SECURITIES AND EXCHANGE COMMISSION

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 20549

DIVISION OF

August 5, 1996

MARKET REGULATION

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Bruce D. Stuar, Esq.

Law Offices of Bruce D. Stuar

8501 Wilshie Blvd. - Suite 215

Beverly Hils, CA 90211

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Re: PedectData Corporation "., ~,,,-,.u._:~.~....~.r...,.:..... ..._._-.-.,.._..__..........-........",.._............... ....

Dear Mr. Stuart:

On the basis of the facts presented in your letter dated August 5, 1996 ("Letter"), the

Division of Market Regulation wil not recommend an enforcement action to the Commission

under Sections 5, 6, or 15 of the Securities Exchange Act of 1934 ("Exchange Act") if

PerfectData Corporation ("PERF") operates its trading system (the "System") in the maner

described in that Letter without registratiòn as a national securities exchange under Section 6 or

as a broker-dealer under Section 15 of the Exchange Act. Ths is a position of the Division of

Market Regulation regarding enforcement action under Sections 5, 6, and '15 of the Exchange

Act only, and does not express any legal conclusions regarding the applicabilty of Sections 5,

. 6, or 15 of the Exchange Act or other statutory or regulatory"'rovisions of the federal securities

laws. This no-action position is subject to changes in current law, regulation, and interpretations

governg issuer-based bulletin boards; any change may require the Division of Market

Regulation to reevaluate and revoke or modify ths no-action position.

In reachig ths position, the Division of Market Regulation notes the following: (1)

PERF wil provide the described notices regarding operation of and paricipation on the System

that wil be set fort or contained on the screens and! or hard copy by which System inormation

is provided; (2) PERF is a Section 12 registrant that wil retain that status or, if it should cease

to be a Section 12 registrant, otherwise underte to make publicly available the inormation

required by Section 13(a) of the Exchange Act in the same maner tht Paricipants wil obtain

access to the System (e.g., electronic

mail, facsime, mail, PERF's World-Wide Web site, etc.);

(3) PERF wil keep records of all quotes entered into the System and make those records

available to the Commssion and the National Association of Securities Dealers, Inc. (or any

other regulated market on which PERF securities are listed); (4) PERF's advertising wil comply

with the representations set fort in your Letter; (5) neither PERF nor any affIliate of PERF wil

use the' System, directly or indirectly, to offer to buy or sell securities, except in compliance

with the securities laws, including any applicable registration requirements (absent an available

exemption therefrom);

and (6) neither PERF nor any affiiate of PERF wil (i) receive any

compensation for creating or maintaing the System; (ii) receive any compensation for the use

of the System; (ii) be involved in any purchase or sale negotiations arising from the System;

(iv) provide information regarding the advisabilty of buying or selling PERF common stock or

Bruce D. Stuart, Esq.

August 5, 1996

Page 2

any other securities; or (v) receive, tranfer, or hold funds or securities as an incident of

operating the System.

The Division of Corporation Fince has asked us to inorm you of its view that, based

on the facts presented in your Letter, the activities of PERF in connection with the establishment

and maintenace of the System would not require tht offers or sales made though the System

be registered under the Securities Act of 1933.

The Division of Investment Mangement has asked us to inorm you that PERF may

engage in the activities described in your Letter without becomig an

investment adviser' as

defined in the Investment Advisers Act of 1940 ("Advisers Act"). The position of the Division

of Investment Management is particularly based upon your representations that neither PERF nor

any affiliate wil: (1) receive compensation for creating or maintaing the System or for the use

of the System; (2) be involved in any purchase or sale negotiations arising from the System; or

(3) give advice regarding the merits or shortcomings of any particular trade. Having stated their

views with respect to the status under the Advisers Act of an issuer that creates ai electronic

bulletin board to faciltate trading of its securities, i the staff of the Division of Investment

Mangement wil no longer respond to letters raising ths question unless a novel or unique issue

is presented.

Because these positions are based on the representations made to the Divisions, any

different facts or conditions might require different conclusions.

¿¿#iL

Sincerely,

Catherie McGuire

Chief Counsel

i See Real Goods Trading Corp. (pub. avaiL. June 24, 1996); see also Farmand Industries,

Inc. (pub. avaiL. Aug. 26, 1991).

