My pleasure Phrill...
Read this well researched piece of work:
Brenda Fuller
U.S. Securities & Exchange Commission
FOIA Office, Stop 0-5
6432 General Green Way
Alexandria, VA. 22312-2413
General Counsel
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0207
Re: FOIA Request by Attorney for represented shareholders of CMKM Diamonds, Inc.
Request No. 05-05834-FOIA
FREEDOM OF INFORMATION ACT APPEAL
Dear Brenda and General Counsel:
Please consider this as a formal appeal of Brenda Fuller's ruling on June 3, 2005 denying the release of information made by me under Request No. 05-05834-FOIA pursuant to 5 U.S.C. 552 (a) (6), 17 C.F.R. Sec. 200.80 (d)(5) and (6).
Facts
Appellant is an attorney representing a group of approximately 5,400 shareholders of CMKM Diamonds, Inc. (hereinafter CMKX). Appellant has been formally retained by 5,400 CMKX shareholders but the information requested is equally important to all 50,000 plus shareholders of this company.
Background
CMKM Diamonds, Inc. is a mining and exploration company that has traded on the pink sheets for several years. Due to press releases and other forms of promotion, this stock became the largest selling stock issue in numbers of shares in the history of the stock market. The shareholder base is so large no one has been able to determine the extent of it with any degree of certainty. Some projections are as low as 30,000. Some projections go as high as 70,000. This attorney's group of shareholders has undertaken the task of contacting CMKX shareholders to confirm and verify both the numbers of shareholders and their respective holdings. The information I am requesting under this FOIA request would be helpful to the shareholders in some of their efforts.
This large shareholder base has invested millions of dollars in this company's stock. The company claims to have significant value in its mineral deposits, mineral claims and joint venture projects with third parties. In 2004 sales in this stock averaged over four billion shares a day. On December 14, 2004, 41,635,715,982 shares were traded and reported through normal channels. This number did not include the trades that occurred during that time as unreported trades. My shareholders have learned that in addition to the outrageously high volume of trading, 121 billion shares were traded during a six month period in 2004 on an "ex-clearing" basis and thus were not revealed to the investing public. See "Exhibit A".
This company was once a reporting company but chose to go "non-reporting" in 2003 by the filing of a Form 15 with the SEC. Although required to do so, the SEC did not conduct an investigation or convene a hearing to determine the propriety of such filing. The investing public soon after this company went to non filing status became enamored with the stock as reports of diamonds and gold findings were released and speculative value of the one million acres of mineral claims became a topic of the internet. The one million acres surrounded proven diamond producing claims of the largest producer of diamonds in the world. Although the company was a "non-reporting" company, a prominent and respected ex-SEC enforcement attorney was hired in June of 2004. The sole purpose of his hiring according to a press release was to assure the investing public that public filing of the company's financial reports would soon occur.
In March of 2005, the SEC filed a 12(j) proceeding to revoke the registration of CMKX for the company's failure to file required financial reports. Financial reports have not been filed for 2002, 2003 and 2004. For some reason the SEC began an investigation of CMKX in 2004 (and probably before that time). We know the SEC began investigating the trading of CMKX because the shareholders learned of some "unusual" trading strategies that were being used by certain members of the NASD in 2004. The trades which had occurred "ex-clearing" were discovered when a letter was sent by Jefferies' deputy general counsel to the NASD explaining these trades. This letter was generated as a result of inquiries by the SEC to the NASD. (See Exhibit "A") Shareholders learned of this letter at the deregistration hearing being conducted by the SEC on May 10, 2005.
On May 11, 2005, a meeting was held at the SEC office in Los Angeles between myself, the company attorney and various CMKX Board members with three SEC enforcement attorneys in attendance. The purpose of the meeting was to discuss the company's belief that billions of shares of CMKX were shorted and open "fails to deliver" in this stock were rampant throughout the market place. Evidence compiled by the shareholders suggests there have been over a trillion shares of CMKX stock sold to the investing public. During this meeting I was asked by one of the SEC attorneys if I had any proof of our allegations. As we discussed the proof we had accumulated, I was also asked if I had made a request under the FOIA for the DTC's "fail to deliver" list which is purportedly given to the SEC on a daily basis as required by Regulation SHO. I confessed that I had not made such request.
