May 5, 2011
Ladies and Gentlemen,
Thank you for the opportunity to comment on File No. 4-627. However, in order to properly comment on said rule, I require assistance with some of the terminology and concepts in the request for comments. I have been a professional short seller for over ten years, and I have run an SEC-registered investment adviser for many years. Yet I am unfamiliar with certain items in your request for comment.
In Q3. on page 6, you ask for comments on "trade-based manipulation (i.e., manipulating without a corporate action or spreading false information)." You subsequently use the terms "abusive market practices" (four times), "abusive short selling" (three times), "bear raid" (three times), "short selling abuses" (two times), and "abusive short sale practices" (one time). Could you please define any of the terms above? Further, could you give one empirically proven example of situations such as the ones you are insinuating? I do note that "for a discussion of the theory of trade based manipulation" (not short selling manipulation), you refer readers to a twenty-six page study from 1992. I wonder if the markets have changed at all since 1992, almost twenty years ago?
The pejorative tone of your request for comments is overwhelming. I suggest that in the future, before you insert the phrase "short selling," you first insert the phrase "long buying," thereby checking for any unintentional bias against short selling. After all short selling and long buying are identical (an investor buys a security and sells a security) except in the chronological order of actions. Short sellers and long buyers both are attempting to "buy low and sell high."
I believe the SEC would be remiss were it not to propose an identical study that contemplates the abuses of long buying. Or is it only possible to manipulate a market lower? Case studies of Enron, Healthsouth, WorldCom, Calpine, Lernout Hauspie, etc., may prove helpful. In addition to reviewing any potential long buying manipulation, you might also study the amount of investors' capital saved by short sellers who identified and exposed each of those situations. The SEC was certainly not looking out for investors nearly as closely as the short sellers.
I am submitting this comment pseudonymously, as short sellers are often the target of uninformed anger, from regulators, management teams, and investors. There have been countless threats, including threats of physical harm, directed toward short sellers. I have seen photos of short sellers' children posted to stock chat boards, with exhortations to "get shorty." That I should be concerned about my family's physical well-being is pathetically ironic, since I have assisted the SEC, the FBI, the Department of Defense, various state attorneys general, and others in a) pursuing fraudulent companies and management teams, and b) saving investors billions of dollars in losses that were precluded by my actions.