November 1, 2000

The Honorable David M. Walker
Comptroller General
U.S. General Accounting Office
441 G Street, N.W.
Washington, D.C. 20548

Dear Mr. Walker:

I am writing with further reference to the September 1998 report SEC Enforcement: Actions Reported on GAO and SEC Recommendations Related to Microcap Stock Fraud in which GAO concluded that the Securities and Exchange Commission (SEC) and the self-regulatory organizations (SROs) had taken or reported taking actions that responded to many of the recommendations in prior GAO and SEC reports. However, GAO reported that actions had not been taken on four critical issues. I asked the SEC to submit progress reports on its efforts to address these issues.

In that regard, I am transmitting the SEC’s October 12, 2000 progress report on the outstanding GAO recommendations. Please review it and assess the need for further actions.

With reference to my December 12, 1997 request letter, GAO’s October 6, 1999 briefing of Committee staff, and intervening events relative to GAO’s ongoing work on microcap stock fraud, I respectfully request that future GAO work focus on the following areas: (1) listing standards for microcap securities and NASDR oversight of the over-the-counter market; (2) clearing firm responsibility for identifying microcap fraud, using the A. R. Baron and Bear Stearns Securities Corporation matters as a case study (see enclosed Business Week Commentary, "Now We’ll Never Get The Truth About Bear Stearns," May 8, 2000, p. 138), and the adequacy of SEC and SRO oversight of clearing firms; (3) migration of rogue brokers/agents within the securities, banking, and insurance industries; and (4) the adequacy of SEC resources, both staff and Internet tools, to combat microcap stock fraud. I request that GAO staff meet with Committee staff to prioritize this work and discuss its scope.

Thank you for your cooperation and attention to this request.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER

Enclosures

cc: The Honorable Tom Bliley, Chairman
Committee on Commerce

The Honorable Michael G. Oxley, Chairman
Subcommittee on Finance and Hazardous Materials

The Honorable Edolphous Towns, Ranking Member
Subcommittee on Finance and Hazardous Materials

The Honorable Arthur Levitt, Jr., Chairman
Securities and Exchange Commission