The meeting I am referencing concluded with the SEC attorneys giving me an assurance that enforcement action would be taken if we could prove that naked shorting existed in CMKX stock. I can only assume this was a representation by the SEC's enforcement attorneys that they were not doing an investigation into abusive shorting of CMKX stock. This appeal is for the SEC's refusal to provide the information which I now have formally requested under the FOIA.
Authorities
Brenda Fuller (Branch Chief) has informed me by letter that my request for information is being denied under 5 U.S.C. 552 (b) (7) (A). It is the SEC's stated position that I am requesting records which were "compiled for law enforcement purposes, the release of which could reasonably be expected to interfere with enforcement activities".
The Freedom Of Information Act was created to promote the release of records and materials in the possession of federal agencies to any member of the general public unless the requested material falls within one of nine exemptions. However, if the government invokes one of the nine exemptions, the burden is on the government to justify nondisclosure. 5 U.S.C.S. 552 (a) (4) (B) The government must overcome two legal hurdles to satisfy its burden for justifying nondisclosure under exemption 7 (A) of the FOIA. First, the government must prove the existence of a concrete prospective law enforcement proceeding for which records were compiled. Second, the government must prove that the disclosure of the requested information would interfere with enforcement proceedings. To prove interference the agency must be specific as to what information is being withheld and the distinct harm that could result from its disclosure. The agency may not be conclusory or vague. Scheer v. United States Department of Justice F.Supp.2d 9; 1999 U.S.Dist. LEXIS 953. City of Chicago v. United States Department of Treasury, Bureau of Alcohol, Tobacco and Firearms 287 F.3d 628; 2002 U.S. App. LEXIS 7537
In the Scheer case, the Department of Justice conducted an internal investigation into misbehavior by a prosecutor following a trial. After the investigation was complete the opposing attorney that was victimized filed a request for the file and the Department of Justice refused to release the file. The Washington D.C. District Court ordered the release of the information and clearly discussed the two prong test I have referenced above.
In the City of case, the city was requesting information about gun sales that were routinely filed with the ATF. The City of Chicago had filed suit against certain firearms manufacturers. The Seventh Circuit Court ruled the City was entitled to the records. The ATF gave numerous examples of how these records were used in possible law enforcement actions. The Court was not persuaded that such request should exempt the ATF from disclosing this information. The Court ruled that the ATF could not point out a single concrete law enforcement proceeding that could be endangered by the release of the requested information. Like the materials requested here, what law enforcement proceeding could be endangered by the shareholder's receipt of these requested materials?
What Materials Have We Requested?
The request made by me on behalf of CMKX shareholders seeks information from you in three categories:
Category 1 and 2 We are seeking records that are provided to the SEC from the NSCC on a regular basis pursuant to Regulation SHO. Clearly these records are not compiled for any concrete prospective law enforcement proceeding. Even if such records were deemed to be procured for some law enforcement proceeding, the disclosure of these records would not interfere with any enforcement proceeding. The agency makes no assertion in its response as to what, if any, investigation is ongoing. The agency does not specify which information is being withheld and makes no showing of any distinct harm that could result from these daily reporting records. SEC enforcement attorneys implied to me in the presence of others there was no ongoing investigation into "fails to deliver" of CMKX stock. Thus we are clearly entitled to the information requested.
