Subject: File No. S7-08-09
From: John E Kelley
Affiliation: Money Management

May 8, 2009

I have been a Wall Street professional for 20 years, and in hedge funds since 1993, when I worked with John Mulheren. The level of cheating going on, in the non borrowed, outright flagrant pounding of stocks, is a subject that needs immediate fixing. The best place to start is at the prime brokers, who manage the books of investment vehicles. The prime brokers have not enforced the borrow, because the SEC has been asleep at the wheel of this issue, and also because they make money on custodial fees. The level of abuse is huge, and you can find the cheaters at some of the largest hedge funds. At the height of the crisis in early March, I would bet my right arm there were more shares short on Citigroup than shares outstanding. That is an embarassment to the SEC, to the prime brokers who are licensed to do things legally, and to my fellow colleagues that do things fairly. I spoke recently to one of the busiest hedge fund outsourcing trading desks in the world, and he said no one follows the rule... simply getting a borrow. Fine the rule breakers, they nearly destroyed our financial system, and can be found simply by investigating prime brokers like Morgan Stanley, and trading desks at hedge funds, or desk that outsource to them. Let's not forget, prime brokers have licenses to adhere to the rules, large hedge funds have investment advisor status to follow the rules, and the SEC has never enforced the rules on this issue, nealry allowing our entire financial system to collapse. Call me, I'd love to explain how the rules are broken, who might be breaking them, and some of Wall Streets titans will be the culprits. How does Bear Stearns go down 100$ in a week?, by not enforcing the rules. I am disgusted with Ms. Schapiro's slow response to immediately correcting the problem. Thank you for your time.