From: William S. Frago 
Sent: Friday, August 02, 2002 5:19 PM
Subject: Re: Rumors by Short Sellers


Dear Ms. Garner,

Thank you for your personal reply to my e-mail about potential abuses by
short sellers who start rumors to impact targeted stock prices.

Today, the parade of rumors continued with unfounded and later refuted
rumors that Cisco systems would not certify its financial results, that its
CFO would unexpectedly resign and that its CEO would also resign.  Short
sellers drove the stock price down severely on these rumors causing the
Cisco to publicly refute each of these rumors.  At this point, the system is
broken!  Lack of enforcement of stock manipulation statutes, has greatly
contributed to extreme stock market volatility.

The SEC quite publicly procecuted an 18 year old in California a couple
years ago for starting rumors on the internet and trading stock to take
advantage of these rumors.  However, the SEC has taken no action against the
obvious and unrelenting action large hedge funds who do the same things and
ravage the investments of individual investors who they panic into selling
stocks.   The business networks openly talk about receiving rumors from
hedge funds who are short-sellers, most of which are later proven to be
erroneous.  Why has the SEC not done anything to control these abuses?

I am an investor and an academic.  I watch the markets and business news
coverage of them closely.  I am amazed the SEC and FCC has done so little to
control the manipulation of the markets.  The costs of this manipulation is
enormous.  Using the CAPM (capital asset pricing model) it is clear the Beta
of countless stocks has been increased substantially by false rumors.
Therefore, the cost of capital for those companies has been increased
commensurately.  As a consequence, investors must achieve a higer return
from those companies in order to justify an investment.  Finally, the price
of the company's stock falls as a result of the increase in required returns
to justify the investment.

Hopefully, the SEC can take aggressive action this front.  In my opinion,
the subsequent decrease in volatility, increase in investor confidence and
positive impact on the markets of such actions would be substantial.


I will be happy to talk to you further about this subject if you would find
that helpful.  Good luck on your continued enforcement efforts!

Sincerely,

William S. Frago
Exeter, NH