Date: 5/27/99 10:49 AM Capston Network Company Voice (727) 443-3434 (727) 443-5240 E-mail Capston@GTE.net Mr. Jonathan G. Katz Secretary Securities and Exchange Commission 450 Fifth Street, NW, Mail Stop 6-9 Washington, DC 20549 Re: File S7-5-99 Dear Mr. Katz: Despite the fact that this comment letter is late, I ask you to consider it with the others. I, not only, want to join the widespread protest against the proposed amendments to Rule 15c2-11, but also to protest the general direction I see this Commission heading. Under the banner of combating Microcap fraud, the Commission has naively taken a series of actions that are calamitous for business development and fortuitous for the fraud mongers. While the previous rule changes adopted by the Commission have had a substantial negative impact on the capital formation options available to developing businesses, these changes did not reduce information, create increased opportunity for fraud or force fundamental changes in the operation of he securities markets. Unless the Commission believes that there is no strong relationship between investment liquidity and a small company's ability to raise capital then there is no question that the proposals will reduce capital access. Further, there appears to be a general consensus that the proposed amendments will reduce a business's chances of ever being "quoted". Since the need of small business for capital will never be reduced, if current fundraising mechanisms are eliminated, entrepreneurs will invariably revert to raising capital from unsophisticated investors using the services of unscrupulous promoters. Instead of protecting the general public from fraud, the Commission will have become an active participant by foreclosing more legitimate efforts. Entrepreneurs, strongly believing in their business and in need of capital, will turn to those who are most effective in capital raising from the smaller investor. These groups were so effective in the past that Congress acted in 1990 to combat the multitude of problems arising from their activities. Here are the issues that I would ask the Commission to consider and publish its position in regard to these proposals: 1) How are these amendments in harmony with the Securities Enforcement Remedies and Penny Stock Reform Act? 2) Why does the Commission believe that if an action was taken under the Small Business Regulatory Enforcement Fairness Act challenging these amendments it would win? 3) What research has been done by the Commission that supports their assertion that the "market maker's" quotation is a key component in legitimizing fraudulent trading? 4) How does the Commission reconcile the position these amendments create with the position of Chairman Levitt on the importance of transparency? 5) What research has been done to support the belief that State regulators are now more capable of handling securities enforcement activities than in the eighties and early nineties? 6) Why does the Commission, at the very time when it has the opportunity to increase information dissemination, wish to create a barrier to the most important information for any investor - the liquidity and the arket's valuation of the company? 7) What does the Commission's research show on the impact of capital raising? 8) What economic models did the Commission employ in the analysis of the impact of these amendments on liquidity issues and business formation and development? 9) What professional attributes, training or history of the broker-dealer population has led the Commission to believe that broker-dealers should be placed in a position of passing judgement on Issuer's management, legal and accounting team? 10) Is this proposed new role for the broker-dealer in sync with the intent of the Securities Act and the Exchange Act when passed by Congress? Because of my last five years of research in the fraud activities surrounding shells, investigation, review and sometimes revival of bankrupt 1934 Act companies, I have been in the interesting position of dealing with shareholders of "lost" companies, businesses trying to gain status in the market place and the many types of individuals who compete for the economic opportunities in this arena. Is there fraud? Is there mis-management of resources? Are opportunities squandered? Absolutely! And not only in "traded" securities. The ultimate difference is that in a "traded" security, the investor does have a possible exit strategy. In the final analysis, the Commission has the responsibility to increase rapid and timely access to information, increase opportunities for business to access capitals and increase investor exit avenues. Fraud flourishes in an absence of information. These amendments are contrary to the responsibility of the Commission. Instead they will aid and abet the fraud mongers of the world, while reducing investor opportunities and choices. Despite the Commission's obvious belief that a market maker has the mystical ability to effectively evaluate that which other professionals cannot, I believe changing the role and the motivations of the market maker is extremely destructive to the overall integrity of the market place. The interaction of all the professional roles, overseen by the regulators, is what makes a strong market place. Not every professional should be a gatekeeper, but every professional should be held responsible for ethical and reasonable behavior. Focus your efforts on improving the regulator's investigative tools and manpower, increase information to investors, continue your efforts to educate the investor and broaden your efforts to educate the issuer and you will be applauded and supported. If not, there is little doubt, you will be remembered as the Commission that galvanized the small issuers into legal action and propelled them into the political arena. Respectfully, /s/ Sally Fonner President