SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 40630 / November 3, 1998 Admin. Proc. File No. 3-9529 : In the Matter of the Application of : : CATHY JEAN KRAUSE KIRKPATRICK : 3117 Corda Drive : Los Angeles, California 90049 : : For Review of the Disciplinary Action Taken by the : : NEW YORK STOCK EXCHANGE, INC. : : OPINION OF THE COMMISSION NATIONAL SECURITIES EXCHANGE -- REVIEW OF DISCIPLINARY PROCEEDING Violations of Exchange Rules Conduct Inconsistent with Just and Equitable Principles of Trade Unauthorized Trading Misappropriation of Customer Funds Signing Customer's Name to Account Opening Documents Without Customer's Knowledge or Authorization Providing False Financial Information to Customer Registered representative formerly associated with a member firm of a registered national securities exchange engaged in unauthorized trading in customer's account; misappropriated customer funds; signed customer's name to account documents without customer's knowledge or authorization; and provided customer with false financial information. Held, exchange's findings of violation and sanctions it imposed are sustained. APPEARANCES: Michael Blumenfeld, of Freeman, Freeman & Smiley, for Cathy Jean Krause Kirkpatrick. Margaret T. Roussel, for the New York Stock Exchange, Inc. Appeal filed:January 20, 1998 Last brief received: May 14, 1998 I. Cathy Jean Krause Kirkpatrick, a former registered representative of PaineWebber Incorporated ("PaineWebber"), a member firm of the New York Stock Exchange, Inc. ("Exchange"), appeals from disciplinary action taken against her. The Exchange determined that Kirkpatrick engaged in conduct inconsistent with just and equitable principles of trade concerning the account of one customer, in violation of Exchange Rule 476(a). [1] The Exchange found that Kirkpatrick engaged in unauthorized trading in a customer's account; misappropriated the customer's funds for her own purposes; signed the customer's name to new account form documents without the customer's knowledge or authorization; and provided the customer with false financial information. The Exchange censured Kirkpatrick and barred her from membership, allied membership, and approved person status, and from employment or association in any capacity with any member or member organization. We base our findings on an independent review of the record. II. Beginning in March 1991, Kirkpatrick worked as a registered representative at PaineWebber's branch office in Santa Monica, California. Prior to her arrival at that office, Kirkpatrick arranged for Norma Meseck to open a securities account with PaineWebber. [2] Kirkpatrick had been Meseck's elementary school classmate and, in Meseck's own words, her "best friend" for more than twenty years. Meseck opened the account with a $42,000 check that she received from her former husband in a divorce settlement. [3] The only document that Meseck signed to open the account was a W- 9 tax form. Meseck did not see or sign any other account opening forms. Without Meseck's knowledge or authorization, Kirkpatrick signed Meseck's name on three PaineWebber account opening forms. These forms consisted of the "Client's Agreement," the "Resource Management Account Agreement," and the "Client Option Agreement and Qualification Form." [4] Kirkpatrick also signed Meseck's name on letters authorizing the disbursement of over eighty percent ($34,000) of Meseck's funds within the first week that the account was opened. In particular, Kirkpatrick testified that she withdrew: !$31,944 to cover losses in the brokerage account of another customer, Anita Briggs, at Kirkpatrick's predecessor firm, Dean Witter Reynolds, Inc.; [5] !$2,000 to pay Kirkpatrick's bankruptcy attorney for legal fees incurred in connection with a Chapter 7 bankruptcy petition that she and her husband had filed; [6] and, !