October 4, 2005

Subject: 265-23:

I am writing about the devastating effects of "naked shorting" of stock shares, a.k.a. "failure to deliver", on the price of stock shares and hence on the market capitalization of small cap companies. Almost two years ago the SEC acknowledged that there existed a problem in the trading of stock shares in the markets in that stock shares were being shorted which were never returned to the brokers once the transaction was completed. Obviously this resulted in considerably more stock shares in the markets than were initially offered by the company essentially creating bogus or counterfeit stock shares. Regulations already in place required that shorted shares were to be returned to the broker no later than three days following completion of the transaction. This regulation was systematically ignored which led, approximately two years ago, to the SEC instituting Reg. SHO which recorded all companies whose shorted stock share had not been returned ("fail to deliver") back to the brokers within the legally allotted time. This was supposed to call attention to the delinquencies and thus induce compliance with the time regulation. In fact, the SHO list has been a colossal failure. Many companies initially on the list two years ago, such as Novastar Financial Inc. (NFI) still remain on the list uninterrupted for the past two years. The destructive effects of naked shorting on the market value of American companies have been voluminously itemized and reiterated by countless stock market analysts, business economists and academicians and need not be detailed here. It is sufficient to note that the SEC recognized two years ago that there was a significant problem in the matter of failure to deliver shorted stock shares, sufficient at least to institute a regulation to correct the problem, that the efforts by the SEC have been grossly ineffective and that the SEC has failed to take any further action to eliminate, correct or even mitigate the problem of naked shorting of stock shares.

One can hardly escape the conclusion that the SEC and its complicit associates such as the DTCC and who knows what other organisms, are doing their best to obstruct, divert and stonewall any and all efforts to correct and eliminate the nefarious and destructive process of failure to deliver.