Subject: File No. S7-38-04
From: James Killelea

January 31, 2005

I am concerned that the proposed changes to Rule 139 may do more harm than good to potential investors. For example, Rule 139, among other objectives, prohibits a broker from making a more favorable recommendation than the one it made in its last publication. This prevents the over-hyping of IPOs and potential conditioning of the market. However, the proposed amendment to the rule would allow a recommendation during the pre-filing period which is more favorable than the preceding one. This presents two concerns.

First, it would allow dealers participating in a distribution of securities to unfairly benefit from favorable recommendations. Arguably, the more favorable the recommendation given by the dealer, the higher the price it will later receive from investors buying the stock. Second, it would allow investors to purchase a potentially overpriced stock. After the IPO, when a more favorable recommendation is no longer necessary, the stock price might fall to a more reasonable, market-adjusted price, causing investors to lose money on their investment. Thus, having acted on a more favorable recommendation by the dealer, the investor may well have made an unwise and losing investment.

In addition, proposed changes to Rule 139 would eliminate the requirement that research reports be distributed with reasonable regularity. Instead, the new rule would require that prior reports simply be distributed. Again, allowing dealers to publish reports in an ad hoc, unpredictable manner might cause more harm than good to investors. Unable to rely on regular reports, investors may well be disinclined to invest in certain issues. Furthermore, dealers may be encouraged to report on companies only during times of growth and prosperity.

While the proposed amendments to Rule 139 are minor in comparison to the Securities Offering Reform in general, they nonetheless have the potential to unfairly benefit dealers at the expense of investors.