December 12, 2005

Hon. Jonathan Katz
Securities and Exchange Commission
Re: File Number 265-23

I would like to take this moment to congratulate and thank the Advisory Committee on Smaller Public Companies for its important public service and its thoughtful consideration of the dilemma that shareholders of such companies are in when they do not have access to professional, independent research, and the resulting loss in market liquidity.

We are very appreciative that views of the Shareholders Research Alliance (, the FIRST Research Consortium ( and the Investrend Researcy Syndicate ( have been considered and distilled into a proposal that should form the basis of important scrutiny and financial intelligence important to an informed shareholder and investor base.

Of course, I am referring to the Report of the Capital Formation Subcommittee, Section 6, and would respectfully ask that the full committee accept that report, with a proviso that it is urged to further endorse a proposal that research providers referred to in the Section should be those with a transparent, published list of ethics and standards that the investing public may easily and efficiently reference.

For reference, I am also attaching (below) an article in FinancialWire published December 12, 2005, that further describes the confusion that results when investors have no reasonable expectations as to the ethics and standards of "paid-for" providers. While we would certainly endorse the three-year-old industry ethics propogated as the "Standards For Independent Research Providers," we would respectfully hold that in the alternative, transparency is served at least by a provision that providers publish the standards under which they are self-governed.


Gayle Essary
CEO, Investrend Communications, Inc.
Acting Executive Director, Shareholders Research Alliance
Executive Director, FIRST Research Consortium


SEC Nears ‘Paid-For’ Research Endorsement, But May Leave Investors Confused About ‘Standards’

December 12, 2005 (FinancialWire) Even as an advisory committee to the U.S. Securities and Exchange Commission is scheduling a vote Wednesday, December 14, to recommend that the SEC endorse and promote the concept of paid research providers undertaking much-needed analyst coverage for smaller public companies, a virtual phletora of new and sometimes rogue providers have stepped up to deliver research that often substantially miss the mark in transparency and peer standards, sometimes even skirting SEC regulations.

Among recent announced coverages are those for InRob Ltd. (OTCBB: IRBL), by Jeff Helleberg, “lead analyst for Market Advisors,” Sunrise Real Estate Development Group, Inc. (OTCBB: SRRE) by Harbinger Research, Network Installation Corp. (OTCBB: NWKI) by CCRI Financial Group, and Pacific CMA Inc. (AMEX: PAM) by Wall Street Research.

Since none of these appear to have published standards, and none have subscribed to the nascent industry’s “Standards For Independent Research Providers” at, their policies are spotty and inconsistent, making it next to impossible for investors to ferret out conflicts, or develop a standard expectation for paid-for analytics.

Even much-ballyhooed newcomer firms such as the National Research Exchange, and the Independent Research Network, the Nasdaq-Reuters entry, both mentioned along with the Investrend Research Syndicate / Shareholders Research Alliance in previous SEC Guidance, according to Dow Jones’ MarketWatch, have so far failed to sign on to the industry standards designed to protect smaller, less knowledgeable investors.

Without an agreement to abide by the “Standards,” investors have to dig deeply to find, for instance, that the source of InRob’s research is an investor relations firm. It is not only a violation of the “Standards” for an investor relations firm to provide research, due to the inherent conflict and potential for serious bias, but it is also contrary to the “Guidelines” jointly promulgated this past year by the CFA Institute and the National Investor Relations Institute.

The announcement regarding InRob Ltd. also failed to advise investors that Market Advisors was paid $2,500 by an “unnamed” third party, a disclosure that if made by the provider is required by the SEC itself in its Regulation 17(b).

The U.S. Securities and Exchange Commission Regulation 17(b) states:

“It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.”

In a presentation to the annual SEC Forum on Small Business September 19, 2005, it was stated that “many analyst reports are issued by a company instead of by the analyst or research provider, circumventing 17(b).” Delegates voted unanimously to ask the Commission to “add language to 17(b) that would require anyone, including the issuer, publishing or distributing a report or opinion about the company by any party, to disclose if such party(ies) have been compensated by the company or a shareholder, and to otherwise comply with all of the requirements of 17(b).”

