From: Asensio & Company, Inc. []
Sent: December 17, 2003
Subject: File No. S7-23-03

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

Re: Comment letter on proposed Regulation SHO File No. S7-23-03

Dear Mr. Katz:

This letter serves to comment on the proposed Regulation SHO that would, among other things, require short sellers in all equity securities to locate securities to borrow before selling and would impose strict delivery requirements on securities where many sellers have failed to deliver the securities. We believe that the proposed rules incorporated in Regulation SHO are harmful to investors and should not be implemented. In fact, we are of the opinion that all plus tick and borrowing regulations and restrictions regarding short sales should be lifted.

Wall Street earns its living by persuading Americans to take risks with their savings. This work requires balance between conservatism and speculation; between personal and societal interests. However, company managements, stock brokers and analysts, even Wall Street's captive regulators, have large incentives to promote stocks to Americans. The media, with no independent knowledge, relies on these promotional elements to source story material. As a result, investors are left to fend against these powerful forces entirely by themselves.

We are one of the nation's most experienced and largest short sellers. Our work has proven that short sale plus tick and borrow rules cause market inefficiencies. The people who lose are every working and saving American. The stability and strength of every American's job and savings is directly and materially harmed by the misallocation of the nation's capital resources that results from market inefficiency.

Existing rules limit short sales on down ticks and require short sellers to borrow stock before they sell. These rules restrict the freedom and amount of capital short sellers can allocate. No such restrictions exist on stock purchases. Also, short sellers are not considered "investors" under federal securities laws and as a result have no enforceable standing to protect themselves against companies engaged in fraudulent activities that cause the public harm. These rules and judicial prejudices already exist in the markets. They are the reason that Wall Street's short selling community is under-capitalized and under staffed. As a result, Wall Street's stock brokerage and underwriting constituents are unopposed both in promoting stocks to America and in lobbying Congress.

For over ten years we have specialized in identifying stocks that Wall Street has over-promoted. We have been productively involved with many of the major recent corporate scandals. We uncovered the Michael Schoenberg/Dreyfus scandal that found improper trading by Schonberg in the Dreyfus funds he managed. We uncovered the Winstar Communications, Inc. (bankrupt and de-listed) accounting scandal and the involvement of the Salomon Smith Barney analyst Jack Grubman. We were the first to report on Arthur Andersen's fraudulent WorldCom audit. We have advised the U.S. Congress in conducting an investigation of the American Stock Exchange ("AMEX") that led to a United States General Accounting Office ("GAO") report on the problems we identified at the AMEX and the resignation of the AMEX's president and two members of its Board and the permanent bar of a major AMEX specialist. This provides us with a great deal of experience in short selling media coverage and regulatory treatment.

The stock promotion trade needs no further government protection. Numerous individuals, who are in positions of authority or influence throughout U.S. society including government and the media, serve as directors and/or large shareholders of highly questionable and potentially fraudulent companies. These individuals may not be direct participants in the questionable activity, but the companies use these individuals' notoriety to increase a questionable companies' legitimacy. For example, Jack Anderson, a Pulitzer Prize winner, is a director and owns 100,000 shares of H-Quotient, Inc. (OTC: HQNT.OB, $0.72) a highly questionable penny-stock company. William Seidman currently a commentator for CNBC and former chairman of the Resolution Trust Company serves as a director of LML Payment Systems, Inc. (NASDAQ: LMLP, $5.35) a failed financial payment processing company. U.S. Senator George Allen of Virginia served as a director of Xybernaut Corporation (NASDAQ: XYBR, $1.67) a failed developer of "wearable computer technology." Finally, we were the first to report William Webster's highly questionable involvement in U.S. Technologies, Inc. (OTC: USXX.PK, $0.0001). Although the general press did not sufficiently understand the significance of U.S. Technologies' questionable dealings, the incident ultimately led to former SEC Chairman Pitt's resignation. It is interesting to note that the Wall Street Journal defends Mr. Webster's role in U.S. Technologies. All of this illustrates the need for the SEC to allow free competition between stock promoters and short sellers which we call investor advocates.

We believe that the following are essential elements in any plan to improve the freedom and fairness of U.S. capital markets:

1) Decentralize the SEC's Enforcement authority away from its politically-appointed Washington, D.C. based Commissioners to the Chief Enforcement Officer at its local branches. Currently the only way an enforcement action can be commenced by the SEC is with the formal approval of the SEC's Commissioners. In fact, SEC investigators can not even commence a formal investigation without formal Commission approval. These commissioners are politically appointed. It is commonplace for the SEC to use its wholly unsupervised and uncontrolled prosecutorial discretion to cause companies that should be investigated and enforcement that should be initiated to be ignored.

2) Eliminate the regulatory bias against investors who oppose Wall Street's unreasonable stock schemes (these include the up-tick restrictions, the stock borrowing requirement and the exclusion of short sellers from the protections granted to other investors under the anti-fraud provisions of securities laws). This would allow for short sellers to sell the stock short in the same way as any buyer of a stock. In addition, including short-sellers under the anti-fraud provisions of securities laws would allow short sellers legal remedies to fight fraudulent stock promotions in the same way holders of stock have legal remedies to protect themselves from companies engaged in fraudulent activity.

3) Establish listing requirements that prevent public companies from filing speech-based lawsuits against analysts, media or other public commentators who criticize its management or have opposing opinions concerning the value of its publicly traded securities. Publicly traded companies should be subject to public scrutiny. It is wrong for public companies who obtain money from the public and who promote themselves to the public use the public's own money to limit public speech.

Certain amounts of fair speculation are symbols of confidence and robust economic activity. However, society is not well served when unbridled speculation is allowed to funnel savings towards non-productive areas with questionable value. This benefits too few, too greatly and too wrongly. This is what short-sellers challenge. Not the system but those who abuse the system. There is great value and potential in America's economy. Despite being unwisely and prejudicially hampered by out-dated restrictions, short-sellers are the only participants in our free markets that have a vested interest in opposing excessive stock promotions. America's capital deserves the protection that can only be afforded by well-capitalized short sellers with the freedoms and resources to challenge unreasonable and excessive stock promotions.


Manuel P. Asensio
Chairman, President and
Chief Executive Officer