SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37613 \ August 28, 1996 Admin. Proc. File No. 3-8912 _________________________________________________ : In the Matter of the Application of : : DAVID POST : First Options of Chicago : 220 Montgomery Street #500 : San Francisco, CA 94104 : : For Review of Disciplinary Action Taken by the : : PACIFIC STOCK EXCHANGE INCORPORATED : _________________________________________________: OPINION OF THE COMMISSION REGISTERED SECURITIES EXCHANGE -- REVIEW OF DISCIPLINARY PROCEEDINGS Practice and Procedure Disruptive Conduct Where member of registered securities exchange was cited by Order Book Official for disruptive conduct on the options trading floor, held, exchange's finding of violation and the sanctions it imposed sustained. APPEARANCES: David Post, pro se. Kathryn L. Beck, for the Pacific Stock Exchange Inc. Appeal filed: December 29, 1995 Briefing completed: March 29, 1996 I. David Post appeals from a final decision of the Pacific Stock Exchange ("PSE" or the "Exchange"). The PSE found that Post, a PSE member and registered market maker, violated PSE Rule 6.2(c) by engaging in disruptive behavior on the options trading ==========================================START OF PAGE 2====== floor. The PSE fined Post $250 for his violation. -[1]- Our findings are based on an independent review of the record. II. On September 28, 1994, David Post was trading on the options floor of the PSE. A dispute between Post and three other traders developed over who was first to "hit" an offer. James Hamiter, the Options Order Book Official ("OBO"), entered the dispute to help determine which trader was first. While Hamiter attempted to determine what had occurred, Post repeatedly said "you're out" to one of the other traders. Hamiter told Post and another trader to "chill out," referring to them both by name. Post's actions continued; he yelled and started to wave his arms in front of another trader in the dispute. Hamiter told Post to "knock it off." Post sat down briefly, but started yelling again when Hamiter began to announce his ruling. Hamiter then issued a floor citation to Post for disorderly conduct, pursuant to PSE Rule 10.13(g). -[2]- On October 3, 1994, the Options Surveillance Department delivered a letter to Post informing him that, in accordance with the Minor Rule Plan procedures, the Options Floor Trading Committee ("OFTC") would be reviewing the Floor Citation to determine if a violation of PSE rules had occurred. The Options Surveillance Department noted that it appeared that Post had violated PSE Rule 6.2(c) with his disruptive conduct on September 28, 1994 and that he could submit a written statement for the OFTC's consideration. -[3]- Post did not submit a statement. The OFTC met on December 13, 1994. It determined that sufficient evidence existed to establish a violation, and voted ---------FOOTNOTES---------- -[1]- In addition, the PSE retained $250 as an appeal filing fee pursuant to PSE Rule 10.8(a). Retention of the appeal filing fee is discussed infra n.12. -[2]- PSE Rule 10.13(g) states: "[a] Floor Official and/or an Options Order Book Official may issue a Floor Citation to any member . . . when it appears to such Official(s) that a Minor Rule Plan violation . . . has occurred." The Minor Rule Plan provides an alternative disciplinary procedure to the more formal procedure codified in Rules 10.3 through 10.8. PSE Rule 10.13(h) lists PSE Rule 6.2(c) as one of the rules covered by the Minor Rule Plan. -[3]- See PSE Rule 10.13(b). ==========================================START OF PAGE 3====== to fine Post $250. The OFTC notified Post of the decision on December 15, 1994. Post appealed the decision, giving the basis for his appeal as "[m]isguided OBO . . . [a]ctions did not reasonably warrant citation." He also requested a hearing. -[4]- On January 3, 1995, the PSE hand-delivered a letter to Post containing the names of the three members of the OFTC hearing panel that would hear his appeal. On July 12, 1995 the PSE hand-delivered a letter to Post scheduling the hearing for August 10, 1995. The day before his hearing, Post mentioned during a conversation with the Hearing Administrator that he planned to ask for a continuance to give himself time to retain counsel. Post asserts that "he received no negative response," but does not claim that he received an affirmative response. At the hearing, Post formally requested a continuance, which was denied by the hearing panel. Post then left the hearing, and the hearing panel entered a judgment against Post affirming the decision of the OFTC. Post then appealed to the Board of Governors Appeal Committee (the "Board Appeal Committee"), stating that: [T]he Exchange has consistently held David Post to a different and more extreme standard of behavior than any other member. I shall demonstrate that this disciplinary proceeding . . . continues this tradition. And, as such, constitutes persection [sic] rather than prosecution. Post also submitted a $500 filing fee. -[5]- Without a hearing, -[6]- the Board Appeal Committee affirmed the decision of the OFTC hearing panel. The Board Appeal Committee held that Post had not properly exhausted all administrative remedies and that his appeal was vague and did not present ---------FOOTNOTES---------- -[4]- Appeals from Floor Citations are governed by PSE Rule 10.11.