Subject: Comments on File No. S7-24-99, Release number 34-42037 Author: "Deboarh Clement" at Internet Date: 11/20/99 12:43 PM To: Jonathan G. Katz Re: Proposed changes to the Short Sales Rules, Proposal Release number 34-42037, File number S7-24-99 Mr. Katz, I and many fellow individual investors are very thankful to the SEC and the OTC:BB exchange, for the recent changes implemented to the OTC:BB exchange that requires all companies to be fully reporting, and filing their financial reports on a regular and timely basis, in order to either be listed on the exchange or to remain on the OTC:BB exchange. It most certainly is a step in the right direction. It will in my opinion, eliminate a lot of the fraud on the company side of the house. Investors now, can at the very least, have the opportunity, to make an informed decision regarding the companies financial status before they purchase a given stock on the OTC:BB exchange, since they will now be able to view the companies financial reports. It is one more check and balance in favor of the Investor. Now however, it is high time to take care of the other side of the house. It was with great pleasure I read about the recent proposed extenuation of the Shorting Rules to the OTC:BB exchange stocks. This in my opinion, can't be implemented fast enough. The faster it (the shorting rules applied to the OTC:BB exchange stocks) is implemented, the better it will be for average Joe or Jane Investor and in my opinion, will also benefit honest companies on the OTC:BB exchange as well. While there are indeed most likely, some unscrupulous companies on the OTC:BB, in my opinion, the recent changes to the OTC:BB with the new Eligibility rule, are and will be, changing that. Many companies on the OTC:BB exchange are run by honest, hard working people trying to grow a small struggling company, into something larger. Day by day, I see the rampant manipulation by the OTC:BB Market Makers and other entities. done to these honest, hard working companies (and their shareholders), who are only trying to make the American dream a reality. The current way of doing things on for stocks on the OTC:BB exchange, is in essence, like the hazing that goes on in colleges and such, for new fraternity and sorority members, of which I might point out, that those practices are being outlawed at colleges and universities, even as we speak. This due to the harm that is caused due to these practices. Same should be so for the stocks on the OTC:BB exchange for the same reasons ... as these practices and these attitudes causes harm to the individual investor. It seems to me, that small companies, that are trying to raise capital, but are too small to be on the 'Big Boards' of the NASDAQ, must at this time, try their best to endure through the hazing process in their quest to be listed on the 'Big Boards', of which their shareholders must also endure this 'process' right along with them. This in my opinion, just is not right for the companies, or for the shareholders who believe in them (the companies). Many investors, have done countless hours of research and Due Diligence, then select a stock/company on that basis, only to see their companies and their stocks price and value destroyed by the shorting and manipulation practices that are currently allowed on the OTC:BB exchange. In many ways, the stocks on the OTC:BB are looked down upon and treated as the forgotten Stepchildren of the NASDAQ and such, are abused in many ways, as are the individual investors that invest in these OTC:BB companies. Many uninformed investors, believe the bashers on the Internet chat boards, that the naked shorting, shorting and manipulation on the OTC:BB stocks, is a myth. It is not the case, as I myself have recently seen it in action. As a specific example, recently I purchased a large block (50k shares) of an OTC:BB stock, KAHI, Kaire Holdings, with a limit order between the bid and the ask. 2 min after I inputted my order via my online broker, via real time quotes, I saw that the bid rose to match my limit order, the ask remained the same. After waiting 20 min, and not seeing my order filing, I raised my limit price a fraction, still between the bid and the ask. 2 min after I my change order was accepted, I saw the bid rise to match my limit order, the ask again remained the same. Still I didn't get a fill, so I raised my limit order again, to the ask price, this time 2 min after my change order was accepted, not only did the bid change to where my limit order now was (the former ask), so did the ask price did also rise. I then went onto one of the Internet chat boards, the KAHI board, on the Raging Bull, and posted I was NOT moving my order again and that I refused to chase it any further. Not only did I a few minutes later get a fill, the bid and ask hadn't changed, and I was told by some who saw my order go by on Level 2, that my order was