SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 40237 / July 21, 1998 Admin. Proc. File No. 3-9501 __________________________________________________ : In the Matter of the Application of : : RICHARD R. PENDLETON : P.O. Box 403 : Rollinsville, Co. 80474 : : For Review of Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : __________________________________________________: OPINION OF THE COMMISSION REGISTERED SECURITIES ASSOCIATION -- REVIEW OF REVOCATION Failure to Pay Arbitration Award Former registered representative of a member firm of registered securities association failed to honor an arbitration award entered against him and did not seek to vacate, modify, or otherwise appeal the award. The association revoked his right to associate with any member firm until he submits proof that he has satisfied or discharged the award. Held, appeal proceedings dismissed. APPEARANCES: Richard R. Pendleton, pro se. Alden S. Adkins and Norman Sue, Jr., for NASD Regulation, Inc. Appeal filed: November 25, 1997 Briefing completed: March 19, 1998 I. Richard R. Pendleton, who, at the time of the institution of these proceedings, was a registered representative [/] and the former president and chief compliance officer of Rhodes Securities Inc. ("RSI" or the "Firm"), appeals the revocation of his registration and "his unrestricted right to associate" with a broker-dealer by the National Association of Securities Dealers, Inc. ("NASD"). The NASD revoked Pendleton's registration because Pendleton failed to honor an arbitration award entered against him. The revocation is effective until such time as he requalifies for registration by examination and submits proof that (a) he has paid the arbitration award in full or entered into a binding settlement agreement with the claimant or (b) his obligation to pay the award has been discharged in bankruptcy. [/] We base our findings on an independent review of the record. II. On February 22, 1996, an arbitration panel entered an award against respondents Pendleton, RSI, and another individual in favor of Robert M. Bauer, a former registered representative and branch office manager with RSI. The panel ordered the respondents to amend Bauer's Uniform Termination Notice for Securities Industry Registration (Form U-5) and ordered each of them to pay one-third of a $7,800 judgement in Bauer's favor. Pursuant to former Section 41 of the NASD's Code of Arbitration Procedures (now Rule 10330(h)), Pendleton was required to pay his share of the award within 30 days of receipt unless he filed a motion to vacate with a court of competent jurisdiction. Pendleton, however, did not pay or attempt to settle the arbitration award, move to vacate, modify, or otherwise appeal the award, or seek protection under the Bankruptcy Code. On May 9, 1997, the NASD notified Pendleton that its records reflected that Pendleton had not satisfied the award and that his registration would be "cancelled" by June 4, 1997, unless he was able to provide proof that the award had been satisfied. The NASD informed Pendleton that he was entitled to a hearing, which, on May 26, 1997, Pendleton requested. The District Business Conduct Committee ("District Committee") held a hearing on September 12, 1997, at which Pendleton appeared personally. Pendleton did not deny that he had not paid the award. Instead, he asserted that his failure to pay was a "protest." Pendleton noted that the claimant was a securities professional, not a public investor. Pendleton also claimed that the arbitration panel was composed "of producing brokers who are typically hostile to compliance personnel such as himself." The District Committee, in a decision dated October 28, 1997, found that Pendleton was obligated to pay the sum of $2,600 to the claimant. [/] The District Committee stated that it did "not question that [Pendleton] believes in good faith that the award is improper. . . . It is an associated person's unqualified obligation to honor a duly-rendered arbitration award . . . ." As a result, on November 11, 1997, the NASD revoked Pendleton's registration for failure to pay the arbitration award until the award was satisfied. [/] This appeal followed. III. This proceeding was conducted under former NASD Code of Procedure Rule 9620, which authorized revocation of registration for, among other things, failure to pay an arbitration award. [/] The standards governing our review of Pendleton's appeal of this revocation proceeding are governed by Section 19(f) of the Securities Exchange Act of 1934 ("Exchange Act"). Pursuant to Section 19(f), if we find that "the specific grounds" upon which the NASD based its action "exist in fact," that the NASD's withdrawal of Pendleton's authority to act as a registered representative was in accordance with its rules, and that those rules were applied in a manner consistent with the purposes of the Exchange Act, we must dismiss the appeal. [/] Pendleton does not dispute that the specific grounds exist. He admits that an arbitration award was entered against him and that he did not appeal or move to vacate or modify that award. Pendleton further admits that he has not paid the award, although he is financially able to do so. He makes clear that his reason "for not paying this arbitration award is not because of financial hardship or lack of respect [for] the arbitration process, but as a protest." Pendleton also does not suggest that the NASD failed to follow its rules. The record supports the conclusion that the NASD acted in accordance with its rules. Pendleton, however, appears to assert that sanctioning him for failure to pay this particular arbitration award is not consistent with the Exchange Act. He argues that his failure to pay the arbitration award is in "protest" of the continuing presence of rogue brokers in the industry and the pressures on compliance officers in the industry. He notes that he has a clean disciplinary history. He avers that Bauer engaged in repeated violations and that RSI received complaints from several brokers and customers concerning Bauer's branch office. After the Firm became liable in 1994 for a large arbitration award in favor of one of Bauer's customers, the Firm terminated Bauer. Pendleton complains that the