I am writing to thank you and commend you for your responses to my inquiry regarding the fraud and abuse plaguing the micro-cap stock market. I also appreciate the detailed briefing that your staffs provided four weeks ago. In response, I would like to make a few observations. First, your enforcement efforts appear to be marked by an exceptional level of cooperation and coordination. Moreover, the sentencing guidelines for white collar crime are not tough enough to effectively punish and deter the miscreants, given the huge sums involved in today's stock market.
Financial illiteracy is a big part of the problem.
The SEC's recent rules and regulations changes are a good first step at stemming many of the types of fraudulent schemes uncovered by your enforcement actions, but more remains to be done. Prompt action is needed to address abuse and fraud associated with introducing brokers and clearing firms. It is important that you seek and consider their input as you undertake regulatory reforms. State securities regulators are an integral part of the solution to this problem. There seems to be a concentration of fraudulent firms in the New York City metropolitan area but the New York State Attorney General does not have statutory authority to conduct routine examinations and inspections of broker-dealer firms and their branch offices.