April 24, 1998
Jonathan Katz BY E-MAIL AND FIRST CLASS MAIL
United States Securities and Exchange Commission
450 5th Street, NW
Washington, DC 20549
Re: Comment Letter on 15c2-11
Dear Mr. Katz:
The Bureau is strongly supportive of this pro-consumer proposal to amend Rule 15c2-11. Further, the proposal is aimed at curtailing problems in the over the counter securities markets. OTC securities are generally low-priced, thinly traded, and subject to little internal or external analyst coverage. Their prices may be dramatically affected by false statements by insiders, investors, and others seeking to manipulate the prices of the security. All of these are damaging to the legitimate capital formation industry, as well as consumers.
For the past several years, the Iowa Securities Bureau has seen a high level of and consistent problems with broker-dealers and agent using high-pressure sales of micro-cap stocks. These problems result in consumer losses and harm to the reputation of the securities industry. These rules are a limited, responsible response, which will alleviate these abuses.
1. We especially believe the elimination of the "piggyback" exception is necessary. At first glance, it appears unbelievable that a broker-dealer can quote a price and engage in sales activity in a security with no basis as to the value of that security. To enable a broker-dealer to quote a price that is "not aligned with other current quotes" is even more irresponsible and extreme. Broker-dealers "hold themselves out" to the public as investment professionals and are clearly better equipped to gather and evaluate information better than the investing public. To require broker-dealer s to obtain and review information and to be able to produce this information and identify the analyst does not seem extreme. Rather it appears totally rational and basic to the operation of such sales activity.
2. Under the same concept, reasonable, rational regulation , the Bureau does not understand the proposition that foreign non-reporting companies may evade the requirement to produce financial statements meeting U.S. standards simply because the companies are foreign. The average consumer will have more difficulty finding information about and seeking recourse against a foreign company. Clearly, why should domestic issuers be expected to meet higher standards than foreign companies seeking to sale to the American people.
3. Finally, the next logical step is the retention and production of the information obtained and reviewed by the broker-dealer. If examination, routine or special circumstances, is required, this information must be available and the responsible staff identified.
The proposals are truly based on common sense and hardly overwhelming to the marketer of securities. It is clearly of benefit to the public, the capital formation process, and the legitimate industry.
CRAIG A. GOETTSCH
Superintendent of Securities