SECURITES AND EXCHANGE COMMISSION

RECEIVED '

LAW OFFICES OF

BRUCE D. STUART

AUG '9' i~~6J

DIVISION OF MARKEr REGULATION

August 5, 1996

VIA FAX , o. s~ MAIL

Catherine McGuire

Associate Director/Chief Counsel

Division of Market Regulation

Securities and Exchange Commission

450 Fifth Street, NW, Mail stop 5-10

Washington, D.C. 20549

VIA FAX , O.S. MAIL

Martin P. Dunn

Chief Counsel

Division of corporate Finance

Securities and Exchange Commission

450 Fifth Street NW, Mail stop

3-3

Washington, D. C. 20549

VIA FAX , O.S. MAIL

Jack W. Murphy

Associate Director/Chief Counsel

Division of Investment Management

Securities and Exchange Commission

450 Fifth Street, NW, Mail stop 10-6

Washington, D.C. 20549

Re: PerfectData. corporation

Securities Act of 1934 (Sections 5, 6 and 15);

Investment Advisers Act of 1940 (Section 204 (a) ;

Securities Act of 1933 (Section 5)

Dear Ms. MCGuire, Mr. Murphy and Mr. Dunn:

I am counsel to PerfectData Corporation ("PERF"), a California

Corporation. Its stock is traded on NASDAQ Small Cap and is

registered under Section 12 of the Securities Exchange Act of 1934,

as Amended (the "Exchange Act"). PERF sells computer cleaning

products and accessories.

8 5 0 1

WILSHIRE BOULEVARD

SUITE 215

BEVERLY HILLS

CALIFORNIA

90211

310.358.2330

F 310.358.2344

Catherine McGuire

Martin Dunn

Jack Murphy

August 5, 1996

Page Two

1: . BACKGROUN

On July 12, 1983, PERF went public through an S~l offering

under the Securities Act of 1933. The offering was fully

subscribed. it's shares have been traded on NASDAQ Small Cap since

that time. The shares of PERF Common Stock became registered

under

section 12 of the Exchange Act at that time. Wells Fargo Bank is

the transfer agent of the C9mmon Stock.

Trading in the Common Stock was approximately 2,000 - 5,000

shares per day until May, 1996. Since that time, the vòlume has

increased significantly, to

per day. '

approximately 10,000 to 600,000 shares

PERF now proposes to establish an "off the grid" trading

system (the "System") for the Common Stock. The System would

function as a passive "bulletin board" providing information to

prospective sellers and buyers of Common Stock ("Participants").

The information to be listed on the System would include: (i) the

names, address and telephone numbers (or other contact mechanisms,

such as electronic mail addresses) of interested buyers and

sellers; (ii) the number of shares of Common Stock that are offered

for sale or desired to be purchased; (iii) the price at which the

Common Stock is offered for sale or desire to be purchased; and

(iv) the date on which the information was entered into the System.

Participants would transmit the above information either (i) by

direct interface using PERF's World Wide Web site or (ii) by

telephone, facsimile, mail or electronic mail directed to PERF,

which would enter the data into the System. The information would

remain in the System until such time as a Participant indicates

that a transaction was completed or the Participant no longer is

interested in buying or selling, although PERF also may put a time

limit on how long the information will be posted. PERF anticipates

that Participants will obtain access to the System primarily by

electronic mail, although information may" also be relayed by

telephone, facsimile, mail or any other method, including via

PERF's World Wide Web site.

No transactions would be effected by the System itself, and

PERF will have no role in effecting transactions between

Participants; rather all transactions would be effected only by

direct contact between the Participants. Al though PERF would have

no transactions records, it will retain records of the quotations

listed for not less than three years and make them available to the

staff of the Securities and Exchange Commission (the "Commission")

Catherine McGuire

Martin Dunn

Jack Murphy

August 5, 1996

Page Three

and to the NASDAQ Stock Exchange (or any other regulated ma~ket on

which the shares are listed) on reasonable request thereof. Each

Participant would be required to rely on its own exemption under

the Securities Act including, without limitation, sèction 4 (1)

thereof. PERF proposes to advertise to shareholders and other

members of the pUblic the availability and possible benefits of the

System. The System may be free standing or may be integrated into

PERF's World Wide Web site or both.

Neither PERF nor any affiliate of PERF will (i) receive any

compensation for creating or maintaining the System; (ii) receive

any compensation for the use of the System; (ii) be involved in any

purchase or sale negotiations arising from the System; (i v) gi ve

advice regarding the merits or shortcomings of any particular

trade; (v) use the System, directly or indirectly, to offer to buy

or sell securities, except in compliance with the securities laws,

including any applicable' registration requirements (absent an

available exemption therefrom) 1; or (vi) receive, transfer or hold

funds or securities as an incident of operating the System.

