Subject: File No. S7-12-06
From: Mary Helburn

May 6, 2007

These comments are submitted after having received FOIA_Request_No._07_04035 (84k) which showed the failure to deliver data on Novastar Financial from 2/1/2006 through 2/20/2007. This data was received after the comment period ended, but per APA rules this information should be considered as it was unavailable before the cut-off date.

The volatility that members of the SEC have touted as being bad (when it affects those special participants who profit by holding grandfathered short positions and by using the market maker exemption) is exaggerated to the downside and harmful to companies and shareholders when millions of phantom shares are sold into the market. There is no way the market can be balanced and price discovery to function properly when volumes of counterfeited shares are allowed to trade as if they were legitimate. These unborrowed/knock-off shares deprive the legitimate owners of a fair price and the equity associated with the value they have invested in companies.

The market maker exemption, a violation of the mandate of the Securities and Exchange Act was foisted on the market under the guise of "needed" liquidity. This distorts the market and has been abused since its inception. The abuses are documented by the SEC's grandfathering of the fails. If the fails to deliver were not large, it would not have been necessary for the SEC to cover up the amount of fails by the grandfather clause and allowing counterfeited shares to remain in the market, allowing the theft of the capitalization of the targeted companies. The problem of fails only matters to those who are being harmed by them and any honest person who wants to protect the U.S. market.

The attitude of the SEC and the DTCC and the participants who were given this liberty, saying that the fails were not severe, was that it was just a small number in comparison to the whole market. For shareholders and companies whose shares have been diluted and share price decimated by the naked shorting exemption, it has been a financial disaster and life-altering experience. Without these exemptions, there would be fewer if any fails. The only fails would come from the brokers who allow their clients to sell shares they don't possess and those who don't pre-borrow for a legitimate short sale or those that are created from the slush fund known as the Stock Borrow Program. The accounting of fails must also include ex-clearing, those that are masked by CNS, and repurchase agreements. These extra shares that are created and credited to customers accounts when the DTCC doesn't have enough shares in brokers' accounts to cover them is fraud on the market as well as a voting rights problem.

On the chart derived from the fail data from an FOIA request for this security , the price dropped from $30 to $10 as the fails increased from 1 million shares to 5 million shares. The legitimate short interest increased from 10 million shares to 15 million in that time. Without the added liquidity of the counterfeited shares introduced into the market by the the exemptions, shareholders who were selling would have been able to secure higher prices for their shares. For those shareholders who were lending shares, they were also deprived of a fair market price on the value of their shares as lending fees are based on the closing price in the market. Rules changes are supposed to be done only if they protect the investor. The market maker exemption and grandfathering harm the investor.

The chart is not current by 2.5 months because of the restrictions placed on public to know in real time how many shares are being created in the market. This data has to be requested via an FOIA request and then that costs both time and money for the investor. This data is readily available to the participants who are involved, but not the public whom they are defrauding by selling phantom shares.

The increase in fails from 1 million to 5 million on a stock that has only 37 million shares issued demonstrates that Regulation SHO in the present state, the option market maker exemption and the other market maker exemptions are harmful to the investing public. 5 million shares represents and increase of 14% more shares available for sale than the company issued. This is fraud of major proportions. It was not authorized by the company. It was not sanctioned by the shareholders. What right does an options market maker have to issue shares of a company? They don't have that right and the SEC does not have the right to condone it. It is fraud.

The institution of Regulation SHO and the delays in rescinding the market maker exemptions have done immeasurable damage to the confidence of the investing public as they can not trust a regulator who would allow something to be sold and not delivered. The benefit of Regulation SHO is that the data for fails is available and the investing public is now aware of how they can encourage the SEC to comply with the law through presenting data, and to make the the regulators aware that they, too, have to abide by proper procedures and the public will not allow a captured regulator to favor one segment of the market at the expense of the public.

Fails must be eliminated. Exemptions must eliminated. If a company and its shareholders determine that its stock needs more liquidity, it can do a stock split. Let the market decide the fair market value of a stock instead of having participants sell investors counterfeit shares that can't be delivered. Let the number of shares in the market be an accurate reflection of the shares that companies issue legitimately. Legitimate shorting is more than ample liquidity as there are markets around the world that do not allow shorting and function rationally.

Mary Helburn

(Attached File #1: mhelburn2122.txt) (Attached File #2: mhelburn8634.pdf)