$800 to repay herself for an alleged debt that Meseck owed her. [7] Kirkpatrick's testimony established that Meseck did not receive any portion of the proceeds from these checks. Kirkpatrick further testified that she used the balance of $8,000 in Meseck's account, along with an additional $13,000 that Kirkpatrick deposited into the account, to make about forty-five purchases and forty sales of various investment products from March 1991 to September 1992. These purchases and sales amounted to approximately $165,000 and $158,000, respectively. Meseck did not authorize or know about Kirkpatrick's trading in her account. Meseck thought that her funds were being held in a money market fund and were "safe." Kirkpatrick acknowledged that she knew Meseck wanted her to "safekeep" the funds. Instead of placing Meseck's funds in a money market fund, however, Kirkpatrick admitted that she handled the Meseck account "as if it were my own." In March 1992 and April 1993, Kirkpatrick provided Meseck with computer-generated tax schedules (Forms 1099) for filing her 1991 and 1992 income taxes. The Forms 1099 contained erroneous financial information about Meseck's account. They reported a zero amount in a column designated "Net Proceeds on Securities Transactions" for 1991 and 1992 when, in fact, Kirkpatrick's trading activity in Meseck's account had generated net proceeds of over $37,000 in 1991 and $39,000 in 1992. Meseck relied on these false Forms 1099 when she prepared her tax returns for 1991 and 1992. In early 1993, Meseck contacted Kirkpatrick to request her monthly account statements and to notify Kirkpatrick of a change of address. At this time, Meseck also requested that Kirkpatrick transfer her money from her PaineWebber money market fund to Putnam mutual funds. Meseck had decided that this transfer would increase the return on her funds. While Kirkpatrick led Meseck to believe that she had complied with Meseck's request, the record shows that Kirkpatrick did not. By March 1993, Meseck began receiving statements for the account. Meseck had not received any account statements since the account was opened. Although Meseck had made prior requests for the account statements, Kirkpatrick had ignored her requests. Meseck did not realize that, since March 1991, PaineWebber had been generating monthly statements for her account, and sending these statements to a post office box in Malibu, California. The post office box appeared on account opening documents as the mailing address for Meseck's account. The post office box belonged to Kirkpatrick, who testified that she and her husband had established it before Meseck had opened her account in March 1991. Meseck testified that she did not authorize Kirkpatrick to open a post office box or to receive correspondence related to her account at the post office box. In fact, Meseck testified that she was completely unaware that Kirkpatrick was using a post office box as the mailing address for her account. Kirkpatrick admitted that using the post office box "removed the [account] statements from [Meseck's] scrutiny." In June 1993, Meseck had a conversation with a friend, who raised Meseck's suspicions about Kirkpatrick's handling of her account. The conversation prompted Meseck to contact Kirkpatrick and instruct her to close the account. Meseck also instructed Kirkpatrick to wire transfer the balance of the funds to Meseck's Bank of America personal checking account, and to forward all documents showing any activity in the account since March 1991. In response to Meseck's request to close her account, Kirkpatrick told Meseck that it would take a few weeks to obtain the funds, but that she would send them to Meseck as soon as they arrived. Meseck considered this response consistent with her understanding that Kirkpatrick had invested her funds in Putnam mutual funds. Kirkpatrick also told Meseck that she would send Meseck the account activity documents Meseck had requested, but she never did. In July 1993, Kirkpatrick wired $19,250 to Meseck's Bank of America account. Meseck believed that this figure represented the balance of funds due her after she subtracted the various withdrawals, totaling approximately $26,000, that she had made while the account was open. Kirkpatrick testified that she obtained the $19,250 from another PaineWebber customer account. Kirkpatrick stated that these funds represented an "investment" that she had made on Meseck's behalf in that customer's account. Meseck did not know that the $19,250 came from someone else's account. Two years later, in June 1995, Meseck's friend encouraged Meseck to inquire further about the activity in her PaineWebber account. Meseck sent Kirkpatrick a letter, with a copy to Kirkpatrick's then branch office manager, requesting copies of her monthly account statements from March 1991 to August 1993. When Meseck's letter received no response from PaineWebber, Meseck enlisted the assistance of her older sister, Susan Bruner, a part-time bookkeeper at a law firm and part-time accountant's assistant. Bruner called the branch