February 27, 2009

Subject: File No. S7-08-09

Among the Bush administration?s failures to regulate the financial markets perhaps the most harmful to the investing public has received virtually no attention. That is failure to investigate and prosecute stock manipulation by short sellers who have not arranged to borrow shares to deliver and fail to effect a bona fide delivery upon the closing out of their short positions. Prior to the Bush administration, such requirements were in place, as was the uptick rule, which prohibited a short sale unless the prior transaction in that stock had been done at a price higher than the transaction before that. Removal of these conditions made manipulation by bear hedge funds and other large short sellers so easy that it gave them a license to steal simply by hitting the bids in a series of short sales.

Many knowledgeable investors firmly believe that such manipulation caused dramatic stock price drops, for example stocks from in their high teens to under $5 or pennies without there being any change in the stocks fundamentals. This manipulation was common prior to the current financial crisis became known and may well have been its precipitating cause.

Although hedge funds are not subject to inspection like broker-dealers, their market transactions are, and always have been subject, to the Securities Exchange Act of 1934 and manipulation, although not easy to prove, is a violation of Section 10b-5 of the Securities Exchange Act of 1934.

Until the uptick rule and that requiring short sellers to arrange a bona fide borrowing and delivery are reinstated short sellers will continue to devastate the market, The SEC must reinstate the uptick and bona fide borrowing and delivery rules regarding short sales, investigate and prosecute the manipulations, and well publicize these actions to the market.