INITIAL DECISION RELEASE NO. 128
          ADMINISTRATIVE PROCEEDING
          FILE NO. 3-8951
                              UNITED STATES OF AMERICA
                                     Before the
                         SECURITIES AND EXCHANGE COMMISSION
                                  Washington, D.C.
          ______________________________
                                         :
          In the Matter of               :
                                         :
          PATRICIA ANN BELLOWS           :INITIAL DECISION
                                         :July 23, 1998
                                         :
          ______________________________ :
          APPEARANCES:T.  Christopher  Browne  and  Karen  L.  Cook for the
          Division of
          Enforcement, Securities and Exchange Commission.
          Robert F. Watson and Gary S. Kessler for Respondent
          Patricia Ann Bellows.
          BEFORE:Lillian A. McEwen, Administrative Law Judge
                                 PROCEDURAL HISTORY
          The United States Securities and Exchange Commission (Commission)
          instituted  these  proceedings on February 16, 1996, pursuant  to
          Section 15(b) of the  Securities  Exchange  Act of 1934 (Exchange
          Act).
                                     THE HEARING
          On July 16, 17, and 18, 1996, a public hearing was held before me
          in Fort Worth, Texas.  The hearing record consists  of  testimony
          of witnesses and many exhibits.  I admitted into evidence twenty-
          seven  exhibits from the Division of Enforcement (Division),  and
          thirty-seven exhibits from Respondent Bellows.[1]
                                       ISSUES
          The Order  Instituting  Proceedings (OIP) alleges inter alia that
          from about May through August  1993  Bellows failed reasonably to
          supervise  a  registered  representative   with   a  view  toward
          "preventing  violations  of Sections 17(a) of the Securities  Act
          [of 1933 (Securities Act)], Section 10(b) of the Exchange Act and
          Rule 10b-5 thereunder, within  the meaning of Section 15(b)(6) of
          the Exchange Act, which incorporates  Section 15(b)(4)(E), of the
          Exchange Act."  (OIP at 2.)  If I conclude  that  the allegations
          in the OIP are true, I must then determine what, if any, remedial
          action is appropriate, pursuant to Section 15(b) of  the Exchange
          Act and whether, pursuant to Section 21B of the Exchange  Act,  a
          monetary penalty should be assessed against Bellows.  (OIP at 3.)
          After  the  hearing,  the Division filed its Proposed Findings of
          Fact and Conclusions of  Law  and  a  Reply  to Respondent's Post
          Hearing Briefs.  Bellows filed Proposed Findings  of  Fact  and a
          Post Hearing Reply Brief.
                                  FINDINGS OF FACT
          I  based the findings and conclusions herein on the entire record
          and  on  the  demeanor  of  the  witnesses  who  testified at the
          hearing.   I  applied  preponderance  of  the  evidence   as  the
          applicable  standard  of  proof  for the Division's case.  I find
          that  the  Division  has  not proved that  Bellows  violated  the
          federal securities laws as alleged in the OIP.
          Respondent
          Bellows  was  a  registered principal  of  H.D.  Vest  Investment
          Services, Inc. (H.D.  Vest)  from  August  1985  through February
          1995.  She was a compliance officer, vice president,  and  senior
          registered  options  principal  there  from  August  1985 through
          February 1993.  In February 1993, Bellows was appointed  to  H.D.
          Vest's  executive  committee.   From  approximately  1989 through
          September  1994,  Bellows  also  served  as  vice  president  and
          secretary of the corporation.  (Resp. Answer at 1, 2; Div. Ex. 6;
          Resp. Exs. 19, 21; Tr. 343.)
          Benjamin Rex Moses
          Moses had been a foreman framer, a student, a substitute teacher,
          a  store  manager,  and  a  registered representative with  First
          Investors Corporation before joining H.D. Vest for the first time
          on July 24, 1987, as a registered  representative.  (Resp. Ex. 27
          at 61800, 61814.)  Moses left H.D. Vest  voluntarily  after  this
          first stint, on October 21, 1987.  His termination papers on that
          date  were  signed  by  Herb  Vest  and Melanie Smith.  He had no
          disciplinary record or problems then.  (Resp. Ex. 27 at 61803.)
