Subject: S7-14-98
Date:    6/22/98 11:10 PM
     
     
Dear Sirs:
     
With respect to your proposed changes to Rule 504 I believe you are 
targeting the wrong area.  With respect to the fraud that is happening 
you should be trying to deal with the cause of the problem and not just 
the symptoms.  You will be hurting to many microcap companies whereas 
what you should be trying to do is close down the fraudulent people 
themselves.
     
The problem is with information disclosure.  If financial and other 
information is available then both the investors as well as their 
brokers should have enough information to make a properly informed 
decision.  With all companies becoming reporting in the near future 
enough information should become available so as any broker should be 
able to help direct their client and the responsibility should fall on 
them.  Hence the problem really should be directed to brokers providing 
guidance and proper disclosure for these kinds of companies and this 
should be able to stop the fraudulent promoters from being successful. 
If this is done properly there would be no need to penalize the majority 
of microcap companies.
     
The problem with making the Rule 504 shares "restricted" would be 
putting too high a risk on the microcap stock investor.  Microcap 
companies can be, by definition, very risky.  By putting a restriction 
on the shares of such an offering you are greatly increasing an 
investors chance of losing a large part or all of his investment. Unlike 
a larger company, such as IBM, that you know has a good chance of 
retaining it's share price after one year or even increasing, a good 
percentage of microcap companies just don't make it.  With these kinds 
of odds it will make it extremely difficult for microcap companies to 
attract investors when they know that they could lose a substantial 
portion of their investment because they are locked into their 
investment for the holding period. 
     
The other thing with treating the symptom and not the cause is it will 
only have a mild effect on the real problem which is the fraudulent 
promoters.  If this proposed rule change takes effect, what would stop 
an uscrupulous promoter from creating the same paper that he is now and 
holding it for the waiting period and then doing the same thing that he 
is now.  By changing Rule 504 all you will be doing is delaying the 
problem as opposed to curing it.  Where there's a will there's a way and 
the unscrupulous will find ways around this particular rule change.  In 
my humble opinion the real cure is in regulating the brokers or making 
them more responsible and trying to provide more information to the 
investor so that they can make better informed decisions rather than 
punishing the issuers for a few bad apples in the bunch.
     
Robert M. Gelfand
StarAsia Capital Group
Bangkok, Thailand