office manager, who said he had not received Meseck's letter and requested another copy. Shortly thereafter, Kirkpatrick contacted Meseck and asked her why she needed copies of her account statements. Meseck stated that she was involved in an "audit." Although this statement was untrue, Meseck thought it was the only way to obtain her account documents from Kirkpatrick. Following Kirkpatrick's call to Meseck, Kirkpatrick sent Bruner copies of some, but not all, of Meseck's monthly account statements and some year-end account summaries. Missing from the documents were the monthly account statements for the period from March 1991 to July 1991, which would have shown the withdrawals of $31,944, $2,000, and $800 and many of the trades Kirkpatrick had made in Meseck's account. Kirkpatrick falsely told Bruner, with respect to the missing statements, that PaineWebber could not retrieve statements more than four years old, but she would try nonetheless to obtain them. Meseck and Bruner discovered numerous discrepancies and anomalies in the documents that Kirkpatrick sent to Bruner. The information in the Forms 1099 that Kirkpatrick provided to Meseck in March 1992 and April 1993 conflicted with the year-end account summaries for Meseck's account. In addition, the monthly account statement for August 1991 reported a closing balance of $7,900, when, at the time, Meseck believed that she had more than $30,000 in her account. The documents also indicated that there had been trading in the account, contrary to Meseck's understanding that her money was being kept in a money market fund. The documents further indicated that Meseck's account statements had been sent to a Malibu, California post office box. As a result, Bruner and Meseck decided to meet with Kirkpatrick and confront her about Kirkpatrick's handling of Meseck's account. In July 1995, Meseck and Bruner met with Kirkpatrick at PaineWebber's Century City, California branch office. During the meeting, Meseck and Bruner asked Kirkpatrick about the false Forms 1099, the trading activity in the account, the post office box address, and the whereabouts of Meseck's money. Bruner characterized Kirkpatrick's explanations as "talking in circles." Both Meseck and Bruner testified that Kirkpatrick claimed Meseck had orally authorized the trading in her account. Meseck and Bruner also testified that Kirkpatrick claimed she had taken the money out of the account in cash to "protect" Meseck. Meseck testified that she denied having authorized any trading in the account, and that she was "baffled" by Kirkpatrick's explanation for withdrawing the funds from her account. Kirkpatrick recalled the meeting with Meseck and Bruner as "surreal" and "confusing." Kirkpatrick testified that she "was at a total loss" and "had no idea why [Meseck] was saying the things that she was." Kirkpatrick insisted that she never prevented her clients from receiving their account statements. Kirkpatrick testified that, at Meseck's request, she had agreed to keep Meseck's records and to receive account statements at her Malibu post office box. According to Kirkpatrick, she was only following Meseck's instructions when she traded in the account. After this meeting, Bruner called the branch office manager at PaineWebber's Century City, California office, and requested the missing account documents that she had been unable to obtain from Kirkpatrick. Bruner received the missing documents and forwarded them to Meseck. Meseck reviewed the documents, and then contacted PaineWebber to obtain a copy of the $31,944 check. Once Meseck received the copy of the check, she faxed a letter to PaineWebber Vice President Bonnie Freer, stating that she did not know the payee, Anita Briggs, and did not receive any of the proceeds from the $31,944 check. Meseck thereafter retained counsel. In August 1995, Kirkpatrick left PaineWebber. The next month, PaineWebber advised the Exchange that Meseck had filed a written complaint against Kirkpatrick. [8] The Exchange's Division of Enforcement subsequently brought this proceeding against Kirkpatrick. [9] The Exchange Hearing Panel, after considering the testimonial and documentary evidence, found that Kirkpatrick had acted without Meseck's knowledge or authorization, and sustained the charges against Kirkpatrick. Kirkpatrick appealed the Panel's decision to the Exchange Board of Directors' Committee for Review, which affirmed the Panel's ruling. This application for review