          Moses' second stint with H.D. Vest began  with  a contract signed
          by Bellows, as vice president, on July 30, 1991.   (Div.  Ex. 6.)
          Between the two stints at H.D. Vest, Moses had worked at Shearson
          Lehman  Hutton,  Smith  Barney, Dean Witter Reynolds, and Merrill
          Lynch.  (Resp. Ex. 28; Div.  Ex.  3.)  None of the U-5 employment
          forms show anything negative about  Moses as of July 1991.  (Div.
          Exs.  2, 3, 4, 5.)  Moses was required  to  amend  his  licensing
          record  in  July  1992  to  reflect  the  commencement of an NASD
          (National  Association of Securities Dealers)  arbitration.   The
          arbitration  grew  out of his trading at Dean Witter Reynolds and
          an allegation that Moses had not placed a client's requested stop
          loss order on an option  trade,  causing a claimed client loss of
          $39,000.  (Div. Exs. 9, 10, 11, 12,  13.)   In  June  1992, Moses
          attended  a  one-hour  compliance training workshop conducted  at
          H.D.  Vest. (Resp. Ex. 30.)   The  NASD  arbitration  matter  was
          concluded by an award against Dean Witter Reynolds of $100,000 to
          the client.   However,  a  July 6, 1993, NASD investigation ended
          with a finding of no action  warranted  against  Moses, and Moses
          was  not  asked  to contribute to the arbitration award.   (Resp.
          Exs. 31, 32.)  Moses  was  sentenced to eight years in prison for
          first degree theft in the State of Texas on August 25, 1995, as a
          result of his actions described below.  (Resp. Ex. 37.)
          Moses' Theft of Client Funds
          Ms. Svrcek, a victim of Moses' fraudulent activity, testified for
          the  Division  at  the  hearing.    Moses   was   the  registered
          representative  for  the joint brokerage account of her  and  her
          husband, first at Merrill  Lynch  and  then at H.D. Vest in 1991.
          (Tr. 51-53.)  She told Moses that she and  her husband "wanted to
          live  on  the interest" of their combined accounts  of  $530,000,
          plus their Social Security income.  (Tr. 53-54, 59.)  Because she
          was "afraid  of  stocks,"  Ms.  Svrcek  told  Moses  that she was
          interested in the "safest stocks available" or government  bonds.
          Moses  told her that he could generate $5,500 a month in interest
          from the  accounts. (Tr. 54.)  After Mr. Svrcek became ill, Moses
          told Ms. Svrcek  to  invest  in  the  Physician's Investment Club
          (PIC) for income tax advantages.  (Tr.  56.)   Although  she knew
          that  it  "was riskier" than other investments, Ms. Svrcek agreed
          to invest $25,000  in the venture.  (Tr. 56.)  Ms. Svrcek did not
          sign the PIC new-account agreement (Div. Ex. 16) or recognize her
          husband's handwriting  on  it  (Tr.  56),  nor  did  she  discuss
          options,  puts,  or calls with Moses.  The documents transferring
          funds from her account  were not signed by her.  (Tr. 57.)  Moses
          forged her and her husband's  signatures  on  other PIC documents
          also.  (Tr. 58.)
          When Ms. Svrcek called to complain about her declining  balances,
          employees  at  H.D. Vest referred her to Moses.  He in turn  told
          her falsely that  her statements were not accurate.  (Tr. 64-66.)
          Up until September 1993, Ms. Svrcek had been receiving the $5,500
          a month that Moses  promised  her.  (Tr. 68.)  In September 1993,
          however, H.D. Vest employees informed  her that she no longer had
          an  account on the firm's computer.  (Tr.  65-66,  148-49.)   Ms.
