Subject: File No. S7-08-08
From: Mark A Stone

July 26, 2008

Dear Chairman Cox,

I applaud you for attempting to enforce regulations relating to Reg SHO and Naked Short selling. That being said, your lack of full enforcement through the closure of the market maker exemption has effectively nullified your attempt at regulation. Again I applaud you for your attempt, but beg you to continue your efforts to actually effect a change and enforce Reg. SHO as well as closing the market maker exemption.
I also wanted to address the following paragraph which was taken from the Coalition of Private Investment Companies (CPIC) and MFA letter sent to you on July 21, 2008.
The expansion of the Emergency Order to stacks that are less liquid that the Designated Securities would undermine critical market activates. The most direct impact of the Emergency Order is to make it more difficult, expensive, and risky to sell short. Under the Emergency Order, before undertaking a short selling strategy, a market participant must consider in advance the costs and risks of ensuring 100 percent certainty that enough shares will be available to cover the maximum number of shares that may be sold short throughout the duration of the strategy. Moreover, the market participant must compete for suddenly scare borrow with all of the other market participants who are conservatively borrowing substantial amounts of stock to avoid risk of violating the rule, and with market participants who can easily squeeze shorts by pulling the scarce stock borrow from the market.
This paragraph can be best summarized with the following phrase: If we have to actually locate 100% of the shares we intend on shorting, we cant do business. From which one can easily deduct that they are taking advantage of the market maker exemption and selling more shares than the market actually has available, which is naked short selling. If these firms cannot do business because they are unable to locate enough shares to sell short, then they should not be allowed to sell more than the market has available. If they do sell shares that do not exist, they are creating forgeries electronically and breaking the law. The issue should not be a grey area regarding how much money these firms have at their command. It is a black and white issue of legal-illegal, right-wrong it is theft on a massive scale.
If I decided to sell a car that didnt exist to someone buying on the internet, and then never delivered it, I would be prosecuted for fraud and theft at the minimum then likely end up in jail. In this analogy, you can change car for shares and internet for exchange, however the fraud and prosecution part never seem to actually happen. The dollar value of these frauds are also drastically different a few thousand dollars versus hundreds of millions. What is so difficult to see here?
I fully support short selling and the balance it provides to the market, however when firms are selling more shares than the market is accepting (naked short sales), selling shares which do not exist (failure to locate), and a lack of punishment to prevent this type of fraud.
You need to:
Start actively enforcing our current laws regarding Naked Short Selling
Make permanent the Emergency order regarding Naked Short selling
Extend the Emergency order to the entire market
Close the Market Maker Exemption in Reg. SHO and the Emergency Order
Start working for the American Public not the elite few
Make the punishment suitable for the crime
o A few years in prison with minimal fine are not sufficient deterrent. Stealing $100 million dollars then spending a couple of years in prison with the fine at a few million leaves you rich when you get out of jail. The punishment needs to be a deterrent.
Require locate on actual shares, identified by certificate number

I beg of you to do what is right for the American public. What will happen when the public loses trust in the financial markets and the funds come out? Do you want to be responsible for letting these funds, which have stated that they cannot operate if they have to operate legally, cripple the US financial markets?
Mark Stone
San Francisco, CA