From: C. Austin Burrell [b.burrell1@cox.net] Sent: Monday, January 05, 2004 3:32 PM To: rule-comments@sec.gov Subject: S7-25-03: Comment Letter on Proposed Regulation SHO January 5, 2004 Mr. J. Katz Securities and Exchange Commission Washington, D. C. Dear Mr. Katz, I am writing in regard to Regulation SHO as circulated in concept form. Illegal Naked Short Selling has stripped hundreds of billions, if not TRILLIONS, of dollars from American investors to the favor of specific interest groups. Money has been received from investors by people who have shorted stock without any intention of making an affirmative determination of their ability to borrow securities beforehand, as required by law and by regulations. These parties have had to engage an enormous number of both non-governmental entities, quasi-governmental agencies, and the Government itself to get away with these activities. An enormous number of communications have been exchanged between interested parties and those responsible for protecting investors, and it is these letters which absolutely STRIP any plausible deniability from those responsible for allowing the abuses of Law that have occurred here. I have communicated directly on this crisis with Harvey Pitt while he was the Director of the SEC, and I wrote a detailed letter to Albert Gonzalez, the White House General Counsel, which is inserted below. Without exception, this matter has been stonewalled. I now fear it might be lost in THE NEXT BIG THING, The Offshore Banking Morass. The SEC has been asleep at the switch on this topic, just as it has been for the last 15 years, always moving in a half cocked manner on abuses and criminal activities long after the "bulge" of such activities was by them. One of the SEC's officials commented that it had been "Observing" shorting for some six years, as if American retirement accounts were used by them to conduct some sort of twisted lab experiment to find the "Lethal Dose 50" that these accounts could tolerate of illegal short selling. This official should be pilloried for this arrogant, insensitive and politically inane statement. The SEC has one set of issues to deal with: whose interests are they accommodating AHEAD of their first and primary duty, which is to protect the investor? Why won't they force buy-ins of illegal short positions that are not part of the legal shorting rule structure? How does the SEC tolerate the abuses that allow illegal shorts to hold monies they received from SELLING UNREGISTERED SECURITIES, an outright PRIMA FACIE violation of the Securities Act by action? Finally, how many parties have committed perjury in testimony before the Senate Banking Committee, and the House Committee on Financial Services around this topic? CONFLICT OF INTEREST is RIFE here. The SEC, the NASD, DTCC, NSCC, NCC, CDS and NCC of Canada, the Major Clearing Corporations and many more entities have made literal fortunes attacking US investment assets in a modern version of the GREAT BEAR RAIDS OF 1929 AND 1937. This has all happened before, with electronic counterfeiting substituting itself for printed versions in the 1920's and 1930's. There is nothing new here. Our Grandparents and Great-Grandparents were a lot smarter than you thought they were when they constructed the constraints on short selling created in the Securities Acts of 1933 and 1934. They did it because they had specific evidence that the sheer scale of the crashes was a direct result of intentional manipulation of US markets through abusive short selling by a massive conspiracy. You have permitted exactly that to occur again, and you think you are being bailed out by ERISA and similar investments continuing to come into Americans accounts every payday. An interesting question is where the Department of Labor has been in all this. They are the Federal Agency principally responsible for protesting retirement account assets. Are they, like you, practicing selective enforcement? Finally, knowing that virtually none of you have any personal operating experience as officers or directors of public companies, and you have not been in house lawyers or accountants for public companies, or officer/traders/clearing/corporate finance officers of brokers or clearing houses, how do you presume the competency necessary to fix this TRAIN WRECK? This illegal naked short selling has rendered financial statements virtually meaningless. If you don't understand that, THEN GET HELP. Some 7,000 plus public companies have been shorted out of existence over the past six years. Where was the SEC while this was going on? You have received more than 2700 complaint letters, which anyone knows can be multiplied by 100 for the letters received by brokers and clearing firms and by 1000 to guess at how many complaints have been made verbally. Has the SEC become such a Mandarin like bureaucracy that it now believes it is "Above" such petty scrutiny as public oversight? Pass your regulation SHO as drafted, and you will change virtually nothing, and you will cause no proper restitution of the billions of dollars stolen from American investors. As written, your rule gives a pass for previous violations and permits further abuses of the sector that has created all new jobs