ERHC Energy Inc (ERHE)

[manuel06]

https://www.sec.gov/rules/proposed/s72303/tmalone113003.txt















From: [e-mail]
Sent: Sunday, November 30, 2003 3:03 PM
To: [e-mail]
Subject: File s7-23-03 Proposed Regulation SHO

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Also please see attached MS Word file for comments.

PUBLIC COMMENTS REGARDING PROPOSED REGULATION SHO 34-48709

FILE # S7-23-03

In my opinion the SEC has committed a grave disservice to the small investor
by referencing the “problem” of “naked shorting” on the OTC-BB and Pink
Sheet quotation services while providing absolutely no supporting data
that would justify considerations of a policy change. Furthermore, they
have compounded their initial error by refusing a number of press requests
for internal SEC information that would indicate whether there are widespread
failures to settle transactions in the OTC-BB and Pink Sheet quotation
services-the one sure indication of a naked short position.

As a veteran observer of and commenter on these markets I can assure
you that one of the first indicators of a pump and dump is the claim-
made by disclosed, and more often undisclosed, promoters that a stock
is being “naked shorted.” A minimum of research will always reveal exactly
the opposite: the company’s price is declining because it has entered
into toxic discounted Convertible Debenture financing agreements that
ALLOW the Debenture holders to engage in hedging transactions. The resulting
flood of new shares into the market-virtually always accompanied by a
press, fax, e-mail, and boiler room promotion to create demand- is ultimately
the cause of the stock price’s decline. The “manipulative short selling”
enforcement action held up by the SEC as proof of your diligence in preventing
this supposed abuse was unique only in that the debenture agreement did
not allow hedging, giving you a basis for enforcement.

There is no national fiscal scandle as alleged by a small group of these
companies who have engaged in a relentless publicity campaign for promote
their cause, or at least one that involves “naked short selling.” The
scandle is that most if not all of them are allowed to continue to trade
as public companies.

It is not naked shorting that keeps small companies from being able to
raise capital through these quotation services. It is the rampant daily
stock fraud that the SEC is either inadequate, inept, or incompetent
to prevent. For every one legitimate company raising capital to actually
implement a business plan there are 99 others that consist of holding
companies that hold nothing, pie in the sky HIV and cancer cures, transportation
companies that transport nothing, and twenty year old “development stage”
companies that change their name and business plan according to the latest
headlines. The occasional enforcement action by the SEC consists of
a relatively small fine and an admonition to go and sin no more. That
is often years after the fact.

That said, there are simple solutions that would resolve the issues of
those who sincerely believe that “naked shorting” of literally penny
and sub-penny stocks is a problem, and those like me who believe such
twaddle is part of organized theft unchecked by your organization. The
solutions all revolve around information, a commodity cheap to gather
and easy to circulate in these days:

1. Require full disclosure of the terms and conditions of equity financing
agreements entered into by any company that is traded on the OTC-BB or
Pink Sheets. Companies frequently disclose only vague references to “stock
rights” or “financing agreements” rather than reveal information that
would signal the extent of coming dilution.

2. Require broker dealers who make a market in these stocks to provide
a monthly report of their net position in each security with which they
participate as market makers. In addition to providing valuable information
to investors this would eliminate the promoters’ ability to make wild
claims regarding alleged huge short trading positions being taken by
broker dealers for their own accounts.

3. Prohibit hedging transactions in restricted securities issued coincidental
to a convertible debenture or other stock rights placement. This prohibition
will go a long way toward eliminating hot money CD funding and massive
share dilution. It will also eliminate the ability of scam companies
to pay insiders generous salaries for nothing.

4. Require that shares issued by “third parties”-wink wink- for stock
promotion be issued with a restricted legend not removable for at least
one year. The free trading S-8 shares currently used to purchase promotion
and “investor relations” services fund nothing but naked hype and touting.
Also require the identification of those third parties, prohibit them
from being anonymous offshore entities, and require a clear statement
of their relationship to the company.

5. Eliminate the current market maker exemption from affirmative determination
of share availability in the course of shorting to “maintain an orderly
market.” To the extent that there is abusive short selling in the OTC-
BB and Pink Sheet systems it is through this exemption. This would of
course drastically reduce the liquidity of these markets, but the current
liquidity is what allows the rampant theft from pump and dump plans to
take place.

6. Enforce the current settlement rules and provide a monthly report
of those enforcement actions.

7. Require that corporate transfer agents make public through the internet
a daily count of shares issued by any companies that are traded on the
OTC-BB and Pink Sheet quotation services. Companies crying “naked shorts”
while massively dilution their shares commonly gag their transfer agents
to disguise that fact. To give on example, one of the more public claimants
of a “naked short” in the company’s 8 penny stock has, accounting for
the effects of three reverse splits, issued the equivalent of 26 trillion
shares while maintaining a gag order on its transfer agent. That company
is at least fully reporting, and is required to make quarterly disclosures.

Pinnacle Business Management, which I will list by name because of the
frequent comments to this body by its shareholders who are convinced
that they are the victims of a vast conspiracy, gagged its transfer agent
and secretly increased its issued share count from 400 million to 24.5
billion shares. As a non-reporting pink sheet company it was not required
to disclose this far from trivial fact.

Then pick an OTC or Pink Sheet naked short poster child and drop a dime
on them. Get the FBI involved and go for criminal charges against not
just the company management but also the array of undisclosed touts,
boiler room operators, crooked accountants, and sleazy attorneys facilitating
the scam. Just for once treat investor theft amounting to only a few
tens of millions of dollars as serious.

Sincerely

Thomas Malone
New York City

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