Subject: File No. S7-19-07
From: Anonymous nonymous

August 14, 2007

Nancy M. Morris, Secretary
Securities and Exchange Commission
100 F Street, NE
Washington. D.C. 20549-1090

Re: Comments on Amendments to Regulation SHO
File No. S7-19-07

Dear Ms. Morris:

The following referral was submitted to the SEC Division of Enforcement on 8/13/2007. The data attached to the referral shows a clear pattern of abuse of the options market maker exception in numerous "reverse conversion" transactions used to create new unregistered shares in a Reg SHO threshold listed security. This referral was also submitted to FINRA on the same day.

Please accept this data in your consideration of complete elimination of the options market maker exception.


date Aug 13, 2007 8:03 AM
subject Enforcement referral: MDTL reverse conversions/naked short selling

Dear Division of Enforcement:

Attached table:
Please find attached a table of Medis Technologies, Ltd. (MDTL, Cusip # 58500P107) stock transactions which are directly linked to identically sized options transactions. This table includes only those block transactions which we could identify as having this exact options match, there were many other large block transactions that crossed on the Chicago Stock Exchange. Also, this table is only for this calendar year, this same activity occurred before 2007. Furthermore, this list should in no way be considered comprehensive as it is only the transactions that we have happened to observe. The information is accurate to the best of our knowledge, where the exact time or price of a transaction is unknown this is left blank on the table, or where several transactions were combined the aggregate total is listed.

Medis Technologies has been continuously listed on the Reg SHO threshold list since August 2005, thus restricting short selling in this issue to situations where a locate has been performed to verify shares for borrow. According to the CNS aggregate delivery failure data made available to us by the Commission under the FOIA, CNS level fails in this issue are excessive and frequently exceed one million shares. On the last settlement date for which this data is available, 3/23/2007, there were 1,009,938 failed deliveries at the CNS level.

On July 20, 2007, the Disciplinary Panel of the American Stock Exchange LLC handed down decisions against Scott H. Arenstein, SBA Trading, LLC, Brian A. Arenstein, and ALA Trading, LLC, for among other acts, violation of SEC Rules 203(b)(1) and 203(b)(3). The respondents were not acting as bona fide market makers, improperly used the Reg SHO market maker locate exemption to avoid locating shares prior to effecting short sale transactions in Reg SHO threshold securities, and engaged in a series of transactions that circumvented their delivery obligations in Reg SHO threshold securities that had been allocated to them by their clearing firms. These decisions can be found here: and .

Need for investigation:
The attached table describes transactions that closely mirror those illegal "reverse conversion" transactions for which the American Stock Exchange penalized the respondents in the above decisions. The MDTL shares listed in this table totals 5,401,800, a figure greater than the difference between the legally issued and outstanding and the number of shares that were identified as owned by various institutions and company insiders in recent SEC filings. During just the past week we have observed stock transactions followed by matching options totaling 948,500 shares.

The suspicious nature of these transactions demands an examination to determine if this activity is in accordance with bona fide market making activity or are purely the creation of unregistered securities via the options market maker exception for a fee for use of this exemption. Owners of legal MDTL shares were recently being paid over 30% interest to lend those shares, indicating the scarcity of real shares and the difficulty one faces when locating shares to borrow.

Additional information:
Please do not hesitate to contact me if you have any trouble accessing the attached table or with any other questions. Also, I can provide you with the aggregate CNS delivery fail data though 3/23/07 in .pdf format if this simplifies the process.



to xxx
date Aug 14, 2007 10:38 AM
subject Delivery Notification / Enforcement Complaint Response

Dear Sir or Madam:
Thank you for your recent e-mail to the group electronic mailbox of the Division of Enforcement at the United States Securities and Exchange Commission in Washington, D.C. We appreciate your taking the time to write to us. This automated response confirms that the Division of Enforcement has received your e-mail. You can rest assured that an attorney in the Office of Internet Enforcement will review your e-mail promptly.

We are always interested in hearing from members of the public, and you may be assured that the matter you have raised is being given careful consideration in view of the Commission's overall enforcement responsibilities under the federal securities laws. It is, however, the Commission's policy to conduct its inquiries on a confidential basis -- so this may be the only response that you receive. If your complaint is more in the nature of a consumer complaint (such as a dispute with your broker or a problem with your brokerage or retirement account), you should contact our Office of Investor Education and Assistance -- they may be able to help you. You may reach the Office of Investor Education and Assistance via telephone at (202) 551-6551or through the Web at HYPERLINK ""

The Commission conducts its investigations on a confidential basis to preserve the integrity of its investigative process as well as to protect persons against whom unfounded charges may be made or against whom the Commission determines that enforcement action is not necessary or appropriate. Subject to the provisions of the Freedom of Information Act, we cannot disclose to you any information which we may gather and we cannot confirm to you the existence or non-existence of an investigation, unless made a matter of public record in proceedings brought before the Commission or in the courts.

If you are unsure where you should direct your inquiry or you want to learn more about how the SEC handles inquiries and complaints, please visit the SEC Complaint Center at HYPERLINK ""

Should you have any additional information or questions pertaining to this matter, please feel free to communicate directly with us at HYPERLINK ""

We appreciate your interest in the work of the Commission and its Division of Enforcement.
Very truly yours,
John Reed Stark
Chief, Office of Internet Enforcement
United States Securities Exchange Commission

(Attached File #1: s71907-40a.pdf)