in the private sector for more than 40 years, a sector that bluntly cannot protect itself from such predatory and well-funded entities, the majority of which work together in giant RICO conspiracies which no small company can stand up to. See the letter to Al Gonzales below: April 15, 2003 Mr. Albert Gonzalez, Esq. White House General Counsel 1600 Pennsylvania Ave NW Washington, DC 20500 Dear Mr. Gonzalez, I copied you on a letter I wrote to Harvey Pitt when he was still SEC Chairman regarding a family of securities market manipulations surrounding illegal short selling. A copy of this communication is attached for your convenience. Last week, William Donaldson, the new SEC Chairman, announced he was looking into these frauds to the Senate, along with abuses of hedge funds. Over the past three years, I have studied this area more extensively than I probably would have liked to. Beginning last June, I began to give litigation support to the John O’Quinn law firm in Houston (O’Quinn, Laminack and Pirtle), working with Wes Christian, Esq., of Christian, Smith, Wukoson and Jewell. I think my findings in this area have to be of concern to the White House, and in particular, to the President. The cases I studied have led me to the conclusion that an enormous number of domestic hedge funds and offshore entities have engaged in a systematic conspiracy to defraud US investors in equity securities of an absolutely staggering amount of money, the largest fraud ever perpetrated in world history. Depending on which expert you speak to, somewhere between $8 and $17 Trillion dollars have been lost or, in many cases, stolen. I am convinced that some significant percentage of these losses went into the hands of parties perpetrating a massive and sophisticated securities fraud unprecedented in American history. Much of this occurred as a result of aggressive and inappropriate interpretation of 1993 administrative rule changes permitting exceptions to the short sale rules of the SEC and NASD, particularly by entities that did not have any duty to comply with US law. As the leader of a 65 lawyer team, Wes Christian has uncovered more than 1200 hedge fund and offshore accounts working through more than 150 broker-dealers and market makers in a joint cooperative effort to strip small and medium size public companies of their value. In doing so, they have stripped the NASD of its credibility, and investors of literally hundreds of billions of dollars and their confidence in US equity markets. This scandal threatens to destroy the very fabric of fundamental investor confidence in all public markets. Worse, these manipulations have decimated the small public company arena as a legitimate sector for corporate development and funding. This segment was the source in the 1970’s of little companies trading for pennies that became Intel, Microsoft, Apple, and others. Much more importantly, this sector was the one responsible for ALL new job creation and technology development for the last thirty years. That is now DEAD. Given the President’s concern with re-stimulating the economy, he needs to focus on this, and he needs to do it now, coming out of the War. I voted for President Bush, and I will again. My vote alone, however, will not make him President again. The Clinton administration set up the foundation for this family of abuses, and handed the bag to President Bush. I believe that this is a problem screaming for aggressive attention. Knowing the Democrats, when this scandal hits the press in the next few weeks, they will try to blame this on President Bush and his administration, just as they did the market implosion in 2000, and the resulting fallout from 2001 till now. I wrote an elementary and intelligible explanation for a client I would like to send to you. It is attached. I am a graduate of West Point, with five years of service in the Army. I spent most of my early adult life after the Army working for major broker-dealers in New York. I can provide you with my CV if you wish. I am not seeking notoriety for this. I have no desire to be a public person. Rather, I would like to be an outside resource for you and your staff to use in evaluating this nightmare. I have an old and valued friend in Arlington, Texas, whom I have spoken to at length on this topic. He is how I have come to write this letter to you. If you can read the attachment without being shocked, you will be the first. I think you would be well advised to consider some recommendations I could make to you. What has started as an apparently natural market correction (it wasn’t) is about to turn into a national scandal that will compromise the integrity of the Depository Trust and Clearing Corporation, the National Stock Clearance Corporation, and the National Association of Security Dealers. I would hope that the White House could be on the right side of this issue. I knew of William Donaldson from my earliest days on Wall Street, and I think he is made of different stuff than Harvey Pitt. He has stepped on a land mine, and I don’t think anyone on his staff knows how to explain it to him. I can and will if you ask. Best Regards, C. Austin Burrell 6359 East Kathleen Road Scottsdale, AZ 85254-1982 Phone: (480) 951-4897 .