The announcement regarding the birds-eye report on Sunrise Real Estate Development Group likewise failed to provide transparency regarding any compensation Sunrise or anyone else may have paid to Harbinger. Harbinger, which has declined to adopt the industry’s “Standards,” has in the past been associated with similar transparency deficiencies, and in an email to FinancialWire regarding a November 8 article about a release from Abazias (OTCBB: ABZS), was quick to respond that it does not believe itself to be responsible if a company issues a report and fails to disclose. This was a position advanced to the CFAI-NIRI by another research firm when it was considering its “Guidelines,” and it was rejected. It was similar rejected by delegates to the SEC Forum in 2004.

“Our disclosure was by the book – you’re free to download the report on the front page of our site and see for yourself,” said the Harbinger email. “If the company didn’t disclose, then that’s fine, but your ‘article’ makes it look like we didn’t.

“You guys had better cut this scare-tactic bulls--t out before you get sued. And if you want to continue to engage in such a strategy, get your f--king facts straight before you go accusing us of any wrongdoing.”

Similarly, the CCRI Financial Group announcement regarding its report about Network Installation Group does not disclose that CCRI “holds a warrant option or stock position in virtually all of its client companies and receives a major portion of its compensation in these various forms of equity.” An investor would have do some digging on the website to find that out.

It also does not go out of its way, nor was there a disclosure in the public announcement, that CCRI is a “one-stop shop” designed to help public companies to “reach its goals” through press releases, securing capital, consulting, overseeing national mailing campaigns, and featuring them through a “broadcast fax” network.

Wall Street Research was paid a fee by Pacific CMA, its announcement stated, but the amount of the fee did not seem to be included, and it too said that its principals may own shares which may be “increased or descreased” at any time.

It is also a violation of the conflict components of the “Standards For Independent Research Providers” for a research provider to own shares in companies under coverage, and that tenet is also echoed in the CFAI-NIRI Standards.

More than 300 FinancialWire articles have appeared since June, 2003, regarding transparency deficiencies or non-existent or questionable SEC Regulation 17(b) disclosures in communications regarding more than 500 public companies.

The “Standards for Independent Research Providers” at do require adopting research providers to immediately correct deficiencies in disclosures in announcements issued on covered companies.

“In an email to FinancialWire), John J. Nester, a spokesperson for the U.S. Securities and Exchange Commission, confirmed that regulators interpret 17(b) to mean that specific compensation information must be contained in press releases, and that a link to a disclosure somewhere else, for example, is a violation of the regulation. He further stated that the compensation disclosure required by the SEC includes ‘amounts and sources in any press release mentioning the company under research coverage’.”

The SEC had previously told FinancialWire) that it intends to enforce its provisions so that investors may have a fully transparent understanding of any potential agenda or lack thereof.

The new CFA Institute and National Investor Relations Institute ‘Analyst / Issuer Guidelines’ requires that analysts:

“Accept only cash for their work and to decline any compensation that is ‘contingent on the content or conclusions of the research or the resulting impact on share price’;

“Disclose the nature and extent of their compensation, along with any relationship they may have with the issuer or an affiliate, their credentials and professional background, and any matters that might reasonably be expected to impair their objectivity; and

“Certify that analysts and recommendations contained in the report represent their true opinion.”

The NIRI-CFAI joint panel now requires public company issuers to insure that reports issued about it for a fee contains the appropriate fee disclosures, as well as require that analysts have proper, disclosed credentials.

The following “Standards for Independent Research Providers,” initially promulgated three years ago were updated May 9, 2005, and are posted at They include the CFAI-NIRI and other ethics programs by reference:

The FIRST Research Consortium, founded in May, 2003 as an Association of Standards-Based Research Providers, recognizing that surveys indicate that three out of every four investors are “most influenced” by an analyst report, that nearly nine out of ten investors believe “legitimate fee-based research is objective and useful,” and that “Enrollment in standards-based research is an important measure of a company’s commitment to transparency and Good Governance,” has promulgated these “Standards for Independent Research Providers,” to serve as an ethical bond between enrolled companies and their shareholders.

