bank holding company. In October 1998, in a petition to the United States Court of Appeals (Case Number 98-1459) concerning the Travelers Group Inc./Citicorp merger, Mr. Cunningham cited evidence that growing financial market malfeasance greatly exacerbated risks in financial markets, reducing the safety and soundness of large financial institutions. He went on to note that:

The nature of financial market activities is such that significant dislocations can and do occur quickly, with great force. These dislocations strike across institutional lines. That is, they affect both banks and securities firms. The financial institution regulatory structure is not in place to effectively evaluate these risks, however. Given this, public safety is at risk.

On February 1, 2000, Mr. Cunningham wrote to the office of U.S. Senator Samuel Brownback (R-KS) urging him to encourage pension funds to divest from the Sudan.

On June 15, 2000, Mr. Cunningham testified before the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises (GSEs) of the US Congress. He suggested that the GSEs (Fannie Mae and Freddie Mac) be subject to a Social Audit. A Social Audit is an examination of the performance of an enterprise relative to certain social objectives. It also includes a review of ethical practices. Had they been subject to this audit, certain flaws in their operation, including ethical shortcomings, would have been revealed earlier, in a better market in which to make corrections.

In 2001, William Michael Cunningham, Creative Investment Research, Inc. (CIR) participated in one of the first wide scale home mortgage loan modification projects in the United States. The Minneapolis-based project sought to help 50 families victimized by predatory lending practices. See article, Property Flipping Remediation Yields Investment-grade Security.

On December 22, 2003, we warned regulators that statistical models created by the firm using the Fully Adjusted Return (TM) Methodology signaled the probability of system-wide economic and market failure. This was one of the first warnings issued concerning the coming credit crisis.

In 2005, Mr. Cunningham served as an expert witness in a case against PMI Group, Fairbanks Capital Corporation, Select Portfolio Servicing, US Bank National Association, as Trustee of CSFB ABS Series 2002-HEI, et. al. The case sought to hold Credit Suisse First Boston, Fairbanks/SPS, Moodys and Standard and Poors, US National Bank Association, and other parties legally responsible for supporting and facilitating fraudulent subprime lending market activities. Had this single case been successful, we believe the credit crisis would have been less severe.

On April 11, 2005, Mr. Cunningham testified on behalf of investors before Judge William H. Paley III in the US District Court for the Southern District of New York at a fairness hearing regarding the $1.4 billion dollar Global Research Analyst Settlement. No other investment advisor testified or provided comments at the hearing.

On February 6, 2006, we again warned regulators that statistical models created by the firm using the Fully Adjusted Return (TM) Methodology confirmed that system-wide economic and market failure was a growing possibility. We stated that: Without meaningful reform there is a small, but significant and growing, risk that our economic system will simply cease functioning.

On September 28, 2008, we wrote to Richard Shelby, Ranking Member, Committee on Banking, Housing and Urban Affairs, United States Senate, to comment on the financial crisis rescue plan then under consideration by the US House and the US Senate. In the appendix, we provided a four step plan for dealing with the crisis.

On May 6, 2010, we wrote to the Federal Reserve Board to file a CRA complaint against Goldman Sachs. A lawsuit filed by the US Securities and Exchange Commission against the firm on April 16, 2010 reveals that Goldman engaged in actions that were not consistent with safe and sound banking practices and were specifically designed not to meet the credit needs of communities served by the firm, as required under CRA.