From: lefty_malone@hushmail.com Sent: Sunday, November 30, 2003 3:03 PM To: rule-comments@sec.gov Subject: File s7-23-03 Proposed Regulation SHO -----BEGIN PGP SIGNED MESSAGE----- Hash: SHA1 Also please see attached MS Word file for comments. PUBLIC COMMENTS REGARDING PROPOSED REGULATION SHO 34-48709 FILE # S7-23-03 In my opinion the SEC has committed a grave disservice to the small investor by referencing the “problem” of “naked shorting” on the OTC-BB and Pink Sheet quotation services while providing absolutely no supporting data that would justify considerations of a policy change. Furthermore, they have compounded their initial error by refusing a number of press requests for internal SEC information that would indicate whether there are widespread failures to settle transactions in the OTC-BB and Pink Sheet quotation services-the one sure indication of a naked short position. As a veteran observer of and commenter on these markets I can assure you that one of the first indicators of a pump and dump is the claim- made by disclosed, and more often undisclosed, promoters that a stock is being “naked shorted.” A minimum of research will always reveal exactly the opposite: the company’s price is declining because it has entered into toxic discounted Convertible Debenture financing agreements that ALLOW the Debenture holders to engage in hedging transactions. The resulting flood of new shares into the market-virtually always accompanied by a press, fax, e-mail, and boiler room promotion to create demand- is ultimately the cause of the stock price’s decline. The “manipulative short selling” enforcement action held up by the SEC as proof of your diligence in preventing this supposed abuse was unique only in that the debenture agreement did not allow hedging, giving you a basis for enforcement. There is no national fiscal scandle as alleged by a small group of these companies who have engaged in a relentless publicity campaign for promote their cause, or at least one that involves “naked short selling.” The scandle is that most if not all of them are allowed to continue to trade as public companies. It is not naked shorting that keeps small companies from being able to raise capital through these quotation services. It is the rampant daily stock fraud that the SEC is either inadequate, inept, or incompetent to prevent. For every one legitimate company raising capital to actually implement a business plan there are 99 others that consist of holding companies that hold nothing, pie in the sky HIV and cancer cures, transportation companies that transport nothing, and twenty year old “development stage” companies that change their name and business plan according to the latest headlines. The occasional enforcement action by the SEC consists of a relatively small fine and an admonition to go and sin no more. That is often years after the fact. That said, there are simple solutions that would resolve the issues of those who sincerely believe that “naked shorting” of literally penny and sub-penny stocks is a problem, and those like me who believe such twaddle is part of organized theft unchecked by your organization. The solutions all revolve around information, a commodity cheap to gather and easy to circulate in these days: 1. Require full disclosure of the terms and conditions of equity financing agreements entered into by any company that is traded on the OTC-BB or Pink Sheets. Companies frequently disclose only vague references to “stock rights” or “financing agreements” rather than reveal information that would signal the extent of coming dilution. 2. Require broker dealers who make a market in these stocks to provide a monthly report of their net position in each security with which they participate as market makers. In addition to providing valuable information to investors this would eliminate the promoters’ ability to make wild claims regarding alleged huge short trading positions being taken by broker dealers for their own accounts. 3. Prohibit hedging transactions in restricted securities issued coincidental to a convertible debenture or other stock rights placement. This prohibition will go a long way toward eliminating hot money CD funding and massive share dilution. It will also eliminate the ability of scam companies to pay insiders generous salaries for nothing. 4. Require that shares issued by “third parties”-wink wink- for stock promotion be issued with a restricted legend not removable for at least one year. The free trading S-8 shares currently used to purchase promotion and “investor relations” services fund nothing but naked hype and touting. Also require the identification of those third parties, prohibit them from being anonymous offshore entities, and require a clear statement of their relationship to the company. 5. Eliminate the current market maker exemption from affirmative determination of share availability in the course of shorting to “maintain an orderly market.” To the extent that there is abusive short selling in the OTC- BB and Pink Sheet systems it is through this exemption. This would of course drastically reduce the liquidity of these markets, but the current liquidity is what allows the rampant theft from pump and dump plans to take place. 6. Enforce the current settlement rules and provide a monthly report of those enforcement actions. 7. Require that corporate transfer agents make public through the internet a daily count of shares issued by any companies that are traded on the OTC-BB and Pink Sheet quotation services. Companies crying “naked shorts” while massively dilution their shares commonly gag their transfer agents to disguise that fact. To give on example, one of the more public claimants of a “naked short” in the company’s 8 penny stock has, accounting for the effects of three reverse splits, issued the equivalent of 26 trillion shares while maintaining a gag order on its transfer agent. That company is at least fully reporting, and is required to make quarterly disclosures. Pinnacle Business Management, which I will list by name because of the frequent comments to this body by its shareholders who are convinced that they are the victims of a vast conspiracy, gagged its transfer agent and secretly increased its issued share count from 400 million to 24.5 billion shares. As a non-reporting pink sheet company it was not required to disclose this far from trivial fact. Then pick an OTC or Pink Sheet naked short poster child and drop a dime on them. Get the FBI involved and go for criminal charges against not just the company management but also the array of undisclosed touts, boiler room operators, crooked accountants, and sleazy attorneys facilitating the scam. Just for once treat investor theft amounting to only a few tens of millions of dollars as serious. Sincerely Thomas Malone New York City -----BEGIN PGP SIGNATURE----- Note: This signature can be verified at https://www.hushtools.com/verify Version: Hush 2.3 Charset: UTF8 wkYEARECAAYFAj/KTMgACgkQe8SGeH0RMvmZPwCeLWTktnIDy8pDYkPacE8/Lq/BwjcA oIPpR+JoIN2MZMdPGdMZWvI/1zd4 =a361 -----END PGP SIGNATURE-----