  1. Ethical precepts are an essential element of professional independent research, establishing the credibility necessary to understanding and accepting the research provider’s analytical output. Thus:

    1. These Standards incorporate by inference the analyst “Standards and Ethics” of the CFA Institute, the “Issuer / Analyst Guidelines” jointly adopted by the CFA Institute and National Investor Relations Institute, and the appropriate language in NASD Rule 2711, Regulation AC, as well as other recognized industry guides; and

    2. Once a company has enrolled for coverage, the responsibility of the fee-based independent research provider and its assigned analyst(s) is to the public and to a company’s shareholders and investors, and not to any company or to management.

  2. Qualified analysts are fundamental to the production of valid analytics. Thus:

    1. Only analysts credentialed by professional peer-reviewed organizations, or otherwise qualified by several years of supervised or supervisory research reporting for recognized financial institutions, and only adherents to the “Standards and Ethics” of the CFA Institute should be allowed to produce research published by fee-based independent research providers;

    2. The names and credentials of analysts producing the research should be included in reports published by independent research providers, along with an attestment thereto that the analyst’s work product is purely his or her own without influence or interference; and

    3. Only qualified analysts should determine what to publish and when to publish. Independent research providers are obligated to distribute the qualified analyst’s report upon publication.

  3. Transparency is vital to the publication and dissemination of investment data and fundamental analysis, and is an ethical responsibility of the fee-based independent research provider. Thus:

    1. Fee-based independent research providers should disclose all amounts of compensation received or to be received for the preparation, publication and dissemination of research, research summaries or other announcements not only in the reports but also in whatever form such material is disseminated;

    2. All such communications should include the names and identities of the payers, and if a third-party or third-parties, their names and identities, as well as their relationship(s) to the issuer;

    3. All such communications should also meet both the letter and the spirit of U.S. Securities and Exchange Commission Regulation 17(b);

    4. If communications come from the issuer, it is the responsibility of the provider to advise the issuer that its reports or summaries may not be issued without the inclusion of these full disclosures, and if the provider is ignored, it is the responsibility of the provider to so inform the public; and further,

    5. Ratings and targets should not be issued as recommendations or stock price predictors, and should not be issued or published in the absence of a full, publicly-accessible report. Where a report has been issued previous to a public announcement, the research provider has a responsibility to notice the investing public as to the date the report was previously issued, as well as who received the report.

  4. Conflicts are inimical to credible professional research. Shareholders and investors need to feel comfortable that research is produced and published in an environment that is as free of analyst influences as possible. Thus:

    1. Analysts should not own a stake in their ratings. Neither they nor principals of independent research providers should own or trade any form of equities of companies under coverage;

    2. Analysts should be paid for their initial reports in advance, or if salaried, the analysts’ incomes should not be dependent on the outcome of their reports; and

    3. Independent research should not be under the control of an investment banking department, investor relations or promotional firm or department or executive, and should not be produced or published under the auspices of an investment bank, investor relations or promotional firm or brokerage.

  5. The Mission of the Standards-based independent research provider is to provide the investing public with an ethical, qualified, transparent and conflict-lessened fundamental analysis of public companies and their equities. Thus:

    1. Adopters of these “Standards for Independent Research Providers” agree to review by the FIRST Research Consortium Independent Research Standards Task Force, and agree that the Consortium may, at its sole determination, suspend, terminate or expel a Provider found to be in violation of these Standards.

Investrend’s Director of Corporate Development James A. “Drew” Connolly serves on the 21-member SEC Advisory Committee. Gayle Essary, CEO of Investrend Communications, Inc., testified before the committee to advocate support for research produced by independent research providers that adhere to a set of written ethical standards, including full transparency.

The official proposed recommendations call for such “full disclosure.”

The committee said that “the trading markets for smaller public companies are assisted in material measure by the dissemination of quality investment research,” adding that “coverage for companies in general, and for smaller public companies, in particular, has declined dramatically over the years as regulatory and market pressures have led the industry to dramatic reductions in securities research budgets.

“New business models to create published research have filled some of the void, but they rely on corporate payments. These types of organizations should be permitted to supply research under SEC rules and settlement agreements.”

The full proposal is at

Wednesday’s meeting is to be held at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C., in Multi-Purpose Room L006, beginning at 9:00 a.m. The public is welcome to attend the meeting, which will be audio webcast on the Commission’s website at

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Gayle Essary, CEO
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