Subject: File No. S7-08-09
From: george vlahos
Affiliation: superintendent of scjhools--retired.

September 11, 2009

Ladies and Gentlemen: Restore the old uptick rule but with uptodate provisions for eliminating abuse by HFCT AND ALL SHORT SELLING----ALL OF WHICH DESTROYS ANY SEMBLANCE OF A "FAIR,HONEST AND OPEN MARKET". Anything less will not solve the problem of the market for ordinary investors and should replace the Credo referred to above with one suggested by Justice Brandeis, over 70 years ago--CAVEAT EMPTOR---. I hope and I pray, but not with any expectation that the truly right thing will be done---more drastic measures will probably be required in the future since the will to do what is right is absent from those in the arena of action. gcv. please read.

First, let me urge you, in the most urgent way, to take up the cudgel for stock market reform. Secondly, let me suggest to you a target for investigation and development of a case study which would demonstrate, dramatically and convincingly, the potential destructive effects of what I call "the triple threat" or "the perfect storm" as related to the stock market-- #1---High Frequency Computerized Trading #2-- Short selling ( both borrowed and not borrowed shares), and #3-- the repeal of the old Uptick Rule.
I have been monitoring the daily trading activity in the stock of On2 Technology, symbol--ONT-- on Level II, Ameritrade-- for over two years, since well before July 7th, 2007, when the change in the Uptick rule went into effect. During the SEC deliberations regarding this change, from May to the final implementation in July--the daily trading volume in ONT went from 3- 5 million shares to 15 million shares, and continued at between 13-15 million per day for many months while driving the stock price relentlessly down. The dramatic increase in daily trading in this stock, accompanied by relentless selling at the BID accompanied by relentless driving down of the ASK was clear evidence, in my opinion, that the professionals who promoted this change had every intention of exploiting this newfound freedom to manipulate the stock market now that no one could stop the downdraft in stock price that they could create due to the use of #1 and #2 noted above, greatly facilitated by #3.
The ability to make trades at a continuously lower price without requiring an uptick to interrupt the sequential action was an overpowering tool in the hands of comoputerized traders, who were able to use it, in conjunction with unbridled freedom to short, and resulted in professional control of the price of any stock they chose to manipulate for profit. Although never investigated by the brokerages or the SEC who turned a deaf ear to message board readers who complained of the rampant bashing by apparent paid bashers, those of us who read these boards could see obvious connections between the timing and intensity of short attacks on our stock and virulent bashing of our stock on the Yahoo Message Board for On2 Technology. The "unbridled freedom" mentioned above was due to a combination of special trading privileges to a select group of traders, including marketmakers and specialists, and others who could trade short and free--i.e., they did not need to own any shares of the stock and did not need to pay any trading fees.This alone distinguishes them from ordinary investors. Furthermore, many of the "borrowed" shares of this company, sold by short sellers to buyers, who believed they were getting a share of the stock simultaneous with their payment for it, were not delivered to the buyers in the prescribed time period, resulting in the stock of this company being on the REG SHO FTD list for 113 consecutive weeks, with no regulatory action by anyone responsible for doing so. .
The other half of the "combination" that enabled them to ride roughshod over investors was the total failure of the regulatory system to monitor and enforce the existing rules and regulations which make manipulation of stock prices illegal---.As time went on, I noticed that episodes of rapid descents in the stock price below the prevailing trading range, lasting less than one minute, would occur several times a day, especially, when any upward tendencies became evident in the Ask. I began to suspect that computers were being used to operate trading programs with the specific purpose of driving and holding the price of this stock down as low as possible. As new investors entered the stock, following positive news releases, this activity became almost frantic, persistent, and successful in scaring them out of the stock at a loss, since they thought investors were selling. Neither they, nor any other ordinary investor has any way of knowing whether the sellers of any stock are investors or short sellers or whether the share of stock being bought is a real one or a "borrowed " one that may never be delivered. Big disadvantage to investors, Big advantage to shortsellers. Who wouldn't see a tantalizing opportunity to make a lot of money, with little risk, by engaging in some illegal bashing(since noone was doing anything about it) and some computerized-programmed price manipulation, while controlling the bid and the ask with a spread between them of as little as $ .0001.? They could, as they did, let the price go up at the open and then "kill" the upward momentum at midmorning with rapid forays into the nether regions, establishing a low target for the day and repeating occasional "downdrafts" several times during the day, capped off with a "painted-tape" close that would give any ordinary investor without access to Level II the false impression of true supply and demand for the stock. All of this could be done without actually owning one single share of stock
I sent hundreds of emails to the SEC, to Peter Pizzano, who was designated to receive my complaints by Enforcement to Enforcement itself to Chris Cox to the Chairman to Mary Schapiro and finally to OIG@SEC ,each time calling out specific instances of this trading activity, which I later found out had a name,HFCT. I pleaded with the recipients of my messages, to go to Level II to see the blatant manipulation of the market for this stock AS IT WAS HAPPENING. I have since found out that the SEC does not do this sort of thing----they do not actually monitor the market to see violations of rules and regulations as they are occuring. I was shocked I was even more shocked when I learned that these complaints were not even forwarded up the ladder to supervisory levels for any action. I was further shocked to find that some of my emails were not even read before they were erased or deleted. I became increasingly discouraged at each turn, of any chance of corrective action by our government.
Many months have passed since a new President appointed a new Chairwoman of the SEC----the Uptick rule is still repealed, High Frequency Computerized Trading is still rampant in our stock the stockprice is still controlled and manipulated by unknown entities, apparently with the SEC"s blessing. Paid bashers still swarm over the Yahool Message Board for ONT. Ordinary investors, I would bet my bottom dollar, are doing as I have done, stopped looking at the daily trading, as it is all sham, reflecting nothing that could be construed as investor supply and demand, it is a penny ante game engaged in only by those empowered to gamble in what has become nothing but a casino for high rollers who, alone, have the wherewithal and resources to play this game, so destructive to the false idea that the market is, in a quote from a published document from the Director of the Boston Office of the SEC---"fair, open and honest"
On2 Technology was the recent subject of a proposed sale to Google for a pittance, as a result of basing the sale on a review of the average stock price for a period of months, during which the stock was been mercilessly driven down to a long term low. We stockholders are protesting this sale for many reasons, but one of the most crtical ones is how the value of the company was arrived at. Everyone involved in the stock market is aware of the manipulation of stock prices by short sellers, HFCT, and exploitation of the changed uptick rule as well as the failure of the SEC and other regulatory agencies to do their jobs. The legislators are guilty, too, of failing to do their job.
I am now turning to you as the next HOPE for someone to connect this experience, that we shareholders in this company are suffering, to the larger problem of the whole corruption of the stock market spreading its venom and poisoning the whole financial system. If you have the necessary resources and the necessary political will and leverage to access the hidden information, ( which we ordinary investors cannot get), that would reveal the WHO, WHEN, WHERE, WHY behind the obvious and blatant manipulation of this company's stock price, for lo, these many months, and resulting in a disastrous proposal by a few self-serving individuals to sell the company at a severely "doctored" price from under its shareholders, I beg you to do so. I can assure you that access to a cadre of well informed, resourceful, articulate, and determined shareholders can be easily facilitated on any request from your office for further information to help your effort. hopefully and respectfully, signed.