The screens and hard copy by which the System data is provided

to Participants will include the following information:

o Identification of the national securities exchange or

other regulated securities market that lists PERF Common

Stock;

o ~ERF is not a registered national securities exchange,

securities information processor, broker, dealer or

investment adviser;

o The information set forth on the System does not consist

of firm quotes, but rather is merely a list of the names,

addresses and telephone numbers of interested sellers and

buyers, the number of shares of Common Stock offered or

, Offers and sales of nonrestricted securities by persons other than PERF or affilates of PERF could be

made in reliance upon the exemptions from registration provided by Sections 4(1), 4(3), or 4(4), as

appropriate. Offers and sales of controlled or restricted securities may be made through a registered

offering or in reliance upon an exemption from registration, such as the Section 4(1) exemption, if the

requirements of Rule 144 are satisfied. In this regard, it is recognized that the "manner of sale"

requirements of Rule 144 would be applicable to such transactions. Offers or sales of securities by PERF

may be made either in registered transactions or in accordance with an available exemption, such as

Regulation A or Rule 504 of Regulation 0 under the Securities Act.

Catherine McGuire

Martin Dunn

Jack Murphy

August 5, 1996

Page Four

desired to be purchased, and the price at which the

proposed transaction would occur. PERF does not assure

that. any particular transaction will occur

as to any

particular number of shares or at any particular price.

All transactions between Participants must be executed by

the Participants independent of PERF or any of its

affiliates; .

o All applicable state and federal securities laws

(including the anti-fraud and anti-manipulation

provisions) apply to any offer made or transaction

consummated using the system;

o The name, address and telephone number of PERF' stransfer

agent;

o Any person that is a broker-dealer, an associated person

of a broker-dealer, or who has a state securities license

is responsible for identifying that fact;

o "Two sided quotes" in which a person indicates a bid to

buy at one price and an offer to sell at a higher price

are prohibited. 2

o The registration requirements of the federal securities

laws apply to all offers and sales through the System,

absent an available' exemption. Offers and sales of

controlled or restricted securities may be made in

reliance upon the section 4 (1) exemption if the

requirements o.f Rule 144, including the "manner of sale"

requirements, are salified. Please note that the public

information, volume, .manner of sale and notification

requirements of Rule 144 do not apply to transactions

that satisfy the requirements of Rule 144 (k) .

PERF may make announcements' relating to, and advertise or

otherwise publicize, the existence and availability of the System

and provide information about the use and benefits of the System.

2 PERF may in the future permit two-sided quotes. If PERF chooses to permit two-sided quotes, the

screens and hard copy by which the System data is provided to Participants wiii include a statement that:

Any person providing "two-sid

ed-quotes" in which a person indicates a bid to buy at one price and an offer

to sell at a higher price, may in certain circumstances, be considered a dealer who is required to register

with the SEe and comply with applicable provisions of the federal securities laws.

Catherine McGuire

Martin Dunn

Jack Murphy

August 5, 1996

Page Five

PERF may use any mechanism for providing information about the

System. In its communications with the public PERF will not

characterize itself or the System as being. a "broker", à "dealer",

or an "exchange." To the same extent as rèquired of any company

whose securities are traded on a national securities exchange or

NASDAQ, PERF will be mindful of the statutory provisionsrêlating

to solicitations of any offer to buy. If PERF provides information

offering of its securities that

about PERF or the System during an

is registered with the commission, PERF also will be sensitive to

and apide by the general limitations of the federal securities laws

regarding publicity by a company that is "in registration." Of

course, all information provided by PERF regarding either the

System or PERF will be consistent with the antifraud and

antimanipulation requirements of the federal securities laws.

We respectfully request that the staff (the "Staff") of the

Commission concur with our view that PERF may establish and operate

the system as .described herein without (i) PERF registering as an

"investment adviser" under section 203 (a) of the Investment

Advisers Act of 1940, as amended (the "Advisers Act"); (ii) PERF,

or any of its personnel who will manage and operate the System,

registering as a "broker" and/or "dealer" under section 15 (a) of

the Exchange Act; (iii) the registration of the System as a

"national securities exchange" under section 6 of the Exchange Act;

sales made through the

or (iv) the registration of offers and

System under the Securities Act.

II. REGISTRATION ISSUES

Broker and Dealer

Subject to certain exceptions, section 15 (a) of the Exchange

Act requires registration of any broker or dealer. section 3 (a) (5)

of the Exchange Act defines a "dealer" as "any person engaged in

the business of buying and selling securities for his own' account."

section (3) (a) (4) defines a "broker" "any person engaged in the

business of effecting transactions

of others . .'. " PERF will not be

requiring it to register as a

This conclusion is consistent with the Staff's

in securities for the accounts

engaging in any activities

broker or dealer under section 15 (a) .

determination

regarding a system similar to the system in Farmland Industries,

Ine. (August 26, 1991).

