Subject: Release Nos. 33-7611, 34-40678; File No. S7-29-98 - Comment 

Date:    12/30/98 11:09 AM
     
     
     
I wish to comment briefly on the above-mentioned Release (the 
"Release").  The Release focuses, in various cross-border scenarios, 
on (i) the offering of rights to U.S. investors that often already 
hold other securities of a foreign private issuer, (ii) the offering 
of other securities to U.S. investors in connection with "business 
combinations" in exchange for cash and/or other consideration (e.g., 
other securities of a foreign private issuer already held by such U.S. 
investors), and (iii) the offering of cash and/or other consideration 
in connection with tender offers in order to purchase securities of a 
foreign private issuer already held by U.S. investors.  Significantly, 
the Release fails to address, or provide any exemptive relief or 
interpretative comfort on, the ability of a foreign private issuer to 
pay U.S. investors cash in lieu of:
     
(a) a free distribution of rights, warrants, or other securities to 
pre-existing U.S. investors (e.g., a distribution of rights to U.S. 
investors already owing equity in the foreign private issuer); or
     
(b) a free distribution of securities in connection with a proposed 
business combination (e.g., a free distribution of equity to U.S. 
investors of a foreign private issuer undergoing demutualization or a 
spin-off);
     
in either case, without fear of the application of the U.S. securities 
laws (other than their anti-fraud provisions).  In my opinion, this is 
a significant omission that I respectfully suggest the Commission 
reconsider.
     
In my experience as both a lawyer and an investor, foreign private 
issuers routinely use the veil of "onerous and complex U.S. securities 
laws" not only to avoid offering free rights, warrants and other 
securities to U.S. investors in the situations detailed above, but 
also to avoid payment to U.S. investors of cash in lieu of such 
securities.  In certain cases, this position is in flagrant violation 
of local laws, but, as the Release has accurately noted, it is 
extremely cumbersome and difficult for aggrieved U.S. investors to 
obtain any relief through the domestic U.S. courts or, alternatively, 
foreign courts of competent jurisdiction.  This position results in 
the very laws which are designed to protect U.S. investors from fraud, 
gross abuses, and disparate treatment being used improperly as a 
mechanism and excuse to perpetrate fraud, gross abuses, and disparate 
treatment.  The Commission should take the opportunity presented by 
the Release to make a clear and unequivocal statement that a 
distribution to U.S. investors of cash in lieu of free rights, 
warrants, or other securities does not run afoul of, or result in the 
application of, the U.S. securities laws.  Of course, the Commission 
might want to condition such exemptive relief or interpretative 
guidance on the express reservation of application of the anti-fraud 
provisions of the U.S. securities laws.
     
In various places in the Release and in past interpretative guidance 
and exemptive relief provided by the Commission, the Commission 
implicitly acknowledges that foreign private issuers can pay U.S. 
investors cash in lieu of free rights offered to investors, without 
those issuers having to worry about the application of the U.S 
securities laws.  See, e.g., Discussion, Part II.A.3. of the Release 
and footnote 25 (noting that holders of ADRs through the Bank of New 
York ("BONY") received cash in lieu of rights in 29 of 37 rights 
offerings and holders of ADRs through Morgan Guaranty Trust Company of 
New York ("Morgan Guaranty") received cash in lieu of rights in 23 of 
24 rights offerings); Cost Benefit Analysis, Part III. of the Release.
 (It would seem that the Commission should be concerned about those
U.S. investors in ADRs that did not receive any cash or other 
compensation in the 8 rights offerings involving BONY and the single 
rights offering involving Morgan Guaranty discussed in footnote 25 of 
the Release.)  The Commission has also taken a similar position in the 
past in respect of cash paid in lieu of securities offered in a foreign 
private issuer's demutualization, when the relevant U.S. investor would 
only receive a fractional amount of shares.  In addition, Proposed Rule 
802(a)(ii)(1) permits a foreign private issuer, in connection with 
offers and sales of securities in exchange offers or business 
combinations, to offer a "cash alternative" for U.S. investors located 
in states with "blue sky" laws that would otherwise necessitate 
registration or qualification of the offered securities thereunder.  
Neither the Release, the Proposed Rules, nor any of these past 
statements of interpretation or exemptive relief provide the kind of 
clear and direct support for payments of cash to U.S. investors in lieu 
of free securities that I believe is necessary and long overdue.
     
While it is certainly true that the Commission cannot force foreign 
private issuers to include a cash alternative for U.S. investors in 
connection with (a) a free distribution of rights, warrants, or other 
securities to pre-existing U.S. investors or (b) a free distribution 
of securities in connection with a proposed business combination, 
exemptive relief or interpretative guidance to the effect that such 
payments of cash do not run afoul of, or result in the application of, 
the U.S. securities laws would eliminate the underpinnings of vague 
excuses and opaque references to those same laws as a justification 
for failing to distribute such cash to U.S. investors.  Such relief or 
guidance would be very helpful in circumstances where a foreign 
private issuer may have violated local laws (e.g., laws prescribing 
fiduciary duties or preemptive rights) and an aggrieved U.S. investor 
is seeking adjudicatory relief in either U.S. or foreign courts or 
administrative bodies.  Finally, the Release and Proposed Rules 801 
and 802 make much of "equal treatment" of foreign investors and U.S. 
investors.  It is clear, however, from the Commission's own factual 
information in footnote 25 of the Release that U.S. investors are 
regularly denied the cash equivalent value of free rights, warrants 
and securities being distributed to investors by foreign private 
issuers.  Unfortunately, this unequal treatment of foreign and U.S. 
investors is well known to U.S. corporate and securities lawyers and 
the growing number of U.S investors that participate in the 
international securities markets.  I respectfully ask that the 
Commission take the opportunity presented by the Release to provide 
clear guidance or exemptive relief concerning this issue.
     
                                                                
Sincerely,
     
                                                                
James W. Lovely
                
19 Kenilworth Drive
                
Kensington, California 94707