followed. III. A.We conclude that Kirkpatrick engaged in unauthorized trading in Meseck's account, and therefore is subject to discipline under Exchange Rule 476(a). From March 1991 to July 1991, Kirkpatrick used the funds in Meseck's account to trade in options. [10] Thereafter, from August 1991 to September 1992, Kirkpatrick used the funds in Meseck's account to trade equity securities, including stock of a new issue, R-Tek Corporation. All of Kirkpatrick's purchases and sales of investment products, which totaled approximately $165,000 and $158,000, respectively, were without Meseck's knowledge or authorization. Kirkpatrick is also subject to discipline under Exchange Rule 476(a) for misappropriating funds from Meseck's account. Within a week of opening Meseck's account, Kirkpatrick withdrew nearly $34,000 for her own purposes. One year later, Kirkpatrick withdrew an additional $800 from the account. As in the case of the options and equity securities trading, Meseck neither knew about nor authorized the withdrawals from her account. Kirkpatrick asserts that Meseck orally authorized all of her trades and withdrawals of Meseck's funds. [11] We reject this assertion. As the Hearing Panel found, the "[e]vidence of the blanket authority which Kirkpatrick claims she had is lacking." Kirkpatrick, moreover, concealed her unauthorized trading and misappropriation of Meseck's funds, first by diverting Meseck's monthly account statements to her own post office box, and then by providing Meseck with erroneous financial information which failed to reveal the transactions effected in Meseck's account. These acts of concealment are inconsistent with Kirkpatrick's claim of complete discretionary authority to handle Meseck's account "as if it were my own." B.We further conclude that Kirkpatrick, without Meseck's knowledge or authorization, signed Meseck's name to numerous account opening documents, and provided Meseck with false financial information. [12] Kirkpatrick argues, with regard to this latter charge, that there was no evidence she "authored" the false Forms 1099. Kirkpatrick contends that it was a "virtual impossibility" to generate these forms from PaineWebber's computer system. While there is no direct evidence that Kirkpatrick authored the false Forms 1099, the record fairly supports the inference that, at the very least, Kirkpatrick was the source of the false information contained in these forms. First, Kirkpatrick alone testified that it was impossible to generate the Forms 1099 from PaineWebber's computer system. Kirkpatrick's former branch manager in the Santa Monica, California office testified that the Forms 1099 could be generated from PaineWebber's computer system. Second, a fax cover sheet attached to one of the forms indicated that it was sent from Kirkpatrick at PaineWebber's Santa Monica, California branch office. Kirkpatrick admitted that the handwriting on the fax cover sheet was "similar" to her own handwriting. Third and most significantly, the Forms 1099 furthered Kirkpatrick's deception of Meseck. These forms, by incorrectly reflecting that Meseck's account had generated no net proceeds on securities transactions, furthered Meseck's belief that Kirkpatrick was "safekeeping" her funds in a PaineWebber money market fund. **FOOTNOTES** [1]: Rule 476(a) provides that members and their employees may be disciplined for violating any rule of the Exchange or for conduct that is "inconsistent with just and equitable principles of trade." 2 New York Stock Exchange Guide (CCH) 2476. [2]: The Exchange Hearing Panel decision found that Kirkpatrick "arranged" the opening of Meseck's account. Kirkpatrick complains to us about this word choice, contending that it implies she "coerced" Meseck to open the account. The word "arranged" means, among other things, to plan or to prepare. Webster's Third New International Dictionary 120 (1971). So construed, we find that Kirkpatrick did "arrange" to have Meseck's account opened. Kirkpatrick testified that she and Meseck had discussed Meseck's impending receipt of a lump sum divorce settlement. Kirkpatrick also testified that she and Meseck had discussed investing those funds with PaineWebber so Meseck could have a down payment on a home. [3]: Meseck subsequently made two deposits into her account, one for approximately $1,500 and the other for approximately $3,000. Meseck made no other deposits while the account was open. [4]: The Exchange Hearing Panel