From: gkfount@att.net Sent: Monday, September 15, 2003 2:34 PM To: rule-comments@sec.gov Subject: File No. S7-12-03 Jonathan G. Katz Secretary, The Securities and Exchange Commission 450 Fifth Street, NW Washington D.C. 20549 Commissioners: I have had over 15 years experience assessing investment opportunities in the computer hardware, software, semiconductor, and Internet industries and producing industry-leading actionable evaluations and decisions. My research includes a broad understanding of web authoring, data warehousing, Internet security, Java, object-oriented and client-server technologies and GUI design. For the last three years, I have run an independent investment research practice. Prior to that I managed an investment practice under the American Express Financial Advisors umbrella. I joined Hambrecht & Quist in 1999 where I conducted in-depth analyses using fundamental, technical and quantitative methods to evaluate the investment prospects of the Linux market. Prior to joining Hambrecht & Quist, I was an equity analyst at Brundage, Story & Rose, a New York-based investment- counseling firm, where I chaired the Investment Committee and developed the firm’s first technology investment strategy. Between 1986 and 1992, I was at PaineWebber where I was among the first on Wall Street to focus on second- tier PC companies and expanded PaineWebber’s coverage to include computer mainframe companies. Also at PaineWebber, I developed and launched the first international capital spending survey focusing on computers, software, semiconductor and telecommunications. In addition, I supervised four staff persons in the development of a database of Chief Information Officers in Canada, Europe and Japan and a system for measuring the survey’s results and its publishing and dissemination. Prior to PaineWebber, I was with IBM. I hold an MBA in Finance from New York University and a Masters in International Business and a B.A. in Political Science from Columbia University. I am writing to you to express my concern about the expanded role that rating agencies may take on in issuing independent equity research. Rating agencies such as S&P have long-standing relationships with banks that give them a significant advantage in obtaining fees from these banks for providing independent research on equities. While, at first, the conflict of interests would be minimal, as time goes on, these rating agencies would have a significantly larger role in providing equity research. However, this research would be far from independent since rating agencies derive significant fees from companies for whom they provide credit ratings. Rating agencies are considered corporate insiders and therefore their research would over time become subjective. As I am sure you are aware, when investment banks first started providing equity research for their corporate clients, the equity research they provided was more objective. However, over time due to business needs and changing dynamics in the capital markets, equity research provided by analysts employed by investment banks became heavily influenced by the investment banking business requirements of the financial services firm. Therefore, I strongly urge you to prohibit any rating agencies with NRSRO designations from becoming providers of independent equity research. At minimum, I would urge you to restrain rating agencies from issuing equity recommendations or equity research on the corporate clients for whom they provide credit ratings. Sincerely, Georgia K. Fountoulakis