(b), which allows the appellant to choose between a review based solely on the written record or a hearing. -[5]- A $500 filing fee is required by PSE Rule 10.8(a) for appeals in connection with violations that are not part of the Minor Rule Plan. No filing fee is required under the Minor Rule Plan procedures. -[6]- Pursuant to Rule 10.11(e)(1), the Board Appeal Committee has discretion to grant or deny a request for an oral presentation. ==========================================START OF PAGE 4====== specific exceptions to the issuance of the floor citation as required by PSE Rules. -[7]- The Board Appeal Committee retained $250 of Post's filing fee to cover the fine, and $250 as a filing fee. This appeal followed. III. We find that Post's actions violated PSE Rules. PSE Rule 6.2(c)(2)(A) states that: No person while on the Trading Floor shall . . . (ii) engage in any act or practice that may serve to disrupt or hinder the ordinary and efficient conduct of business; or . . . (iv) act in a disorderly manner, which includes, but is not limited to, the use of abusive or indecorous language. Post has not submitted any evidence contradicting the evidence presented by the PSE that Post was yelling and waving his arms on the options trading floor, nor does he deny his conduct. We agree that his behavior was disruptive and disorderly, and therefore a violation of PSE Rule 6.2(c)(2)(A). The basis for Post's challenge to the PSE's action has changed at every stage of the proceeding. None is persuasive. Post left the OFTC hearing after his request for a continuance was denied. Consequentially, he presented no evidence or testimony to support or explain the claim (made in his written request for a hearing) that his actions "did not reasonably warrant" the citation. Post's argument on appeal to the Board Appeal Committee, that he was held "to a different and more extreme standard of behavior than any other member," is best characterized as one of selective prosecution. To establish selective prosecution, Post must demonstrate that he was singled out for prosecution while others similarly situated were not, and that the action against him was motivated by an arbitrary or unjustifiable consideration, such as race, religion, or the desire to prevent the exercise of a constitutionally protected right. -[8]- Post's unsubstantiated assertion of "a different and more extreme ---------FOOTNOTES---------- -[7]- See PSE Rule 10.8(a). -[8]- E.g., Amato v. SEC, 18 F.3d 1281, 1285 (5th Cir.), cert. denied, 115 S. Ct. 316 (1994); United States v. Huff, 959 F.2d 731, 735 (8th Cir.), cert. denied 113 S. Ct. 162 (1992); C.E. Carlson, Inc. v. SEC, 859 F.2d 1429, 1437 (10th Cir. 1988). ==========================================START OF PAGE 5====== standard of behavior" does not establish the required elements of a selective prosecution claim. ==========================================START OF PAGE 6====== In his appeal to the Commission, Post argues that his right to legal counsel was denied. This argument is not persuasive. There is no statutory or constitutional right to counsel for PSE disciplinary proceedings. -[9]- PSE rules allow respondents to retain counsel for assistance during the disciplinary process. -[10]- Post had seven months between the notification he received regarding the panel members and the actual hearing, in which he could have retained counsel. Additionally, Post had approximately four weeks between notice of the hearing and the hearing date. The PSE acted within its discretion in refusing to continue the hearing indefinitely to give Post the opportunity to retain counsel. -[11]- Finally, Post argues that the PSE denied his right to a fair hearing. Post's argument is not convincing. PSE Rule 10.13(g) gives the Order Book Official authority to issue floor citations when it appears that a Minor Rule Plan violation specified in PSE Rule 10.13(h) has occurred. Post received an opportunity to respond to the citation in writing prior to the determination by the OFTC that a rule violation had occurred. Post failed to submit a response. Post also had an opportunity to present his case on his appeal to the OFTC hearing panel. However, after his request for a continuance was denied, he insisted on leaving the hearing and stated that "I guess I'll take the default." Thus, the PSE did not deny Post the opportunity to have a fair hearing; rather, Post chose not to take advantage of the opportunities provided to him. Accordingly, we sustain the PSE's findings of a violation by Post. We also find that the $250 fine imposed is not ---------FOOTNOTES---------- -[9]- Cf. Falcon Trading Group Ltd. and Glen Vittor, Securities Exchange Act Rel. No. 36619 (December 21, 1995), 60 SEC Docket 2909, 2916-17 (1995) (holding that no statutory or constitutional right to counsel exists in NASD disciplinary proceedings). -[10]- PSE Rule 10.11(d)(3). -[11]- Cf. Falcon Trading Group Ltd. and Glen Vittor, supra 2916-17 (holding that there is no right to counsel based on NASD rules); Sheen Financial Resources and Brian Jeffrey Sheen, Securities Exchange Act Rel. No. 35477 (March 13, 1995), 58 SEC Docket 2791, 2801 n.30 (1995) (holding that NASD rules permit the participation of counsel, but do not afford a right to representation). We note that Post is not represented by counsel in his appeal to the Commission. ==========================================START OF PAGE 7====== excessive. -[12]- An appropriate order will issue. -[13]- By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary ---------FOOTNOTES---------- -[12]- The retention of $250 to cover filing fees is not authorized under Minor Rule Plan procedures. See n.5, supra. This amount should be returned to Post. -[13]- All of the arguments 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. 37613 \ August 28, 1996 Admin. Proc. File No. 3-8912 _________________________________________________ : In the Matter of the Application of : : DAVID POST : First Options of Chicago : 220 Montgomery Street #500 : San Francisco, CA 94104 : : For Review of Disciplinary Action Taken by the : : PACIFIC STOCK EXCHANGE INCORPORATED : _________________________________________________: ORDER SUSTAINING DISCIPLINARY ACTION TAKEN BY REGISTERED SECURITIES EXCHANGE On the basis of the Commission's opinion issued this day, it is ORDERED that the disciplinary action taken by the Pacific Stock Exchange Incorporated against David Post, and the fine imposed, be, and they hereby are, sustained. By the Commission. Jonathan G. Katz Secretary