found that PaineWebber's Consumer New Account Form for Meseck's account "contained inaccurate information concerning [Meseck's] financial status, address, birth date, social security number and marital status." Kirkpatrick concedes that this finding is "technically accurate." Kirkpatrick argues nonetheless that it implies, without evidentiary support, that she prepared Meseck's Consumer New Account Form. The Hearing Panel made no finding, express or implied, that Kirkpatrick herself completed Meseck's Consumer New Account Form. At the hearing, Kirkpatrick testified that she had a "practice" of having her sales assistant complete customers' new account forms. Additional testimony established that Kirkpatrick's sales assistant had been preparing customer forms for Kirkpatrick at PaineWebber's Santa Monica, California branch office before Kirkpatrick started working there. This testimony fairly supports the inference that Kirkpatrick's sales assistant prepared Meseck's Consumer New Account Form. [5]: Kirkpatrick signed Meseck's name on the Letter of Authorization permitting the issuance of the $31,944 check on March 8, 1991. [6]: Kirkpatrick signed Meseck's name on the Letter of Authorization permitting the issuance of the $2,000 check on March 14, 1991. [7]: Kirkpatrick drafted the check on May 12, 1992. She testified that Meseck had borrowed $800 from her in February. She could not recall, however, the reason that Meseck borrowed the money. [8]: Meseck also made a claim against PaineWebber. In March 1996, Meseck settled with PaineWebber and received $30,000 for lost income, out-of- pocket expenses, costs, and attorney's fees. [9]: In addition to the charges at issue on this appeal, the Exchange charged Kirkpatrick with failing to comply with an Exchange request to testify concerning matters occurring prior to the termination of her status as a registered employee of a member organization, in violation of Rule 477. See 2 New York Stock Exchange Guide (CCH) 2477. The Exchange withdrew this charge at the start of the hearing. [10]: Kirkpatrick testified that the only reason she stopped trading in options in Meseck's account was that, by July 1991, such trading appeared "unsuccessful," Meseck "was down about $15,000," and "it just didn't seem the right way to go." Kirkpatrick later conceded that it was "possible" the options trading in Meseck's account stopped because PaineWebber placed an options trading restriction on the account. [11]: Kirkpatrick admitted that she had no written authorization to effect transactions in Meseck's account. See Exchange Rule 408(a) ("[n]o member, allied member or employee of a member organization shall exercise any discretionary power in any customer's account or accept orders for an account from a person other than the customer without first obtaining written authorization of the customer."), 2 New York Stock Exchange Guide (CCH) 2408. The Exchange did not charge Kirkpatrick with a violation of this rule. [12]: The Panel reached this finding by majority (rather than unanimous) vote. Based on our de novo review of the record, we conclude that the preponderance of the evidence supports this charge against Kirkpatrick. See Western Capital and Securities, Inc., 50 S.E.C. 247, 250 (1990). IV. A.On appeal, Kirkpatrick contends that the evidence adduced at the hearing was insufficient to support the charges against her. Kirkpatrick reasons that Meseck's testimony was incredible and should have been discredited by the Hearing Panel. The Exchange's proof of the charges against Kirkpatrick largely rested on Meseck's testimony. Her testimony conflicted with portions of Kirkpatrick's testimony, making the credibility of these two witnesses a central issue in this case. After a five- day hearing, the Hearing Panel found that Meseck was the more believable witness, and credited her version of events surrounding the establishment and handling of the account. [13] We have deferred to the Exchange Hearing Panel's credibility determinations. [14] The record supports them and contains no substantial contrary evidence. [15] Kirkpatrick argues that Meseck's testimony that she asked Kirkpatrick to note a change of address in her account records is inconsistent with Meseck's testimony that she did not know that any statements had been generated for her account. Contrary to Kirkpatrick's assertion, Meseck's request does not establish that Meseck was "clearly aware that her statements had been