Subject: File No. S7-24-04
From: David Patch

August 3, 2004


The first question to ask of the SEC before the SEC ventures into this rule change is: why? What exactly are the motivations behind this reform package and how does it relate to Investor safety?

As Investors we hear much about market liquidity and how it is Good for us. With the ease of entering into and exiting out from our positions we are able to better deal with the market conditions as they arise. Moving to a complete paperless system is intended to make this process even more efficient for the investors. But will it make it safer?

To move to a purely electronic system we need to insure the integrity of the system itself. The Markets today already operate primarily as an electronic trading platform with only small percentages of companies trading in paper certificates and/or shareholders holding positions in paper. How then is the accuracy of the present electronic trading system? What problems have arisen?

A Case study in this accuracy is taking place as we speak via a small OTCBB company called Jag Media. This company had initiated a re-organization by which the company is not only changing its CUSIP number but is also moving to Custody Only trading outside of the DTCC settlement system. Jag Media is not the first to undertake this action but is only the latest to do so. In each circumstance the results have been similar. The Electronic Trade Settlement system contained errors resulting in improper traceability of who owns what for shares in the stocks. The recapitalizations were hindered and complicated.

On June 4, 2004 the Jag Media stock stopped trading under its old symbol and became when-issued trading because of the recapitalization. While the recapitalization was expected to take a few weeks to convert the securities through the transfer agent, nobody expected that it would take over 8 weeks and still unresolved as of today August 3, 2004. The inability to address the share ownership issues has created a trading halt on the stock making it impossible to move our positions. This move has directly affected teh Issuer and the Shareholders. How is this related to this proposal however? The SEC and DTC claim that had this recapitalized electronically there would have been no delays. That is true but.. WHAT ABOUT THE ISSUES UNCOVERED?

Jag Media, in their recapitalization is really conducting an audit of the accuracy of the electronic system. Until now, the Company and their shareholders were uncertain about how the stock trades were being settled and this Audit Technique provides for that certainty. The mere results of the recapitalization demonstrate the poor accounting techniques of a system that is not forced into trade settlements and account accuracies. Some of the findings to date have been:

Claims by at least one Firm indicates that the number of shares listed at the DTC in their name exceed the number of shares the firm has on their books and in client accounts. Who then owns these shares and why have they not been settled through after 8 weeks of a trading halt? If the electronic settlement is fast and accurate, what is the issue?

Claims from other firms, and more prevalent, is that the DTC list of shares does not equal the number of shares they hold in client accounts. Many firms are seeking shares to be distributed back to them in street name because of the large discrepancy between shares held in accounts and shares available for delivery out of the DTC. In many of these discrepant accounts, the DTC is refusing to release shares to the firms due to the issues they have. These settlement issues are the root to stock manipulation and financial liabilities.

The proposal being submitted by the SEC is intended to be for the protection of the investor in a growing industry. I content that the real issue is to create higher volumes of Market liquidity that generate commission revenues for the industry at the expense of the investors.

Here is why.

1. The SEC has admitted that 4 of all publicly traded companies have settlement failure issues. At times teh failures exceed teh entire public float. These issues, and the ability to prove these issues in our courts, will be hidden once we go to a purely electronic system. Today, shareholders that request paper certificates and are denied that right will take their complaints to the SEC, the NASD, and/or our Federal Courts. This initiative will erase the evidence of proof. Today our accounts can require shares to be tagged as Safe Keeping if they are to show in our accounts in our name. Removing the paper from the process will tag everything as nothing more that a journal entry without proof of existence.

2. Today the DTCC has several lawsuits pending in State courts accusing them of settlement fraud. The accusations by these companies are that the ability to electronically manifest shares without the knowledge and awareness of the Issuer and Investor has manipulated their investments. These lawsuits are about the failures in a settlement system that the SEC is forcing us all to undertake. Moving farther into this direction, without fixing the DTCC systemic problems will make it harder for these lawsuits to be initiated. The Investors will lose as the process is covered up. So much for transparency.

3. Finally, it has to do with discovery. Eliminating the paper trail eliminates all access to discovery outside of the courts. The NASD recently fined 4 Wall Street firms 250K each due to their negligence in providing data in arbitration hearings. The 20+ lawsuits presently in our State and Federal Courts over illegal trading practices and settlement failure manipulation are being rigorously fought on access to discovery. The Industry does not want Investors or their lawyers knowing the real information pertaining to how trades are executed and settled. The DTCC, and SROs, conflicted over governing members vs. protecting investors, are following the money trail and leaving the rights of investors in the dust. The SEC is driving the secrecy of the Industry operations deeper into that black hole in hopes we will trust them all to do teh right thing.

Should the SEC proceed with this reform? Not a chance.

Before the SEC can even attempt to steal away the rights of investors to create an audit trail of how their investments are handled, the SEC needs to insure that the Industry has cleaned up its act. It is not Corporate Governance that is killing the investor confidence of the Markets it is a corrupt and greedy Wall Street and conflicted regulators.

The SEC needs to hold hearings on the failures of the present settlement system before they eliminate all potential alternatives to its usage. Ultimately, the SEC needs to begin to remove themselves from the conflicts of interest they now have. The SEC needs to be reminded about the letter and the spirit of the Securities Acts.