arbitration award to Bauer -- the one at issue in this proceeding -- arose from the information contained in the Form U-5 that the Firm filed with respect to Bauer's termination. Pendleton also renews the complaints that he raised before the NASD about the composition of the arbitration panel. We view Pendleton's arguments as the equivalent of a collateral attack on the arbitration award. However, we have consistently rejected such attacks as inconsistent with the Exchange Act policy in favor of finality and prompt payment of NASD arbitration awards: To permit a party dissatisfied with an arbitral award to attack it collaterally for legal flaws in a subsequent [NASD] proceeding would subvert the salutary objective that the NASD's [arbitration] resolution seeks to promote. [/] Pendleton's remedy for his dissatisfaction with the arbitration award was to move for the award's vacation or modification or to appeal the award. We have repeatedly stated that the NASD arbitration system provides a speedy mechanism for settling disputes, which the NASD may foster by taking prompt action against those who fail either to honor arbitration awards or to seek to have them set aside. [/] Pendleton also asks that we consider "removing this type of employer and employee grievance from the arbitration arena." He suggests that there should be some form of immunity for statements made on Forms U-5. The issues Pendleton raises are important, but this is not the appropriate forum for their consideration. The Exchange Act provides specific procedures for review of self-regulatory organization rules. [/] On April 21, 1998, we issued Securities Exchange Act Release No. 39892, 63 Fed. Reg. 23321, giving notice of a proposed NASD rule change. While that proposal would not remove this type of dispute from arbitration, the proposal would provide members of the NASD with qualified immunity in arbitration proceedings for statements made in good faith in certain disclosures filed with the NASD on Forms U-4 and U-5. We have requested public comment on this proposal, as required by the Exchange Act. We believe this rule review procedure permits appropriate consideration of potential concerns and the impact of a proposed modification on the securities market place and its participants. [/]For the reasons stated above, we conclude this proceeding must be dismissed. An appropriate order will issue. [/] By the Commission (Chairman LEVITT and Commissioners JOHNSON and HUNT); Commissioners CAREY and UNGER not participating. Jonathan G. Katz Secretary **FOOTNOTES** [/]:/On May 7, 1996, Pendleton's NASD registrations as a financial and operations principal, a general securities principal, a government securities principal, a municipal securities principal, and a registered options principal were terminated. [/]:/The NASD also assessed costs. [/]:/The District Committee's ruling was a final NASD action under former Code of Procedure Rule 9622(c). Compare current NASD Code of Procedure Rule 9514(g)(4). [/]:/Pendleton is required to requalify under NASD Membership and Registration Rule 1031(c). Rule 1031(c) requires that any person whose registration has been revoked pursuant to proceedings conducted in compliance with the Rule 9000 series of the NASD Code of Procedure or whose most recent registration as a representative or principal has been terminated for a period of two years or more must requalify by examination. [/]:/Compare current Code of Procedure Rules 9511(a)(2)(B) and 9513. In 1993, we approved a proposed NASD rule change that permits the NASD to revoke or suspend registration for failure to comply with a valid arbitration award, where, as here, the award is not the subject of a motion to vacate or modify or when such a motion has been denied. With respect to arbitration awards rendered in the NASD's arbitration forum and which are subject to the NASD's administrative control, we observed that the NASD was no longer required to initiate a formal disciplinary action for failure to pay an arbitration award. 58 Fed. Reg. 6829 (Feb. 2, 1993). [/]:/Section 19(f) of the Exchange Act. See, e.g., Rosario R. Ruggiero, Securities Exchange Act Rel. No. 37070 (Apr. 5, 1996), 61 SEC Docket 2058, 2060. [/]:/John G. Pearce, Securities Exchange Act Rel. No. 37217 (May 17, 1996), 61 SEC Docket 2765, 2767-68, quoting Stix & Co., Inc., 46 S.E.C. 578, 580 (1976); Eric M. Diehm, 51 S.E.C. 938, 941 n.16 (1994); Bruce M. Zipper, 51 S.E.C. 928, 930 n.8 (1993); Peter Thompson Higgins, 51 S.E.C. 865, 868 n.11 (1993). [/]:/Eric M. Diehm, 51 S.E.C. at 939. [/]:/Compare Exchange Act Section 19(e)(1)(A) and Exchange Act Sections 19(b) and 19(c). [/]:/See, e.g., Equity Securities Trading Co., Inc., Securities Exchange Act Rel. No. 39520 (Jan. 7, 1998), 66 SEC Docket 780, 785 (rejecting suggestion that NASD interpretation be modified in disciplinary proceeding). [/]:/All of the contentions advanced by the parties have been considered. They are rejected or sustained to the extent that they are inconsistent or in accord with the views expressed in this opinion. UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. Admin. Proc. File No. 3-9501 _______________________________________________________ : In the Matter of the Application of : : RICHARD R. PENDLETON : P.O. Box 403 : Rollinsville, Co. 80474 : : For Review of Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : _______________________________________________________: ORDER DISMISSING APPEAL OF REVOCATION PROCEEDINGS On the basis of the Commission's opinion issued this day, it is ORDERED that the appeal taken by Richard R. Pendleton from the action taken by the National Association of Securities Dealers, Inc. revoking his registration and right to associate with a broker-dealer until such time as he (a) submits proof to the Association that he has paid the arbitration award, dated February 22, 1996, in Robert M. Bauer v. Rhodes Securities, Inc., et al., against Pendleton in full or entered into a binding settlement agreement with the claimant or, (b) in the alternative, submits proof that his obligation to pay has been discharged in bankruptcy, and (c) pays the costs assessed by the Association, be and it hereby is, dismissed. By the Commission. Jonathan G. Katz Secretary