April 23, 2009
Ladies and Gentlemen,
For the last 25 years members of our firm have worked principally in the field of securities regulation and focused primarily on the needs of smaller companies with limited financial resources and rapidly evolving business plans; the kinds of companies that are usually credited with being principal drivers of U.S. jobs growth. Over the years, the bulk of our clients have been classified as "penny stocks" under Rule 3a51-1 at some point during their business life-cycle.
In recent years we have seen a significant increase in the level of abusive short selling in the penny stock markets, which are highly volatile and illiquid to begin with. The process is invariably characterized by a major increase in trading volumes that overwhelms any reasonably anticipated demand and force violent, if not catastrophic declines in the market price. If the pattern continues for any appreciable period of time, the target issuer's access to the capital markets can be damaged and destroyed and the short sellers can force the issuer out of business, which insures the short seller a 100% profit margin because he has created a short position that he never has to cover. The result is rampant destruction of shareholder value and a loss of confidence in the integrity of the financial markets.
We strongly support the restoration of the uptick rule for short sales.
John L. Petersen, Partner
Fefer Petersen & Cie
Château de Barberêche
Switzerland 1783 Barberêche