going somewhere such that the address now needed to be changed." Rather, Meseck's testimony indicates that after several unsuccessful attempts to obtain her records from Kirkpatrick, Meseck wanted to ensure that she would receive them by giving Kirkpatrick her most recent address. Nor do we question Meseck's credibility from the fact that Meseck began receiving account statements beginning in 1993. We reject Kirkpatrick's contention that, based on these statements, Meseck knew that her money was not being invested in a mutual fund or money market account. The record supports the conclusion that Meseck trusted and relied on Kirkpatrick, as her best friend and as a seasoned registered representative with nine years of experience in the securities industry, to invest her funds according to her wishes; that Kirkpatrick betrayed Meseck's trust and reliance; and that, as a result of Meseck's naivete and lack of securities experience, Meseck did not comprehend the magnitude of this betrayal until well after the account was closed. Finally, we do not question Meseck's credibility based on the testimony of Kirkpatrick's branch manager that he spoke to Meseck about the options trading in her account. Kirkpatrick contends from this testimony that Meseck was fully aware of the trading in her account. The Hearing Panel obviously discounted the branch manager's testimony, particularly since he had no record of any telephone conversation with Meseck. Because we see no basis for disagreeing with that conclusion, we defer to the Hearing Panel's finding on witness credibility. B.Kirkpatrick next contends that she was deprived of her Fifth Amendment due process right to a fair hearing before the Hearing Panel when the Exchange's Division of Enforcement failed to disclose the following "material" evidence during discovery: (1) thirteen checks on Meseck's account that Meseck signed to withdraw funds and that bear the Malibu, California post office box address; (2) three PaineWebber form letters sent to Meseck during the summer of 1993; and (3) PaineWebber Vice President Freer's handwritten note stating, "3/91 Meseck name added to PO Box in March ---- by Ms. Kirkpatrick." Rule 476(c) sets forth the standard for document requests in Exchange disciplinary hearings. It provides, in pertinent part: Upon application to the Chief Hearing Officer of the Exchange by either party to a proceeding, the Chief Hearing Officer, or any Hearing Officer designated by the Chief Hearing Officer . . . may require the Exchange to permit the respondent to inspect and copy documents or records in the possession of the Exchange which are material to the preparation of the defense or are intended for use by the Division or Department of the Exchange initiating the proceeding as evidence in chief at the hearing. [16] Under this Rule, Kirkpatrick has not established that the Division of Enforcement failed to produce documents that were "material" to her defense. With respect to the thirteen checks, the Division of Enforcement produced to Kirkpatrick two other similar checks in response to her document request. Before the Hearing Panel, Meseck testified that she noticed the post office box address on the two checks, but she "gave [the post office box address] no importance" because she "didn't know what it was." In light of Meseck's testimony that she gave the post office box "no importance," and in light of Kirkpatrick's testimony that all of Meseck's checks specified the Malibu post office box address, we conclude that the introduction of thirteen more checks would have been merely cumulative. The three PaineWebber form letters related to a July 6, 1993, Letter of Authorization ("LOA") for a wire transfer of funds. [17] Each form letter attached a copy of the LOA and requested Meseck to return the original LOA to PaineWebber. These form letters had no relevance beyond the LOA, which the Division of Enforcement properly produced to Kirkpatrick during a pre-hearing exchange of documents. With respect to PaineWebber Vice President Freer's note, we reject Kirkpatrick's contention that it is material because it indicates Freer "might" have relevant information regarding the post office box. The most relevant information about the post office box came from Kirkpatrick when she admitted that the post office box was under her ownership and control and had been established before she arranged the opening of Meseck's account at PaineWebber. [18] C.Kirkpatrick