Subject: File No. S7-08-09
From: Richard Belfanti
Affiliation: Attorney and Investor

September 4, 2009

Here we have yet another request for comments on proposed changes to Regulation SHO.

My comments? Yes. Please. Now. Yesterday. Illegal shorts are ruining companies and ripping off honest investors daily. The more time that passes the more illicit profits they generate for themselves, the more good companies suffer, the more innovation is squelched, the more jobs are lost, the more hopes and dreams of good citizens and their families are destroyed.

Since Chairman Schapiro took office earlier this year there have been several indications that the SEC might be ready to move on illegal short sellers. The new regulations adopted in late August 2009 were a step in the right direction, but where was the Uptick Rule? What was the SEC waiting for?

In his letter dated January 27, 2009, Congressman Ackerman urged incoming Chairman Schapiro to reinstate the Uptick Rule. He attached a letter from departing Chairman Cox concluding the Rule should be reinstated. Soon after, Paul Volcker, Ben Bernanke and a number of knowledgeable Congressmen and Senators urged the Rule be reinstated.

Why didn't the SEC reinstate the Uptick Rule then and there? Its image had been practically destroyed by its bungling of the Madoff case. Wasn't this a great opportunity to gain back a little bit of credibility?

The Time to Move Is Now

Now the SEC has come up with a revised Uptick Rule thats probably even better that the original one. THIS IS DEFINITELY A STEP IN THE RIGHT DIRECTION. But I ask the Commission to please consider the adage, justice delayed is justice denied. Many of us have been submitting comments time after time for more than a year pleading for the SEC to get serious about prosecuting naked short sellers. The time for proposals, committees and comment periods has ended. The time for action is now

The Power to Prosecute the Illegal Shorts Has Always Been There

Many of us feel that even without any changes to Regulation SHO the SEC had full authority to prosecute naked short sellers and has inexplicably failed to act. When I submitted comments in July 2008 I cited comments previously made by the CFA Institute, Center for Financial Market Integrity, in connection with proposed new SEC naked short selling anti fraud rules being promulgated in 2008 (File No. S7-08-08). The CFA Institute noted, in relevant part,

"We find it curious . . . that the Commission is revisiting efforts to address naked short selling through proposing a new rule. As noted in the release, this practice is already prohibited under general anti-fraud rules. . . . We question the need to adopt yet another rule aimed at eliminating this practice, particularly when this proposal does little more than reiterate the associated problems and create an anti-fraud rule for this specific purpose.

While we support the elimination of naked short selling, we do not support the promulgation of yet another rule to address what Regulation SHO and the general securities laws have apparently failed to rectify. Instead, we recommend that the Commission reconsider its approach to addressing this issue. If general securities laws already cover fraudulent acts by a seller, the Commission already has the power to bring enforcement actions against sellers who act with an intention to deceive and should use those powers to halt these abuses."

I pointed out that the Racketeer Influenced Corrupt Organizations (RICO) statutes that have been in place for decades provide a powerful framework for prosecuting these crimes both criminally and civilly. The purposeful illegal short selling and market manipulation at the heart of these crimes necessary involve conspiracy among investors, fund managers, broker-dealers and even, quite likely, members of the press. RICO provides for the recovery of treble damages and attorney fees in addition to criminal penalties.

The Roadmap for Prosecution Exists

Many of us find it perplexing that the SEC publishes Fails to Deliver information but does not appear to take it a step further. Who is causing the Fails to Deliver with respect to a particular stock? Is there evidence these same actors are hammering a stock, selling in ways inconsistent with a party trying to get the most value for its shares? Do they flood the market minutes before the close of the trading session, especially on Fridays, in order to dispirit shareholders who cant understand why the value of their shares keeps getting pounded?

In my comments last year I pointed out there appeared to be a wealth of public domain material produced about illegal short selling and how to combat it, and that there are many qualified individuals available that have extensive experience prosecuting the offenders. From what Ive reviewed it seems the SEC (or any other enforcement body) already has in place a roadmap of how to proceed should it choose to do so.

Jim Puplava, on his Financial Sense Online site, has made available copies of an amazing six-part broadcast series he did between May 24, 2008 and June 21, 2008, entitled the Crime of the Century. They are available free of charge at http://www.financialsense.com/metals/crime/main.html along with helpful written materials.

Listening to this series you learn it is relatively easy to spot the episodes of market manipulation as they occur, identify past manipulations and with subpoena power, follow the paper trail directly to the perpetrators. You also get the sense there may be a wealth of former and current Wall Street players willing (if not eager) to educate prosecutors and point them directly to the individuals most responsible.

Dr. Patrick M. Bryne, Chairman and CEO of Overstock.com has obviously become an expert on fighting these practices while trying to save his company from ruin. His name often comes up as a person ready, willing and able to help map out an approach for prosecuting these criminals. Attorney Chris Gunderson of Universal Express, Inc., has obtained jury verdicts in the millions of dollars against them.

Its Never Too Late To Do The Right Thing

A new administration has arrived at the SEC and of course, has needed time to get organized and set up strategies to address the many market abuses taking place. Adopting the proposed revised Uptick Rule as soon as possible will show us the SEC is heading in the right direction. Moving forward with prosecutions will give us hope things are really going to change. Please do everything in your power to address this terrible, destructive market abuse.

Respectfully yours,

Richard Belfanti
Walnut Creek, California
Attorney and Investor