CMKX - CMKM Diamonds - SEC Enforcement Blows Off Inspector General's Recommendations

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) March 20, 2009 -- Practices Related to Naked Short Selling Complaints and Referrals
http://investigatethesec.com/drupal-5.5/files/OIG%20NSS.pdf

March 18, 2009 - Report No. 450 - Appendix VI - Page 44

Excerpts From OIG Response to Management Comments

We are disappointed that the Division of Enforcement (Enforcement) only concurred with one of the 11 recommendations in this audit report.

We are particularly concerned that Enforcement did not concur with the report’s first three recommendations that it develop written in-depth triage analysis steps for naked short selling complaints, as it has for other complaints; that it revise its written guidance to the Enforcement Complaint Center staff to ensure that naked short selling complaints are given a proper level of scrutiny and referred for further investigation; and that it add naked short selling to the list of categories of complaints on the Commission’s public webpage and develop an online complaint form specifically tailored to naked short selling complaints.

As we discussed in our report, the SEC has repeatedly recognized that naked short selling can depress stock prices and have harmful effects on the market. In adopting a naked short selling antifraud rule, Rule 10b-21, in October 2008, the Commission stated, “We have been concerned about ‘naked’ short selling and, in particular, abusive ‘naked’ short selling, for some time.”

Notwithstanding the Commission’s previous statement and our findings, Enforcement responded to our report by stating that “there is hardly unanimity in the investment community or the financial media on either the prevalence, or the dangers, of ‘naked’ short selling,” and references the view held by some that “the threat posed by ‘naked’ short selling is wildly exaggerated . . . .”

We would hope that Enforcement reconsiders this position in light of the Commission’s stated concerns about the effect of naked short selling on the market.

We are also disappointed that Enforcement does not intend to implement immediately our specific recommendations (Nos. 5-11) designed to improve its complaints, tips and referral process.

Nonetheless, we believe that implementation of our recommended improvements should begin now, in coordination with the contractor’s review, to ensure that the implementation of necessary improvements to Enforcement’s complaint system is not unduly delayed.

Audit Requests and Ideas
The Office of Inspector General welcomes your input.

U.S. Securities and Exchange Commission
Office of Inspector General
Attn: Assistant Inspector General, Audits (Audit Request/Ideas)
100 F Street, N.E.
Washington D.C. 20549-2736
Tel. #: 202-551-6061
Fax #: 202-772-9265
Email: oig@sec.gov

Hotline
To report fraud, waste, abuse, and mismanagement at SEC, contact the Office of Inspector General at:
Phone: 877.442.0854
Web-Based Hotline Complaint Form:

www.reportlineweb.com/sec_oig

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