Securities and Exchange Commission:
450 Fifth Street, NW
Washington, D.C. 20549-0609

Dear Mr. Katz,

Re: File # S7-23-03

The wording of the proposed Regulation SHO is very sketchy as to how you at the SEC intend to address the preexisting naked short positions that you uncover, and that everyone knows exist, while creating the "restricted lists" of corporations that qualify for the Rule 11830 "Mandatory Close-Out for Short Sales" protection. This protection is afforded to U.S. corporations with greater than 10,000 shares and one-half of 1% of the issued number of shares currently with "fails to deliver" or outstanding loans masking these "fails" in existence. Collectively these two categories are referred to as "open positions".

From an American investor's point of view there is obviously only one definitive solution in sight and that is to order the buy-in of these nonexistent entities sold to U.S. investors for their cash. Your failure to note this obvious solution in the text of the proposed Regulation SHO causes the American investors tremendous concern. If for some inexplicable reason you at the SEC do not immediately force the buy-in of these fraudulent transactions as you are not only empowered to do but also mandated to do as per the 1934 Act then there are over one hundred "tasks" that should be looked after immediately. A very small sampling of these include:

1) Refer these U.S. victim corporations and their shareholders to the U.S. Federal Regulator that does oversee the 1934 Act if our law books are inaccurate and you are not the agency with this power and mandate. Perhaps the Department of Labor that oversees the 1974 ERISA Act could at least address the crimes being committed regarding the shares in qualified retirement plans that so many U.S. investors can't seem to get the delivery of after making strong demands for. Remember that you are a branch of the Federal Government of the United States that is the sole possessor of this irrefutable evidence of a perhaps multi-trillion dollar fraud perpetrated on U.S. investors which has resulted in a massive decimation of the integrity of the securities markets. Remember also that your mission statement is, "The primary mission of the U.S. Securities and Exchange Commission (SEC) is to protect investors and maintain the integrity of the securities markets". American investors in micro cap securities are not asking you to follow up on your secondary or tertiary missions. They are not some kind of special interest group looking for handouts. They just want you to concentrate on your primary mission in this regard and to do what Congress ordered you to do.

2) Find out a way to warn PROSPECTIVE investors that are about to buy shares of these victim corporations with open positions in excess of the Rule 11830 parameters about the "Damaged goods" nature of these U.S. corporations. These investors are going to be receiving a much lesser percentage equity position "than advertised" and it is going to be of a much more damaged U.S. corporation "than advertised" because of the massive dilution created by the naked short sales. You know of the impending ambush, now warn these people of your findings. These "restricted lists" are obviously going to have to become public. The quantity of these "open positions" detected should be made public to allow these PROSPECTIVE investors to assess the degree to which the victim corporation has been damaged i.e. just what percentage of the total number of shares issued and outstanding, both real and counterfeit, his purchase of, let's say, 100,000 shares will amount to. Also please warn PROSPECTIVE investors that just because an issuers "shares/counterfeit electronic book entries" are "trading" at 10% of book value doesn't make it a safe investment as 2% of book value might be around the corner after a few million more nonexistent entities, counterfeit "shares" if you will, are sold.

3) Immediately turn over this irrefutable evidence of these massive ongoing frauds to the Department of Justice and the proper States Attorneys General as per the law. Let them know the identity of the clearing firms and broker/dealers involved. Let the Ontario Securities Commission and the British Columbia Securities Commission know the identity of the Canadian brokerage firms involved.

4) Contact the victim companies and let them know of your findings and route them to the proper authorities to address these crimes. Warn them that the integrity of all past dividend distributions, rights offerings, shareholder votes, etc. have been severely compromised and perhaps should be immediately redressed. The intentional stuffing of ballot boxes via the sale of "counterfeit" voting rights to coconspirators is a very easy way to accomplish a hostile tender offer or to take over a victim company that just wouldn't die on cue after a "bear raid".

5) Contact the shareholders of the victim companies and inform them that your research has identified them as a victim to, at a minimum, securities fraud and make them aware of any rights they are entitled to. Warn the shareholders that they may have difficulty receiving any share certificates that they demand the delivery of. Pay particular attention to shareholders that held shares in "street name" during any dividend distribution.

6) Please contact the Congressional overseers of the SEC and make them aware of the financial fraud that you have uncovered and perhaps offer them an estimation of the damage to U.S. investors already incurred historically and currently "on the books".