also contends that the Exchange's Division of Enforcement "incorrectly alluded to events in [her] background" in an effort to impugn her character, in further violation of her due process right to a fair hearing. Kirkpatrick specifies three areas of inquiry that she deems inappropriate: (1) a 1979 misdemeanor charge for possession of stolen property; (2) the 1983 termination of her employment with Bache & Co.; and (3) other customer complaints against her. We conclude that the Hearing Panel properly permitted the Division of Enforcement to cross-examine Kirkpatrick about each of these specified areas. [19] Moreover, our de novo review of the Hearing Panel's findings ensures that Kirkpatrick has been treated fairly. [20] Regarding the 1979 misdemeanor charge, Kirkpatrick reported the charge in the securities registration application that she submitted to PaineWebber. This application was admitted into evidence before the Hearing Panel. The Division of Enforcement was entitled to cross-examine Kirkpatrick about the contents of the application, particularly since it had received documentary information from a California municipal court identifying the charge as a burglary. [21] Kirkpatrick had an opportunity on re- direct examination to explain the circumstances surrounding the charge. [22] Regarding Kirkpatrick's employment with Bache & Co., there was a discrepancy between her recollection of her termination as a "voluntary resignation" and the statement in her securities registration application that she was "permitted to resign" because she deposited $630 of her own funds into a client's account. The Division of Enforcement was entitled to explore this discrepancy, given that Kirkpatrick had engaged in similar activity regarding Meseck's account. Regarding customer complaints, we reject Kirkpatrick's claim that on cross-examination she was improperly "interrogated" about an "unsubstantiated complaint" made by a former customer named Fuller. Kirkpatrick testified on cross-examination that she had not received any complaints from Fuller. When the Division of Enforcement sought to impeach this testimony by calling Fuller as a rebuttal witness, the Hearing Panel refused to allow Fuller to testify. The Panel explained that such testimony "would be a little beyond what the Panel wants to hear." Because Fuller's testimony was excluded, Kirkpatrick was never impeached on the issue whether she had received any complaints from Fuller. As a result, Kirkpatrick has no basis for claiming that the Division of Enforcement's questioning rendered the hearing unfair. [23] V. Kirkpatrick contests the sanctions imposed against her. Our review of the Exchange's sanctions is limited to determining whether those sanctions are either excessive, oppressive, or impose an undue burden on competition. [24] Kirkpatrick engaged in a pattern of serious misconduct spanning a two-year period. Neither the fact that Kirkpatrick claimed she stood ready to repay Meseck upon Meseck's request, nor the fact that Kirkpatrick returned to Meseck the balance of $19,250 in the account once Meseck instructed her to close the account, excuses Kirkpatrick's unauthorized trades, her misappropriation of funds, or her other misconduct relating to Meseck's account. [25] Before us, Kirkpatrick continues to assert that she has done nothing wrong other than having committed "technical" violations. She assumes the posture of a victim deprived of her freedom to pursue her chosen profession. While she states that her conduct was motivated by "love and friendship," none of her actions concerning the account benefited Meseck. They benefited only Kirkpatrick. In these circumstances, we do not find that the sanctions that the Exchange assessed against Kirkpatrick are excessive, oppressive, or impose an undue burden on competition. An appropriate order will issue. [26] By the Commission (Chairman LEVITT and Commissioners JOHNSON, CAREY and UNGER); Commissioner HUNT not participating. Jonathan G. Katz Secretary **FOOTNOTES** [13]: Kirkpatrick's credibility was undermined before the Hearing Panel when Kirkpatrick admitted that: (1) she had failed to disclose in her 1991 bankruptcy petition that she and her husband had maintained at least one securities account in the two years preceding the filing of the petition; (2) she had failed to disclose on several securities registration applications that she had filed for bankruptcy; and (3) she had been the subject of