Dear SEC: we hate the naked shorts…

July 22, 2008

It’s only been a week since the SEC decided to “enhance investor protections” against naked short selling by limiting the practice at 19 companies, primarily large financial institutions including Lehman (LEH) and Citigroup (C). As Reuters reported over the weekend, the American Bankers Association thought that the new rule should be applied to all publicly traded banks and not just the big boys.

On Friday, the same day that SEC Chairman Chris Cox wrote this op-ed explaining the rule, the agency posted guidance and invited investors to comment. And boy, are people commenting, judging by this list, which shows nearly 400 comments since last week. Indeed, the last time you saw this kind of intense letter-writing activity from everyday folks — as opposed to the handful of wonks who normally pen letters to the SEC — was when the agency decided to make changes to executive compensation rules back in 2006.

A quick skim of the letters shows a recurring theme, like this one-sentence one from William A. Scavone, which reads, “I demand something be done about the constant naked shorting going on in the US markets, and not just the financial companies.” There’s a sprinkling of anonymous letters, like this one, which suggests jail time “for these fraudsters” and a few letters from people who only use their first name, like this one from a guy named Dave, who still gets his stock market news from newspapers. There’s also a group of letters from investors in CMKE, which in addition to contacting their Senators and Congressfolks, plans to march on SEC headquarters at some point in the future. Now, that would be an interesting sight.

It’s hard to believe that someone isn’t behind this leter-writing campaign, especially a fairly technical letter like this. But a quick search of the Google turns up no evidence of groups encouraging members to contact the SEC. Meanwhile, the letters keep poring in.

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