.

April 29, 1998

Jonathan G. Katz, Secretary

Securities and Exchange Commission

450 Fifth Street, Northwest

Washington, D.C. 20549

Subject: Publication or Submission of Quotations Without Specified Information

File No. S7-3-98

Rel. No. 34-39670

Dear Mr. Katz:

The State of Washington Securities Division welcomes this opportunity to comment on the Securities and Exchange Commission ("SEC") proposal on the Publication or Submission of Quotations Without Specified Information. We understand that the proposed amendments to Exchange Act Rule 15c2-11 are part of the SEC's effort to reduce fraud in the micro-cap market and we applaud that effort. Our enforcement staff has seen a marked increase in the number of victims of microcap fraud and we believe that fundamental changes are needed to combat the problem.

We fully support requiring broker-dealers to obtain and review certain information when they first publish or resume publishing a quotation for a security. With respect to reporting issuers, the broker-dealer firms could comply with the rule at relatively minimal cost as the reports filed by or on behalf of issuers under the Securities Exchange Act of 1934 ("’34 Act") are available free of charge through the Commission’s EDGAR system.

We particularly support the Commission’s proposal to expand the information that broker-dealers must review before publishing a quotation for a non-reporting issuer’s securities. Our enforcement staff has noticed an increasing problem in this segment of the market and lack of information appears to be a significant cause. Our system is based upon having certain professionals play the role of gatekeeper and in this market the broker-dealer is the most logical participant to play that role. The broker-dealer community has an obligation to the marketplace to possess some fundamental basis for publishing a quote at a given price. The key is to determine what kind of information the broker-dealer can reasonably access for distribution. The release lists a number is items to be obtained and reviewed. While the information would certainly provide the broker-dealers with greater awareness of the issuer, the Commission has to be particularly sensitive to legitimate suggestions that a particular category of information is burdensome to collect. Conversely, if the information is necessary for an investor to make an informed investment decision, the information should be gathered.

While the current rule already requires the broker-dealer to obtain and review certain information prior to publishing quotes, it has been our experience during audit, particularly during the joint sweeps in which we have participated over the years, that many broker-dealers that publish quotations in non-Nasdaq securities do not possess the required information. Many firm rely on the piggyback exception to the rule. For this reason, we strongly support the elimination of the "piggyback" exception. Allowing broker-dealers to issue quotes without reviewing information just because the security has been the subject of regular and frequent quotation greatly facilitates microcap fraud even when that particular broker-dealer is not a participant in the fraud. While we acknowledge that this could have a chilling effect upon the publication of quotes and that liquidity may be detrimentally affected for small business issuers, drastic times call for drastic measures. Microcap fraud is rampant and ultimately detrimental to that same market and many of its investors. Hopefully, this rule will have the effect of encouraging issuers that want to maintain liquidity in their stock to disseminate accurate information to the marketplace. With widespread use of the Internet, this could easily be accomplished. Another reason the elimination of this loophole is important is that investors assume that their brokers have information about stocks that they are quoting. They are presumed to be gatekeepers and they should have the information necessary to perform that function.

We also fully support both the enhanced accessibility of information required by the rule and the requirement that the broker-dealer document its review. Enhanced investor access will help ensure that investors and others will be able to evaluate information they are receiving from the broker-dealer and it makes it less likely that the broker-dealer would intentionally mislead them. As Louis Brandeis said in 1914, "Sunshine is the best disinfectant". Requiring the broker-dealer to document its compliance with the rule will not only encourage compliance but will create a paper trail for regulators to follow if enforcement actions become necessary.

The rule requires annual updating of information if the broker-dealer publishes priced quotations. There is no requirement if the quotes are unpriced. Although we are much less concerned about unpriced quotes, as is noted in the release, the Commission should continue to monitor the affect of allowing the publication of unpriced quotations to determine if unlawful schemes could be facilitated by that means.

The proposed rule would require broker-dealers to obtain certain information about the issuer’s insiders. We believe that it is not appropriate to allow a broker-dealer to publish quotations if the issuer refuses to supply disciplinary information. First, there would be no real incentive to provide the information in the first place. Second, in the most egregious frauds broker-dealers with disciplinary histories collaborate with issuers with disciplinary histories to defraud innocent investors. We suggest that the Commission adopt its first proposed alternative to comply with the rule.(i.e. that the broker-dealer obtain a statement from the issuer that none of the specified actions had occurred, or that the broker-dealer document the steps taken to obtain the required information).

The proposal expands the financial information that is required to be reviewed and requires that the information be prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). Under state registration, many states require an issuer to have audited financials prepared according to GAAP for offerings greater than $500,000. Many small issuers have commented to us that they have to have audited financials to be able to get investors interested in buying their securities. We agree with the Commission’s view that the GAAP standards would not impose substantial costs on issuers.

The release goes into great detail about publishing quotes for foreign issuers. While I have some compassion and concern for domestic issuers as it relates to liquidity, I see no reason to facilitate the sale of foreign securities about which the broker-dealer has no information other than that which is provided in the 12g3-2(b) filing. We support deleting the reference to 12g3-2(b) in 15c2-11. Further, we see no reason why broker-dealers should not be required to obtain and review the same financial information required of domestic non-reporting companies. There is no reason to give foreign companies a competitive advantage over domestic issuers especially in view of the fact that it is more difficult to obtain information about foreign non-reporting companies.

As a long time supporter of initiatives that support small business issuers, the State of Washington is hopeful that the reduction in microcap fraud resulting from adoption of Proposed Rule 15c2-11 will enhance small business capital formation and encourage underwriters and broker-dealers to publish quotations in the securities of legitimate small business issuers. As stated above, I believe that the short term effect may be a loss of liquidity for some of these issuers. This impact should be monitored with a view towards future amendment to Rule 15c2-11 or any of the other rules that are being amended to try to stem the tide of microcap fraud, if the benefits to investors are significantly outweighed by the costs to small businesses. To that end, I join NASAA in its recommendation that representatives of the Commission’s Division of Market Regulation and Corporation Finance, the NASDR, and state securities regulators together study the impact of Proposed Rule 15c2-11 on small business capital formation.

Thank you for this opportunity to comment on this very important rule proposal. Should the Commission or its staff desire additional information or clarification of the matters discussed in this letter, please feel free to contact me at (360) 902-8797.

Sincerely,

Deborah R. Bortner

Director of Securities