7) Since the link between offshore naked short selling activity and the money laundering of funds destined for terrorist activity has recently become delineated, please follow the parameters set up in the USA Patriot Act to report this activity to the Office of Homeland Security.

8) Please contact the auditors of these victim companies and ask them to re-file audited financials with a corrected Shareholder Equity portion of the balance sheet as their current efforts are obviously misleading to any prospective investor. Please also contact the Federal Accounting Standards Board (FASB) as the GAAP standards have obviously not been met. The FASB will have to somehow figure out how to properly account for something as nebulous as a "counterfeit electronic book entry" should the SEC fail to order the buy-in of these illegal entities. This ought to be interesting!

9) Please contact the Transfer Agents of these issuers and have them re-file all of their regulatory filings, which are obviously in error. If the arithmetical sum of the legitimate shares plus the "counterfeit" shares exceeds the authorized number of shares as per the Articles of Incorporation, then the Secretary of States' office in the state of domicile should be contacted and brought up to speed as Revised State Statutes might have to be amended to prevent the issuing company from being liable for these transgressions. The Federal Rules and Regulations addressing the activities of Transfer Agents will obviously have to be rewritten to accommodate the existence of a plethora of counterfeit electronic book entries within the system.

10) Please contact the Secretary of State's offices in the state of domicile of the corporate issuers that have been victimized, and have them change their records as to the number of shares issued and outstanding and the reasons for any excesses over the legal number of authorized shares.

11) Please contact the brokerage firms hosting the shares of these issuers and warn them that there are significant discrepancies in the share counts of these issuers, the shareholders of which they owe a fiduciary duty. Have them warn their clients owning shares of issuers on these "restricted lists" that their monthly brokerage statements may have been seriously flawed as well as their purchase confirmations that arrived in the U.S. mail.

12) Please contact the FBI and the U.S. Attorneys, we suggest in New York, and tell them of your findings and the possible RICO implications therein.

13) Please contact the States Securities Regulators of each state of residence of any shareholder of an issuer on these "restricted lists".

14) Please contact the IRS and inform them of what you have detected. Ask them to contact the shareholders involved to make them aware of the tax write offs available to investors that are victims of fraud. The IRS would probably be very interested in any taxes evaded in these schemes.

15) Please advise the victim corporations that they should contact their creditors to warn them that the facts regarding share capitalization that they may have relied upon before loaning any money were seriously flawed and that these financings may have to be legally "undone" due to certain state banking statutes. Inform these issuers that any votes regarding tender offers may have to be re-taken and the resultant mergers and acquisitions may have to be legally "undone".

16) Please warn the DTCC that the terms of Addendum C to their rules and regulations JUST MIGHT BE being abused by those wishing ill upon U.S. micro cap investors.

17) The New York State Banking Commission might be given a "heads up" as to your findings so that their monitoring of the DTCC's activities might become more efficient. After all, the DTCC was set up as a Limited Purpose Trust Company under the banking laws of the State of New York.

18) The Congressional legislators might be notified that a massive re-write of the 1934 Securities Exchange Act might be in order since all of these counterfeit electronic book entries in the system totally undermine this body of work. Apparently Congress at the time did not foresee or address the possibility that massive amounts of counterfeit electronic book entries within the system would nullify their efforts to hold certain Wall Street "professionals" accountable for their actions. Hundreds and hundreds of rules and regulations will need to be modified to accommodate counterfeit electronic book entries allowed to coexist in an undetected fashion next to legitimate shares.

19) Also warn the shareholders of these victim corporations that the officers and directors of their invested in company often feel "handcuffed" by the massive dilution caused by these counterfeit shares. Selling legitimate shares at artificially low levels becomes astronomically dilutive yet the monthly "burn rate" must be paid. Warn them that the weight of all of the "counterfeit" shares in the system on the shoulders of the victim corporation often proves to be too much for a development stage company in its OTCBB or Pink Sheet "incubator".

20) The share certificates of issuers on these "restricted lists" should definitely have a warning legend that will differentiate it from the shares of other issuers not needing the protection of the Rule 11830 parameters.

21) The trading symbols of restricted issues should perhaps have an extra identifying marker/modifier, perhaps a 5th digit, to call special attention to these issues, as history has proven quite clearly that the long term prognosis for issuers with large naked short positions UNADDRESSED BY THE REULATORS is "guarded" at best and usually TERMINAL.

