October 4, 2005
Subject: File Number 265-23
As a stock holder of Novastar Financial (ticker NFI), I don't understand why you have taken so little action in plugging the loopholes that currently allow traders, brokers, and hedge funds to sell stocks short without delivering the borrowed shares.
In many instances in recent years, the parties involved in this practice of short selling without obtaining borrowed shares has resulted in the bankruptcy of the targeted company. There appears to be many companies where the Fails-To-Deliver is substantially greater than the float. The bogus creation of shares by allowing the FTD situation to grow has diluted the value of many small companies and taken money that belongs to the legitimate shareholders.
Those of us that have the shares held in retirement accounts are unable to have the certificates held in our names, because (according to Chas Schwab) this would constitute delivery of the asset and would take it out of 401K or IRA status.
Why is the SEC protecting the brokers rather than forcing the delivery on borrowed shares?
Larry C. Gadbois