Subject: File No. S7-19-07
From: Michael Shaffer

November 29, 2007

Naked Short Selling: The Scales Are Rigged

Naked Shorting: The practice of selling virtual shares to the open market with the intent of driving the price per share PPS of the underlying equity down so that you may purchase real shares at a cheaper price. You then deliver the shares bought cheaply to the party youd originally sold virtual shares too and pocket the difference.

What a game You sell a retail investor a counterfeit share. Then, if the price starts to climb, you sell more and more to progressively lower prices and fix a downward trend. No free market here. Whats worse, the retail investor cannot play this game we can only be the victim.

Try to go through your broker and naked short 1000 shares of a company (shares that your broker does not own and cannot borrow), much less 2 million of them. This is illegal and your broker will have no part in allowing you to do this. Why then, are fund managers and institutions allowed to victimize the retail investor and American business in this fraudulent scheme to line their pockets at our expense?

Lets look at it another way. What would the SEC do if you or I bought 2 million shares with some virtual money? We could just buy them with fake money above the ask price. If it tried to go down we could continue buying shares at ask or above with virtual money. After several days of the resultant extreme run-up in price we could slowly start selling our shares for the inflated prices and cover the virtual money with us pocketing the difference.

Sounds ludicrous right? What is ludicrous is that the SEC allows this illegal victimization of our economy for the benefit of a privileged few by letting them pad their pockets with the proceeds of virtual shares. Its one thing for a fund to have an advantage due to the billions they have under management. Its entirely another to allow anyone to counterfeit shares on such large scales to steal money from the retail investor.

According to our laws the markets are supposed to be the ultimate arbiter of value and democracy wherein through equal access to information and a level regulatory playing field a companys value is weighed. Well I must tell you, the scales are rigged.

Congress is currently looking at the practice of naked short selling. I encourage you to write your congressional representatives and demand that this type of illegal activity be halted.

http://seekingalpha.com/article/55690-naked-short-selling-the-scales-are-rigged