July 16, 2008
To whom it may concern, including Chairman Cox,
I've invested and traded in the U.S. stock market for twenty plus years and have never written to the SEC before, but now I feel compelled to offer comment on the coming changes to enforcement on naked shorting. This naked shorting is truly an abomination to the whole process of capitalism as you well know. Assuming we are all on the same page with regards to how detrimental naked shorting is to not only investors in general, but also to the system as a whole, let's not start selectively enforcing the rules concerning manipulation, etc. for favored banks, brokerages, and agencies. Stocks that represent powerful forces on Wall St. do not deserve first class treatment, while others are allowed to wallow in the abyss of naked shorting chaos.
The SEC was formed to enforce rules that protect the integrity of the system, so that there is a level playing field. With a clearly level playing field, market participants have faith in the system. Without faith, confidence wanes, and in the markets, confidence is everything, as we have just experienced. There can be no faith in the system if some equities get extra protection over other less influential equities.
The bottom line, however, is that naked shorting is a fraud that must be enforced to the hilt because it erodes faith in both the markets and the SEC itself. Without enforcement, we really have no idea how large the problem is, whether foreign market makers are lining up our companies for execution style shorting or the like. It is a bottomless pit of manipulation. The people doing this fraud are scamming millions of investors, retirees, etc. It's the duty of the SEC to protect the public from such scams. The question in my mind is, is this possibly the biggest scam to come down the pike in several decades? We have no idea because the failure to deliver numbers are likely inadequate.
We must close all loopholes, for all stocks, because to leave even one loophole legal would invite a continuation of this systematic rape of investors.
Personally, I suspect some of the investment banks on your new list of protected companies (from the emergency order) are in fact abusers of naked shorting. In fact, a few are likely being investigated in the Bear Stearns downfall for abusing the system via rumors and shorting. Why protect the wolves, and not the chickens? A lot of people are wondering about this one.
So from a political, ethical, and common sense perspective, the naked short rules need extreme enforcement, leaving no quarter for the fraudsters via various loopholes, with which I'm certain the SEC is familiar. The shorters need to locate stock to borrow and prove it in a "hard" sense prior to shorting. This needs to apply to all equities. And it needs to be retroactive, unlike the original SHO regulations. Why compromise with those perpetrating fraud on the system? Why?
Thanks for considering my input.
Richard Depp, M.D.