Category 3 We are seeking copies of inquiries that are routinely sent out by the SEC to NASD and its members. We are also seeking copies of all responses to these inquiries. Brokers/Dealers routinely respond to these requests for information. The requests are so common they have acquired the name of "Blue Sheet" requests. My shareholders learned that in deed some brokers violated trading rules and chose to trade in a fashion that escapes normal scrutiny and reporting. Since there has been no public action taken against any parties, we are left to assume there will be no enforcement action in spite of such activity. To refuse this request, the SEC must show that these records were deemed to have been procured for some concrete prospective law enforcement proceeding. These acts occurred over a year ago and were known to the SEC and the NASD at that time. The government must now state that this information was compiled for concrete prospective law enforcement proceeding. The SEC cannot simply respond that such records were for law enforcement purposes. Even if the SEC makes the assertion that such records were so compiled, the agency must show that disclosing this information at this time would interfere with enforcement proceedings at the time of this request and make a showing of the harm that might come from such disclosure. "Exhibit A" is self explanatory. The SEC has contended that although the Jefferies letter suggests an "unusual trading technique" there were no acts that lend themselves to enforcement actions. There have been no actions reported publicly against any trading firms. There is no evidence known to the company of any enforcement action being taken against any firms. Thus, the records we are requesting are clearly subject to disclosure.
Argument
The fox that guards the hen house often finds himself mired in conflict. The SEC enacted Regulation SHO to combat naked short selling and to bring public awareness to short sellers that fail to follow the mandatory close out rules. The DTCC was directed to report daily fails to deliver positions over the threshold limit to the SEC. For some bizarre purpose, the regulation as enacted publishes the names of companies that have been shorted but secrecy remains as to who the guilty financial institutions are that refuse to follow the law. This is akin to publishing the names of the rape victims, but protecting the names of the rapists.
The SEC has a new person at the helm and I watched as our President introduced him on television a few days ago. I heard the news anchors discussing the struggle between corporate rights and shareholder's rights and how Mr. Cox will try to reconcile the two. Our President has undertaken a battle to convince the public that it will be a benefit to have part of our social security funds placed in the hands of the investing public. Should we do this if we do not allow our investors to know what goes on in the market or within the DTCC and other clearing firms. Our President would be very concerned if he saw the thousands of monthly brokerage summaries that have been sent to my office which evidence serious investment in IRA and other retirement accounts. He would be most concerned if he knew the SEC was doing all it could to keep vital information from the investing public.
I would like to invoke an equitable argument here. The SEC has a mission statement of protecting the investor. In this case, this company has been allowed to draw in millions of dollars of investment without the supervision or scrutiny of the agency we all depend on to provide such scrutiny. This occurred partly because there was never any action by the SEC to question the inappropriately filed Form 15. Such was the duty of the SEC. The SEC now demands Sarbanes-Oxley compliance in all of its required reports. Sarbanes-Oxley speaks of transparency. Politicians demand openness so that the Enron and World Com fiascos will be lessons learned. Do we try to find reasons to deny these shareholders information that may help them see what went on in the market place with their stock? Or do we follow the law and open those files which seems to be so well guarded by the proverbial fox.
Payment Enclosed
I have enclosed the fee of $56.00 as you have requested in your letter. I must say I was initially disgusted that I would be asked to pay for the privilege of obtaining a rejection from you for my request. After reflection I gladly enclose the fee because your letter states that you have in fact found materials responsive to my request.
You have also stated that you have not determined if any other exemptions apply since you believed Exemption 7(A) would protect you from disclosure. You went further to state that you reserved the right to assert other exemptions if Exemption 7(A) no longer applied.
Could I ask you kindly to assert at this time any and all exemptions which you plan to assert to this request? This matter is of critical importance to thousands of innocent investors who are searching for some answers to questions they have about their stock. You certainly have the right to assert one exemption and then assert another if your decision is in error but that would not seem to be consistent with the mandates of the law regarding transparency and openness in government. Your help would be greatly appreciated by thousands of citizens wanting to review the information you possess.
Sincerely,
Bill Frizzell
Attorney for the CMKX Owners Group
Cc: John Martin
Don Stoecklein
Leslie Hakala
Chairman Chris Cox
AI
