Subject: File No. S7-12-06
From: Dennis Smith

July 20, 2006

Dear Chairman Cox:

I respectfully submit that its high time to clean your own house by drawing and quartering The Queen of Shorts, i.e. Annette Nazareth.

The indisputable fact is that electronic counterfeiting blossomed during Nazareths long tenure as Regulatory Director. She is moreover on record deeming this criminal practice good for market liquidity and dismissing critics as simply those who want their stocks to go up. Nazareth also defends the now infamous Grandfather Pardon in Regulation SHO, arguing that to call in the shorts would produce an unhealthy, volatile market. Unhealthy for whom? The counterfeiters? Now that Nazareth is a SEC Commissioner the miscreants are likely to care even less about any legal nuisance of having to actually deliver what they sell. In the years leading up to SHO, Nazareth strongly denied any short problem existed in the first place and ignored or belittled those with the temerity to even broach the subject. If the Chief Regulatory Officer of the SEC (now one of your Commissioners) doesnt care about illegal shorting why should the Hedge Funds, or the Prime Brokers, or the Central Banks, or the Market Makers, or the Institutional Bankers, or the Specialists? Or for that matter why should the DTCC or Cede Company care, two other links in the self-serving chain benefitting financially from every trade/transaction, legitimate or otherwise. Its essentially a daily boatload of free money for certain well-connected participants at the expense of the average American investor who naively believes hes playing on a level field.

Inordinate profits gleaned from illegal short selling by unregulated Hedge Funds (and cohorts) are untaxed and unaccounted for, certainly bad enough in itself. However the more immediate and insidious danger is the likelihood that certain shrouded offshore hedge funds have anti-American ties and that an untold amount of untraced money from illegal shorting may be funding terrorist organizations. Our enemies are quite forthright in their stated goal to drain/ruin the American economy as part of their Holy War against the West. What better way to proceed than to shuffle some ownership papers, set up a series of offshore hedge funds, hook up with a rapacious prime broker, hire a financial journalist or two to issue adverse commentary, and collect money selling short what you dont own and never intend to deliver. The end game for these pariahs is to dilute and bad-mouth targeted companies into bankruptcy thus rendering any uncovered short moot.

In my view the solution is to first get rid of Nazareth and then ensure no one in the chain gets their commission until the goods (shares) are actually delivered. No ticket, no wash.

Dennis Smith
San Diego