Letter Written to SEC Chairman

June 21, 2001

-----Original Message-----

From: Dr. Sankarshan Acharya [mailto:sacharya@uic.edu]

Sent: Monday, July 30, 2001 7:14 PM

To: Help

Subject: VERY SERIOUS and URGENT

Dear Ms. Garner:

I think I have uncovered some gross corruption in the mutual funds industry: fund managers seem to be buying (using mutual fund investors' money) at high prices and selling the same stock at their very lows to the principals of their own company. After a few months (when the market turns positive) the principals seem to be selling the same stock to the fund manager at a higher price.  This trick guarantees solid arbitrage returns to the principals at huge losses to unsuspecting mutual fund investors.

This probe needs proprietary data that none other than SEC can obtain.  Let me give the instance of one stock:  Aether Systems (NASDAQ ticker: AETH).  Fidelity Brokerage (FMR) bought millions of shares of this stock at $200-250 per share in the middle of 2000 and sold most of it at $8 per share in June 2001.  AETH would have $10 per share in cash, if it were immediately liquidated and all its existing convertible debt were paid off.  If FMR sold the stock in the open market, there is nothing to complain.  But, I believe that the FMR fund manager sold the shares to its principals in June 2001.

It is possible that later the FMR fund manager will buy the same shares from Fidelity's principals at $40-50 per share.  By FMR's principals, I mean Fidelity officers and their relatives and/or Fidelity brokers.  If Fidelity brokers are allowed to buy at $8 per share from the FMR fund manager and sell it back to the fund manager at $40, then Fidelity will plow huge profits due to a transfer of wealth from mutual fund investors.

Please examine this case because I believe that every brokerage house is in league with their fund managers to milk mutual fund investors.  Please keep me posted on this probe.  I am an AETH stockholder and a Fidelity mutual fund investor, though my Fidelity fund is unlikely to own AETH.

With best regards,

Professor Sankarshan Acharya

From: "Dr. Sankarshan Acharya" <sacharya@uic.edu>

To: <enforcement@sec.gov>

Cc: <alan_greenspan_bog@yahoo.com>

Subject: Short-selling game

Date: Thu, 21 Jun 2001 23:03:25 -0500

Dear SEC Chairman and Mr. Greenspan,

All your efforts to boost the economy may not work because the so-called wealth effect that Fed economists were harping on a year ago is completely eroded, with average family net-worth decimated to pre-1967 level.  This is because the brokerage houses are now gambling on the other extreme by squeezing longs, as opposed to squeezing shorts in 1999-2000.

They were issuing upgrades for technology stocks with no revenues and profits trading at their highs in January-April 2000, whereas they are now issuing downgrades on technology stocks trading at their lows with highest levels of revenues and earnings in the company's history.  Many technology stocks with no debt are trading below their cash values, while oil, energy and food stocks of companies with very high indebtedness and little cash are trading at astronomical levels.  It appears as if CNBC is playing to the drum-beat of the big brokerage houses.  When one technology stock falls, every other unrelated technology stock with even positive news gives way

as all the brokerages are acting in tandem.

A remedy is to force all analysts and brokerages to disclose their SHORT and LONG positions in a stock at the time they issue upgrades and downgrades.  I hope you will act soon.  Kindly acknowledge this e-mail.

Sincerely,

Professor Sankarshan Acharya

University of Illinois at Chicago

----- Original Message -----

From: "Help" <Help@sec.gov>

To: <sacharya@uic.edu>

Sent: Monday, June 25, 2001 8:05 AM

Subject: RE: Short-selling game

Dear Dr. Acharya:

Thank you for your comments to the U.S. Securities and Exchange Commission.

We welcome your comments because they help us to regulate and enforce the laws that assure fair and orderly securities markets.

I have passed your views on to the people at the SEC who specialize in the issues you've raised.  If they have any questions or wish to respond directly to your comments, they will contact you.

Once again, thank you for taking the time to inform us of your views.

Leslie M. Garner

Attorney

Office of Investor Education and Assistance

U.S. Securities and Exchange Commission