Requiring PERF to register as a broker-dealer would not

provide the Participants with any additional protection. Because

catherine McGuire

Martin Dunn

Jack Murphy

August 5, 1996

Page six

PERF will not handle or hold funds or shares of Common stock of any

Participant, a minimum capital requirement is unnecessary. Any

financial failure of PERf would result only in the loss., of the

Participants' access to the system, and not a loss of their funds.

Furthermore, the costs of compliance with the record keeping and

periodic reporting requirements would far outweigh any benefits.

National Securities Exchange

section 5 of the Exchange Act provides that it is unlawful for

an exchange to effect any transaction in a security unless such

exchange is registered as a national securities exchange under

section 6 of the Exchange Act or is exempted from such a

registration upon application to the Commission.

section 3 (a) (1) of the Exchange Act def ines "exchange" as:

any organization, association or group of persons, whether

incorporated or unincorporated, which constitutes, maintains,

or provides a. market place or facilities for bringing together

purchasers and sellers of securities or for otherwise

performing with respect to securities the functions commonly

performed by a stock exchange as that term is

generally

understood ,and includes the market place and the market

facili ties maintained by such exchange.

Based on the. law and the foregoing facts, we are of the

opinion that the System would not be an "exchange" within the

meaning of the Exchange Act. In addition, PERF notes that it is a

section 12 registrant and will retain that status or, if it should

cease to be a section 12 registrant, otherwise undertake to make

publicly available the information required by Section 13 (a) of the

Exchange Act in the same manner that Participànts will obtain

access to the System (e.g. electronic mail, facsimile, mail, PERF's

World Wide Web site, etc). Consequently, there are no issues

raised regarding the necessity of providing information to system

Participants.

Investment Adviser

Subject to certain exceptions, Section 203 (a) of the Advis~rs

Act requires the registration of an investment adviser. Section

202 (a) (11) of the Adverse Act defines an "investment adviser" as:

Catherine McGuire

Martin Dunn

Jack Murphy

August 5, 1996

Page Seven

any person who, for compensation, engages in the business

of advising others, either directly or through

publications or writings, as to the value of securities

or as to the advisability of investing in, purchasing, or

compensation and as

selling securities, or who, for

a part of a regular business, issues or promulgates

analyses or reports concerning securities . . .

As indicated above, neither PERF nor the System will provide

information regarding the advisability of buying or selling Common

Stock or any other securities. Similarly, PERF will not receive

The System will merely

any compensation for operating the system.

provide a passive medium for participants to obtain information

regarding other Participants who are interested in buying or

selling Common Stock. Thus, PERF will not be engaging in any

activities requiring registration as an investment adviser under

the Advisers Act. This conclusion is consistent with the Staff's

determination regarding a system similar to the System in Farmland

Industries, Inc., supra.

Securities Act of 1933

section 5 of the Securities Act makes it unlawful for any

person to offer, sell, or solicit an offer to purchase any security

unless a registration statement has been fiied with respect to that

security, absent an available exemption. In view of the manner in

which the System will be established and operated, PERF believes

that the operation of the System does not constitute an offer

to

sell or the solicitation of an offer to buy PERF Common Stock on

the part of PERF. As such, PERF activities in connection with the

establishment and maintenance of the System would not require

Securities Act registration of offers or sales made through the

System.

1:1:1:. CONCLUS1:0N

For the foregoing reasons, we request that the Staff concur

with our view that PERF may establish and operate the System

without (i) PERF registering as an "investment adviser" under

section 203 (a) of the 'Advisers Act, (ii) PERF, or any of its

personnel who will manage and operate the System, registering as a

"broker" and/or "dealer" under section 15 (a) of the Exchange Act;

(iii) the registration of the System as a "natic:mal securities

exchange" under section 6 o'fthe Exchange Act; or (iv) registering

offers and sales made through the System under the Securities Act.

~.

.

Catherine McGuire

Martin Dunn

Jack Murphy

August 5, 1996

Page Eight

In the event that the Staff does not concur with any of our

views, we kindly request an opportunity to discuss the matter prior

to any final decision thereon. If you have any questions or wish

to receive any further information, please còntact me at 310-358­

2330.

Very truly yours, ¿

ÔULl(~;S,~jU(

~ruce

D. Stuart

BDS: lw