Subject: File No. S7-07-12
From: Jason Coombs
Affiliation: Public Startup Company, Inc.

January 4, 2013

Re: [Release No. 33-9354; File No. S7-07-12]

This comment letter addresses the systemic fraud that the JOBS Act is designed to remedy, for the benefit of all people, and it is also partly in response to published comment of Dec. 28, 2012 by Jaimie Davis, Silverado, California.

The question of how to market a securities offering in order to successfully raise capital for legitimate activities that are worthy of funding and offer some kind of potential benefit to investors, separate and distinct from the benefit that would be enjoyed by a customer or a donor who gives without expectation of any return on investment or other personal gain, is central to this entire discussion and to the wisdom of legislators in passing the JOBS Act.

In my experience, when issuers are required to negotiate directly with prospective investors there is no prevailing overtone of presumed trust and regulatory protection by virtue of a middleman's presumed special expertise and ethics, or insurance, or government support for the proposed transactions. When middlemen get involved, either privately or when shares are offered for sale to the public through a securities exchange in an IPO or a public resale such as in a Rule 144 distribution, the buyer feels as though they are protected in ways that they are not. Without this appearance of extra safety that the established network of market-making middlemen provide, I believe that issuer fraud would be far more difficult to accomplish in practice.

I have personally had the experience of reporting suspected issuer fraud to the SEC in the past. When doing so, the enforcement office of the SEC informs the whistleblower that the SEC exists primarily for the purpose of protecting "the market" and that it is not the job of the SEC to preemptively police and approve individual transactions, or to tell companies how to manage and govern themselves. It is the protection of investor confidence in the network of middlemen and securities exchanges that is expressly being protected (for the benefit primarily of issuers and securities market professionals) when the SEC takes enforcement actions (always after-the-fact) against bad actors. I was told by an assistant director of enforcement at the SEC that it is not a crime to be a bad manager or to destroy investors' capital, provided that the theft or destruction of capital was not the intent of the issuer. In court this is a question of state of mind, which is known as scienter in legal terminology. What did the accused intend? What were they thinking?

The fact that the SEC functions, on purpose, willfully, and with scienter, as a protector of the right and opportunity for issuers to more easily take money from investors while the issuers pay enormous fees, commissions, and administrative costs for "regulatory compliance" by hiring middlemen to prepare documents and bring securities offerings to market, but the SEC pretends that its purpose and function is to protect investors, is nothing less than criminal fraud. When a system of "regulation" that was created during the Great Depression for the purpose of creating hundreds of thousands (or millions) of new middleman jobs grows in political importance to the point that the American securities markets have grown, and cloaks itself in the deceptive artifice of "protection" while not providing any at all, what choice do honest people have other than to abandon that fraudulent system in favor of a new one?

It is critically-important for the future economic prosperity of the United States that the JOBS Act be implemented precisely as it was intended. Get the SEC and the systemic fraud out of the way of direct issuer-to-investor relationship building efforts, because it is only through these direct relationships that investors can possibly be adequately informed and protected. The government has no legitimate role interfering with, or injecting its agents in the middle of, anyone's freedom to meet, gather, organize and associate with other people for legitimate, peaceful, and legal purposes. It is now, and it has been since 1933, unconstitutional for the government to prohibit free speech for the purpose of legal, direct equity capital formation and the creation of new forms of legitimate, lawful human social interaction via organizations.

There are more than six billion human beings who live and work outside of the jurisdiction of U.S. Federal Securities law -- the fact is, as everyone knows, that capital will move away from the hundreds of millions of people in America and to the billions of people in other nations if the systemic middleman market fraud of the "American free market" continues to be "protected" according to the methodology and sensibilities with which the SEC has been operating since 1934.

My personal letter to Jaimie Davis, enclosed below, makes some of these same points, as do my prior published comments.

It should be known to all that Jaimie Davis is actively seeking donations, via the WFPSECURITIES-ARBITRATION.COM website, for lawsuits and other legal actions against the parties who deceived and defrauded investors including Jaimie. This is obviously a worthy cause, one that I would help with if I could and one that everyone should help to fund. One of the startup companies that I wish to raise capital from the public in order to launch, using a website such as our "FORENSICS.ORG" property, would do precisely this: help litigate against those who are truly responsible for systemic failures, fraud and abuse. Plaintiffs could raise capital for their legal actions, whether class action or one-off, from direct public investors in private unregistered securities offerings.

It is ironic and disturbing that Jaimie Davis must not offer securities to donors who wish to take organized direct legal action against the fraudsters and the broken, systemically-corrupt system, because doing so would presently be illegal, but instead must ask for donations like a homeless beggar. The corrupt systemic fraud of the 1933 Securities Act and the 1934 Exchange Act, and the markets they purposefully created, were the proximate cause of Jaimie's self-inflicted mistakes. It is systemic fraud when simply trusting the system to be honest and legitimate results in becoming a homeless beggar, and everyone knows this to be true. However, by design of the corrupt system, not everyone has the means nor access to the expertise and resources that are required in order to do something to change or stop the fraudulent system.

