Date:    12/08/1999  3:08 PM

Subject: S7-24-99
   
     
Dear Mr. Katz:
                      It was with great pleasure that I read that the SEC is
considering regulating short sales in OTC:BB stocks.  I have personal experience
in this arena that leads me to believe that reform is sorely needed in this 
matter.
     
  I own a moderately sized  position in HeartSoft Incorporated,  the stock for
which trades on the OTC:BB under the symbol HTSF.  HTSF is a microcap stock with
around 7,000,000 shares outstanding, and around 3,000,000 shares in the public 
float.
     
  Earlier this year, the stock rebounded from a little over a dime to well over
$1.  During this runup, the market makers for HTSF shorted over 1,000,000 shares
of the stock.  This number was proven by the company's CEO, Mr. Benjamin Shell, 
who compared data on shares held in street name to those at the DTC, and found 
that there were far more shares in street name than should be.
     
  I am indignant that what should be a patently illegal operation  was carried
out on my stock and it is allowed!  Here, the CEO of my company has been 
frugal--he kept expenses down and avoided the pitfalls of dilution that befall 
so many other companies during their growth stage.  And in exchange, Heartsoft's
stock was diluted unilateraly by its market makers, by over 33% of the public 
float!   
     
  Not only does the shorting of my company's stock dilute my holdings with
non-existent shars, but it puts the market makers for the stock in the position 
of no longer being neutral towards the stock price.  Once the market makers owe 
a significant number of shares to people, it quickly behooves them to cause a 
lower stock price so that they may cover their short position at a more 
reasonable cost.
     
  The result of this situation is that my stock's price falls on the least
amount of selling...a mere 500 share sell can drop the price of HTSF by an 
eighth.  At times it takes enormous amounts of buying to move the share price 
up--in short, gravity becomes much, much heavier for HTSF than it would be for 
other stocks.  I place the cause for this extraordinary activity at the feet of 
the market makers--they cannot allow the stock to trade normally, or they would 
take a financial hit.
     
  This situation is being replicated today--I started keeping track of the
trading logs since July, and in that time, between 600,000 and 1,000,000 more 
shares have gone at the ask than at the bid for HTSF.  Too, I have received 
private email from  shareholders who reported buying the stock at the bid.  It 
is also my hunch that not all of the February short was covered in the ensuing 
six months, so we are looking at anywhere from 25% to 40% dilution of my stock 
through the actions of the market makers.  And if you look at the November 11th 
trading log, you can see what sort of manuevers are being carried out to "shake 
loose" shares, so that the market makers may cover their short position.
     
  Are such abuses the "rites of passage" for small companies as they struggle to
grow and gain a place in the marketplace?  I argue that they are not.  These 
market maker activities rob companies of equity, depress their share price, and 
require greater dilution should the company attempt to use its stock for 
currency.  Were such an injustice carried out against a major stock such as 
INTC, the uproar and lawsuits would be spectacular.  OTC:BB companies deserve 
the same protection under the law--there is no rational basis for any other 
position, as I see it.
     
  I very strongly urge the SEC to extend regulation of market maker shorting
activities to the OTC:BB, so that stocks there will trade correctly, fairly, and
will not have their market makers working against the shareholder.
     
     
              Thank you,
     
              Henry Y. Xie
     
     
     
     
     
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