DURHAM JONES & PINEGAR
111 East Broadway Suite 900
Salt Lake City, Utah 84111

June 7, 2000

Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549-0609

Attention: Jonathan G. Katz, Secretary

Re: Exchange Act Release No. 34-42037 File No. S7-24-99

Ladies and Gentlemen:

On behalf of certain of our clients whose shares are quoted on the Nasdaq SmallCap Stock Market or traded in the over the counter market on the "pink sheets" or on the Electronic Bulletin Board ("OTCBB"), we appreciate the opportunity to comment on Release No. 34-42037, the Commission's concept release on short sales. We are writing in support of extending short sale regulation to the markets mentioned above. We recognize that the comment period ended in December 1999; however, we have had recent requests from our clients to express the views contained in this letter despite the fact that the formal comment period has ended.

Although, as the Staff points out in the Release, the national securities exchanges today have high levels of transparency and regulatory surveillance, and that this transparency helps market participants observe and evaluate market price movements, thereby limiting the ability of short sales to unevenly affect prices, some of the same developments that have contributed to these results for the national exchanges have served to increase the visibility and the risk associated with less regulated and less transparent markets where small- and micro-cap stocks are traded. We believe that these markets would benefit (and investors and issuers would be better protected) if the rules governing short selling were extended to non-exchange listed securities.

We agree with the Commission and others who have submitted comments on the Release that non-manipulative short selling is important to the creation of a meaningful market and can serve a legitimate market making function and help to provide valuable liquidity to the over-the-counter markets. We also agree with the Commission that short selling has become an important part of sophisticated investment models and instruments and that undue restrictions in the rule may inject unnecessary inefficiencies into these trading strategies. However, based on the experience of our clients and other issuers, we believe that there continues to be much manipulation and abuse evidenced by the practice of short selling on the part of some entities, particularly involving the stocks of many smallcap and micro-cap issuers. Our clients believe that this abuse and manipulation has been permitted to increase in part because there has been little or no regulation of the practice in these markets.

In our view, the stated objectives of the Commission's regulation of short selling are applicable to non-exchange listed securities. In its Release No. 34-13091 (December 21, 1976), the Commission expressed the objectives of its short selling regulations to be to:

(i Allow relatively unrestricted short selling in an advancing market;

(iii Prevent short sellers from accelerating a declining market by exhausting all remaining bids at one price level, causing successively lower prices to be established by long sellers.

These objectives should apply to non-exchange listed securities, which are just as susceptible (some would argue that they are more so) to the abuses commonly resulting from short selling as exchange-listed securities. The present practice of exempting non-exchange listed securities from the short selling regulations provides the unscrupulous traders with an open license to manipulate these smallcap stocks.

Our clients from time to time experience a variety of problems associated with the unrestrained and unreported short selling of their non-exchange listed securities. We have reason to believe that their experience is not dissimilar to the experiences of many other smallcap companies. Among other things, these companies complain that in recent years the aggregate short position of their securities has increased significantly. In some cases, based on information the issuers can obtain from the OTCBB and others, the short position in their securities may at any given time exceed 25-30% (in some cases even more) of their issued and outstanding shares, representing an even greater percentage of the available float of those securities. In many cases the short position increases despite the fact that these issuers are advised that their securities may not be borrowed. The threat or the existence of the large short position has also increased notwithstanding the announcement by many issuers of positive corporate developments. Often these companies are the victims of active Internet chat groups and other publications circulating false or misleading stories having a negative impact on the price of their securities, notwithstanding positive news or developments in the issuer. In some cases these false and misleading reports about the issuer were later shown to have been circulated by sources allied with short-selling interests. These issuers have been victims of various short-selling, capping and buy-high-sell-low strategies, frequently with the low of the day reported in the last half hour of trading.

These practices have had serious negative effects for these issuers. Among other things, they have witnessed an over-inflated supply of shares in the market, depreciating the value of the shares actually held by shareholders. The issuers' management has been unable to accurately determine the size of the short position in their securities or identify those persons, whether they are reported market makers or others, holding significant short positions. The issuers cannot accurately assess the liquidity of their securities, with many trades apparently effected between short sellers or market makers rather than actual investors. These issuers have also found that their real access to capital that is one of the objectives of the public market has been greatly diminished. Extensive short selling can actually result in an artificially low price for thinly traded securities, followed by an artificial increase in price when the short positions are covered.

At a minimum, we recommend that the Commission extend reporting and monitoring requirements and impose an affirmative duty on short sellers to determine that the securities are available for borrowing prior to selling short. Market makers should not be exempt from the requirement to immediately report short sales and disclose all short positions. Under the current system, an issuer can only guess as to the size of the short position in its securities and has no effective way of identifying the extent of any particular seller's portion of the aggregate short position. Securities used for selling short should not be immediately available for a similar transaction. We recommend that the regulations impose volume limits for aggregate short sales, regulated both by limits on the time short positions may remain open and on thesize of short positions on related accounts. In addition, we suggest that volume limits be allocated among short-selling participants.

We commend the Commission for examining this issue and recommend extending some short selling regulations to non-exchange listed securities. We hope that the Commission will find our comments helpful. Please call me at (801) 415-3000 to discuss further any aspect of these comments.

Respectfully submitted,

Durham Jones & Pinegar

Kevin R. Pinegar