a customer complaint, contradicting her direct examination testimony that she had not been the subject of any such complaint. See infra note 23. [14]: Kirkpatrick asserts that the testimony of Meseck's sister, Bruner, "a generally credible witness, . . . did little to resolve key issues" concerning Kirkpatrick's authority and the source of the false Forms 1099. Bruner's testimony, however, was not offered on these issues. Rather, her testimony was offered to, and did, corroborate Meseck's testimony regarding the events transpiring after the account was closed. [15]: See Reynold F. Vaughan, III, 51 S.E.C. 1078, 1080 (1994). [16]: Exchange Rule 476(c), 2 New York Stock Exchange Guide (CCH) 2476. [17]: The July 6, 1993, LOA, which Meseck had signed, authorized the wire transfer of $19,250, the balance of funds in her PaineWebber securities account, into her personal Bank of America account. The Hearing Panel admitted into evidence the LOA, which Meseck then authenticated. [18]: To the extent that Kirkpatrick finds error in the Exchange Board of Directors' refusal to consider the Freer note, the record demonstrates that Kirkpatrick did not follow proper procedure in seeking the admission of this evidence before the Board. See Exchange Rule 476(f) ("[I]f either party upon review applies to the Board of Directors for leave to adduce additional evidence, and shows to the satisfaction of the Board of Directors that the additional evidence is material and that there was reasonable ground for failure to adduce it before the Hearing Panel, the Board of Directors may remand the case to a Hearing Panel for further proceedings, in whatever manner and on whatever conditions the Board of Directors considers appropriate."), 2 New York Stock Exchange Guide 2476. As a result, we conclude that the Board acted appropriately when it disregarded the Freer note. [19]: See Rita H. Malm, Exchange Act Rel. No. 35000 (Nov. 23, 1994), 58 SEC Docket 121, 136 n.37 ("In SRO proceedings, hearing panels have great latitude in permitting evidence and testimony from witnesses that might be excluded on relevance and hearsay grounds before other tribunals."). [20]: Sorrell v. SEC, 679 F.2d 1323, 1326 (9th Cir. 1982); Shultz v. SEC, 614 F.2d 561, 568 (7th Cir. 1980); Stuart K. Patrick, 51 S.E.C. 419, 424 n.25 (1993), aff'd, 19 F.3d 66 (2d Cir. 1994); Richard T. Rutherford, 48 S.E.C. 671, 674 n.4 (1987). [21]: The court represented that the official record of the case was unavailable for review. It had been destroyed because it was more than ten years old. [22]: Kirkpatrick testified that in 1979 she pleaded nolo contendere to a misdemeanor charge of possession of stolen property, and received a two- year suspended sentence. Kirkpatrick was unsure whether the crime was originally charged as burglary. Kirkpatrick testified that her boyfriend had stolen a credit card and placed it in his wallet. The wallet was in her pocketbook. The credit card had not been used. [23]: We also reject Kirkpatrick's claim that the Division of Enforcement had "mischaracterized a complaint which was apparently found to be frivolous and which had been dismissed." On direct examination, Kirkpatrick denied having received any customer complaints. On cross- examination, however, she admitted that a customer named Mobarrez had, in fact, made a complaint against her. [24]: See Securities Exchange Act of 1934, Section 19(e)(2), 15 U.S.C. 78s(e)(2). [25]: See, e.g., Peter Paul Glagola, 47 S.E.C. 290, 292 (1980) (on review of NYSE disciplinary action; restitution is not a mitigative factor warranting reduction in sanction of registered representative who engaged in conduct inconsistent with just and equitable principles of trade). [26]: We have considered all of the parties' contentions. We have rejected or sustained them 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. 40630 / November 3, 1998 Admin. Proc. File No. 3-9529 : In the Matter of the Application of : : CATHY JEAN KRAUSE KIRKPATRICK : 3117 Corda Avenue : Los Angeles, California 90049 : : For Review of the Disciplinary Action Taken by the : : NEW YORK STOCK EXCHANGE, INC. : : ORDER SUSTAINING DISCIPLINARY ACTION TAKEN BY NATIONAL SECURITIES EXCHANGE On the basis of the Commission's opinion issued this day, it is ORDERED that the disciplinary action taken by the New York Stock Exchange, Inc. against Cathy Jean Krause Kirkpatrick be, and it hereby is, sustained. By the Commission. Jonathan G. Katz Secretary