recorded as a sell and not a buy. Proving to me that not only is the OTC:BB market severely manipulated, the Market Makers also READ the Internet Chat Boards, and also in my opinion, POST basher messages as well in attempt to scare people into selling their positions at lower prices than they otherwise would, and thus through these and other manipulative tactics, the Market Makers and other Naked Shorters, then avoid having to cover their short positions. (I think your next proposal should address the issue of bashers and their purposeful spread of misinformation on the Internet stock Chat boards as well) Note: Some have estimated via time and sales from the http://www.otcbb.com/ website, that the current short position on KAHI is now at about 70 some Million shares, which is MORE than this companies current O/S (which based on their last 10QSB filed on November 8th, the O/S is: 59,144,616 shares as of September 30th) not to mention the Float of this stock. Currently, it is my opinion, that with the current huge Market Maker short position in KAHI, it is now in the best interests of the Market Makers of the KAHI stock, to keep the price down of this stock, in what ever manor they can get away with. The shorting has even increased recently, and kept the price in my opinion falsely depressed, this even recently, with the recent relaunch of Kaire Holidings' VitaPlanet.com website, with their new Online Rx Pharmacy. It is in my opinion, a stock that gives a perfect example on why the Shorting Rules need to be extended to the OTC:BB exchange. The current rules, with their lack of shorting protection for the OTC:BB exchange stocks, allow for a free for all within the OTC:BB exchange, with frequent 'bear raids' on stocks and companies listed on the OTC:BB exchange, with in the end, the shareholders left holding the 'bag' so to speak. In the end, the current situation with the OTC:BB manipulation and shorting, is tantamount in effect, to the legal sanctioned raping of the investors of OTC:BB stocks on a daily basis. It also in my opinion, removes the neutrality that the Market Makers should have, allowing the Market Makers to build up HUGE naked short positions, thus once this happens, now they, the Market Makers, are looking out for ONLY their own self interests. It then behooves them, the Market Makers, to do what ever it takes, to keep the stock in question's share price that they have a severely shorted position down or falsely depressed, so that they, the Market Makers, or other Naked Shorters, or Shorters, will never have to cover their short positions. This in the end, only leaves the investors holding the short end of the stick, while the Market Makers, deep into their short positions, are laughing all the way to the bank, still not having to cover their short positions. This doesn't even address what this type of activity, does to honest, struggling companies, trying to get a start. Case in point, the recent NY Times article (link below), that shows how corrupted that the OTC:BB has become. http://www.nytimes.com/library/financial/111999broker-deaths.html So, in response to the following questions from the proposal: Q35. Should we consider extending short sale regulation to cover non-exchange listed securities? My answer to this is Yes, most definitely. Q36. If so, how should the new regulation restrict short sales? Does the current NASD short sale rule provide an applicable model for this purpose? Yes, it is a good model, however, don't stop there. I think there must be some sort of rule that requires a MM community to be either only so much of the float short, and requires a set date for them to be required to COVER their short, so that they (the short position) can not go uncovered indefinitely. Then there is the other part of the proposal, the removal of the uptick rule that distresses me greatly. If you want to see how the general market will be, should the SEC decide to remove the uptick rule, one need look no further for an example than the current OTC:BB market. If the uptick rule is removed, then the general market in my opinion, will become just like the current OTC:BB market is today, with frequent 'bear raids' on ALL stocks, and the individual investor at the mercy of the shorts who frequently use methods like posting on Internet Chat boards with lies, half truths, and scare tactics, to separate many individual shareholders, many of them novices to the stock market, from their shares, most times at a lost to those individual shareholders. So, in addition to extending the current Shorting rules to the OTC:BB, I'm also in favor for KEEPING the current uptick rule requirement in place as well for anyone who wishes to short a given stock. I also feel that there should be some sort of reporting put into place for significant short positions, regardless of what the exchange is. Sincerely a concerned Individual Investor, Deborah Clement