Subject: File No. 4-639
From: Betty Davis

October 15, 2011

Hello. I am a shareholder of SFIO.PK (Smokefree-Innotec, Inc) which trades on the pink sheets.
I read your various articles on naked short selling and doing my own extensive research into the trading of SFIO I believe that the SFIO ticker has also been the victim of naked short selling.

The company is a micro cap start up in the ecig business and the company was doing well with its plan but over the years,  since about the start of 2010 I have noticed severe price amd volume manipulation in the trading of the stock. Once in a while the company would release a PR and the stock would see incredible buying pressure with hundreds of millions of shares traded yet over the months the A/S and O/S has remained at about the same level. The float did increase in size over time but it seemed ok due to insider selling (conversion of notes to pay for services rendered, etc). Then on June 30, 2011 the SEC released news of litigation on a charge that the CEO conspired to commit fraud using the stock as a vehicle for the fraud. The stock dropped from .04 to .0041 in one hour (before the closing bell). Then July 1 before the bell, the company announced that the company is fine and it was only the CEO who fell for the SEC/FBI sting operation, but the company was moving forward. The stock for the rest of that day traded over half of the float (about 180 Million shares) and there was incredible buying pressure yet the price remained at .02 per share.
That night, after hours, the DTCC locked the stock (chill, trade for trade restriction, all services suspended except for custody) and ever since the SFIO stock has been locked with more and more brokerages not trading the stock. However, we shareholders still watch the daily trading and there is movement. A few thousand to a few hundred thousand shares are traded each day and we wonder how this is possible. We know that there are still some brokerages who do not use the DTCC for clearing/settlement but because of the low volume, there are we think brokerages and MMs selling a few small blocks of shares each day at incredibly low prices; .003 and under, while most if not all of the shareholders are blocked from trading the stock. There is however an ability of the shareholders to SELL the stock but not BUY the stock. We think this is criminal and just simply a way for the DTCC to protect their participants who naked shorted the stock selling tens of millions of shares to naive investors via ETrade, TDAmeritrade and ScottTrade during those two unusual days (June 30 July 1).
We believe that they are attempting to cover the phantom shares and deliver real shares into customer accounts by way of keeping the stock locked until they can buy enough cheap shares from investors who have no choice but to finally cut their losses and run (sell). The other interesting thing to note is that there were failures to deliver reported in the FINRA fails data biweekly report for months but then for the settlement days of those two unusual days, there is NO FTD metrics/report. There has not been an entry for SFIO in the FTD report ever since the lock which we shareholders also find suspect. What are shareholders to do? What would be the official SEC suggestions for actions that the shareholders could take to resolve this matter? Should we all request a stock certificate for the shares we own and send it to the company so that the company can do a proper share count and disclose the correct share structure so that the DTCC could unlock the stock for trading? What is the process, if any, for this kind of situation? After reading every detail in the Reg SHO regulations it seems that there is really no way to force any participants to cover any alleged naked short position and also there is no way for the public to even know if there even is a large naked short position, especially if the FTD metrics are no longer provided by FINRA.
If there is any light you can shed on this matter, the shareholders of SFIO would be greatly appreciative. The new CEO is doing everything he can to report disclosure filings and share structure as known by the company but we fear this could be just another story like BCIT whereby the DTCC is simply protecting themselves and their participants from being forced to buy in the open market to cover the possibly huge naked short sale position.
The MMs also seem to be shuffling this assumed large FTD position between each other, back and forth, which does not seem legal. Thank you for any insight you have into the matter of SFIO because it is just I think another example of how micro cap startups are getting killed in the 'market' these days before they even have a chance to prosper. Hopefully the Oct 17 round table discussion on how to resolve the issue of naked short sales in the micro cap OTC stocks will yield some good ideas on creating a process going forward but it seems that the regulations in place now are very weak and allow unregistered foreign clearing houses to naked short without any consequence as those clearing houses are not even considered in the Reg SHO ruleset. As for the registered clearing houses, all they have to do is simply shuffle a FTD position between their friends back and forth forever while the DTCC protects them from a huge market of buyers by not allowing the brokerage community to allow individual investors to buy the stock, only sell the stock. The SEC needs to get some teeth and come up with a decent ruleset to stop this problem, it is less 'rare' than the SEC thinks. It is happening all around us and nothing is being done to stop it or resolve it in stocks which have already been a victim.
My suggestion would be to simply not allow electronic settlement of OTC stocks with unregistered shares. Easier said than done I know but if a stock is already in this problem, then the shareholders need to issue themselves certificates and send it in to the company. If the brokerage cannot or will not issue the certificate based on a failure then the brokerage should be forced by a new SEC law to credit that account with cash equal to the number of shares multiplied by the high that the stock ever got up to in its trading history. I think that would incentivize the MMs and brokerages to always follow the proper ruleset in the stock borrow system and never short stock without already having known for certain that there were available shares in an account to borrow.
Thank you for your consideration.

SFIO shareholder