22) All Rule 13 (d) and 16 (a) filings over the last 10 years should be reviewed to ascertain whether or not these "affiliates" really do own either 5 or 10% of a victim company's shares since the rule doesn't address whether the government is referring to the ownership of legitimate shares, counterfeit electronic book entries, or the arithmetical sum of the two. Any fines levied for 13 (d) or 16 (a) violations would obviously have to be reviewed and those fined would have to be contacted regarding their rights to appeal those fines.


You can definitively address the problem once and for all as mandated by the '34 Exchange Act via buy-ins and then level up the playing field for the future so that the American micro cap investors never have to go through this again!

On the front page of the 12/24/03 edition of the Wall Street Journal, was an article entitled, "Missed chances: Behind SEC's Failings: Caution, Tight Budget, '90s Exuberance". In the article SEC Chairman Donaldson was quoted as saying, "For too long the commission has found itself in a position of reacting to market problems rather than anticipating them".

The WSJ reporters Mark Maremont and Deborah Solomon, ask the question, "Most importantly, why did the SEC fail to spot almost every major financial scandal in recent years-from improper fund trading to research analysts' conflicts of interest to favoritism in doling out coveted shares in initial public offerings?" The answer suggested was that the SEC acted as a timid, poorly managed bureaucracy at a time when frauds were becoming more complex. Congressional "stinginess" was also cited as contributory.

The authors continue, "Yet even SEC officials acknowledge the agency is due a good measure of criticism. Earlier this year, SEC staffers and McKinsey and Co. Consultants produced a 270-page catalog of the agency's weaknesses, commissioned by ex-chairman Harvey Pitt. The report, whose findings haven't been publicly disclosed, depicts an overly cautious agency hampered by bureaucratic inefficiencies and problems in monitoring a fast-changing industry. Chief among the flaws is a "reactive" culture that often fails to identify danger ahead of time, leaving the agency to respond after others expose problems. As the authors (of the study) put it, the SEC lacks the institutional structure and experience needed to systematically identify risks."

The article continues, "The SEC doesn't like to set hard and fast rules," says Roy Weitz, founder of which tracks the fund industry. "They feel that it's not fair to the industry and they don't want to go out on a limb. THE ISSUES GET RAISED.......AND FLOAT AROUND FOREVER."

The article goes on, "The SEC is taking steps to fix other shortcomings. It says it is emphasizing real-time enforcement in major cases instead of dragging them out for years, a change Mr. Pitt pushed. It is establishing an Office of Risk Assessment to try to spot boulders in the rapids ahead. Newly hired enforcement attorneys will be dispatched with examiners to learn more about the industries they police. And a new staff squad will review all examination reports that raise enforcement issues to see why the issues weren't pursued, agent officials say. Too little effort had been put into "attempts to identify current risks and prioritize those risks", according to Mr. Donaldson. He wants examiners to be "more focused in on where the real problems are, as opposed to a checklist approach in playing 'gotcha' with inspections."

I feel that this article hit the nail on the head as it pertains to the SEC's historical approach to the massive fraud referred to as "naked short selling". Working at the SEC for relatively meager wages is often seen as a launching platform for a more lucrative career on Wall Street. The mantra for many employees naturally becomes "Don't ruffle any of the feathers of possible future employers". My message to the SEC would be to quit worrying about what "the industry" might think. "The industry" is beating the "you know what" out of the micro cap investors. You are the regulators of "the industry". YOU ARE THE ONLY COPS! You're not going "out on a limb" by performing the duties that Congress mandated and empowered you to do. Don't let this issue of naked short selling, "get raised and floated around forever" any longer, been there done that. In 1999, 2,700 of us took time out of our lives to plead for your intervention in this matter. I believe this might have been an all-time record response to an "SEC Concept Release". Here we are nearly 5 years later back on your doorstep, in fact, we never did really leave your doorstep.

It is way too late for you to be "proactive" in this fraud. The best you can do now is to be "reactive" to the fraud which you often get criticized for but this is a whole lot better than being "inactive" in regards to this naked short selling fraud any longer.

Mr. Katz, I hope you can sense the frustration levels of the American micro cap investors. Since naked short selling is a particularly heinous version of a securities fraud that deals with the integrity of the unit of equity ownership of a "U.S. Corporation", something we refer to as a "share", the ramifications of this fraud are very far reaching for the integrity of the public markets trading these "shares". Please tighten up the loopholes in the proposed Regulation SHO especially involving the immediate buy-in of these open positions and also the applicability of the Rule 11830 parameters of protection to victim companies not yet able to become fully reporting as well as reporting companies.


Dr. Jim DeCosta