There are profound social and economic implications of such crowd-sourced legal power and social media-enhanced crowd forensics. Stopping Jaimie, and others similarly-situated, from being capable of fighting back after they have been destroyed financially by a corrupt system is precisely what lobbyists and career-securities-industry-middlemen (and their "protectors" at the SEC) are trying to accomplish when they pretend that it will harm investors to dismantle the existing corrupt system in favor of direct unregistered public offerings to, and unregistered securities investing by, members of the general public.

It is also noteworthy that the comments submitted to the SEC in relation to the lifting of the prohibition on general solicitation and advertising in compliance with the JOBS Act have, subsequent to the events that resulted in the resignation of former SEC Chairman Mary Schapiro, no longer predominantly originated from the securities industry and its advocates and middlemen. It looks to me like the systemic fraudsters and the banksters have been silenced, temporarily, out of shock and awe. There is a palpable fear in the market right now that the JOBS Act is bringing an end to the 78-year-long party on Wall Street. The established securities industry built around fraudulent regulation is fearful, presently, that it will soon lose the ability to deceive the public. I am glad to be able to speak out against the systemic fraud and abuse of the corrupt, misguided establishment. Hopefully there are enough people in the current securities industry who share my ethics and my expertise, and so will help to take a stand against the American system of entrenched political criminal enterprise that was built, since the New Deal and the politics of the Great Depression, around tricking people into giving their money to middlemen (and to the government) in exchange for false promises.

Where is Ronald Reagan when we need him most?

Government isn't the solution, government is the problem. Rational, reasonable, ethical, honest and peaceful people are the solution, and thanks to the Internet we can now self-organize around equal access to sustainable, truth-based prosperity. But only if the American system of government is not sabotaged from within and only if the nation of laws are actually meaningful and able to be implemented in practice for the benefit of the nation of people.


Date: Thursday, January 3, 2013
From: Jason Coombs
To: Jaimie Davis

Re: Your letter to the SEC, general solicitation in Rule 506 Offerings

Dear Jaimie,

Your letter to the SEC was very important work. Your story needs to be heard, and studied in detail. Other people who are considering investing should know what happens when things go wrong or when fraud is committed. Sometimes things that look like fraud after the fact are not fraud at the onset and become fraud in the process of failing. Other times frauds never result in losses for investors, even though somebody gets hurt by the fraud. The permutations and variations on the theme are countless, but infinite complexity is no excuse for regulators and professionals to pretend that there is nothing they could have done to prevent what happened to you from happening in the first place.

Have you been keeping up to date on the settlement with Wells Fargo and BNY Mellon in the Medical Capital case? One of my comments to the SEC (December 20th) referenced Medical Capital. I worked as an expert witness in Federal court on behalf of a legitimate computer software and data processing company in which Medical Capital had invested your money. When Medical Capital was sued and the court appointed a receiver it caused me some hardship, too, and I had to decide whether to submit a claim for my unpaid invoice for my expert witness services. I did not submit a claim, in the end, because it would have reduced the recovery of assets for you and the other investors, but then Thomas Seaman decided to pay 100% of the debts of the company that owed me money, and now the settlements with the Trustee banks should dramatically increase the amount recovered for investors. In a case where the banks and brokers are so clearly at fault, it is absurd that anyone, you or me or anyone else, should be left holding a loss of any kind.

I do have a very different understanding than you do of what the securities offering apparently consisted of in the case of Medical Capital. In your letter to the SEC you characterized the Offerings that you invested in as being marketed through "general solicitation" but my understanding is that, at least in the case of Medical Capital, the securities were never advertised in general solicitations but rather they were marketed through broker-dealers such as WFP. I am almost certain that having brokers place securities with private placement investors is exactly the way that regulators, and the 1933 Securities Act, have always envisioned the regulated market for unregistered securities should function. The JOBS Act specifically removes these brokers and allows securities issuers to directly offer investments to the public.

In my opinion, removing the appearance of "regulation" and eliminating broker and other middleman fraud so that issuers of securities raise capital by fully explaining themselves, publicly, to investors who are complete strangers will significantly reduce the occurrence of fraud because investors will never be able to misunderstand that they ARE giving their money to complete strangers on the basis of their belief that this is a wise thing to do in the specific instance of each investment decision.

It was never helpful to reduce fraud to have middlemen lead investors to believe that any investments are better or safer than they truly are, and your case is very compelling evidence that the old way (of prohibited general solicitation, thus requiring brokers) has always been structurally flawed and systemic fraud.

Don't you think that honest people should be allowed to offer securities to the public? If honest people are allowed to do so then more of us will, and then people won't be investing in a marketplace where only dishonest people offer and sell (or broker the sale of) securities.


Jason Coombs

Co-Founder and CEO
Public Startup Company, Inc.