          Svrcek   also   discovered  that  Moses  had  left  for  Florida,
          disconnected his  telephone,  and,  according  to  her  attorney,
          depleted  her  account.  (Tr. 68.)  She eventually spoke to  John
          Reap, the operations  room  manager  at  H.D.  Vest during Moses'
          tenure, and other H.D. Vest employees.  (Tr. 150-54.)   In spring
          1993,  Ms.  Svrcek moved about $350,000 from her other H.D.  Vest
          accounts because  of  poor  performance.   (Tr. 157-158.)  By the
          date of the hearing, Ms. Svrcek had sued H.D.  Vest and collected
          $257,000 in an arbitration award.  (Tr. 69-73, 106-07.)
          A second victim of Moses, Vikki Kay Schurlemmer,  also testified.
          An  officer  in  a  cattle  business  and a partner in a  medical
          laboratory, Ms. Schurlemmer had accounts  at  H.D.  Vest, Merrill
          Lynch, and Shearson, as well as several mutual funds.  (Tr. 131.)
          She  intended to give Moses discretion to trade options  for  one
          year with the $10,000 in her PIC account.  (Div. Ex. 18; Tr. 116-
          18, 135-36.)   By  the  end  of  1992,  PIC investment statements
          showed that her $10,000 investment had dwindled  to  $7,300.   By
          July  1993,  she  became  concerned that no distribution had been
          made from her PIC account,  but  she  did  not  talk  to Moses or
          anyone else at the company.  By August 31, unable to reach Moses,
          she called H.D. Vest to inquire about the account.  On  September
          8,  she called Reap and then mailed the PIC account documents  to
          him as he requested.  (Tr. 124-25.)  After Ms. Schurlemmer mailed
          a letter  to the Commission, Kevin Reynolds from H.D. Vest called
          her and promised  to  get back to her after he obtained documents
          from Moses, but Reynolds  never  contacted  her again.  (Tr. 125-
          26.)  In 1995, Ms. Schurlemmer received $8,800 from H.D. Vest for
          compensation for her losses after having turned  down  $11,000  a
          year earlier.  (Tr. 128-29, 160-61.)
          Several  other  investors  were  victimized  by  Moses in the PIC
          scheme, although they did not testify.  PIC statements  were sent
          to  Moses'  home  address so that the investors could not inspect
          them and Moses misled  investors  as  to  their account balances.
          (Div. Exs. 23, 24, 27.)  By September 1993,  Reap  had discovered
          that PIC had received $275,389.50 and had disbursed over $180,000
          to  the  PIC  bank  account, which was controlled by Moses.   The
          account sustained $76,570  in  net  trading  losses,  for a total
          remaining balance of $6,394.20. (Div. Ex. 25.)
          Supervision of Moses
          As the manager, Bellows had signed the options account form which
          had  "disallowed" Moses' attempt to contravene company policy  by
          assuming  power  of  attorney  over  the PIC account in May 1992.
          (Resp. Ex. 21.)  Nevertheless, Moses was  able  to circumvent the
          policies  of  H.D.  Vest and its clearing firm.  Moses  deposited
          H.D. Vest PIC customer  funds  in  the  amount  of about $280,439
          (minus trading losses of $76,567 and substantial  fees)  into the
          Clearlake Bank PIC account.  The Clearlake account was controlled
          by  Moses  and  an  accomplice,  Ray  Immonen,  another H.D. Vest
          registered representative.  (Resp. Exs. 23, 24.)   Nearly half of
          the  PIC  withdrawals were endorsed by another club member,  Gary
          Glover (Glover).  Glover was complicit in Moses' fraud.  When, at
          the behest  of  Moses, Glover acquired power of attorney over the
          PIC account, he provided  Moses  with  a  means to embezzle funds
          from  the  account.   Most  of  the  remaining  withdrawals  were
          accomplished by wire transfers between June 1992  and  August 27,
          1993.   (Resp.  Exs.  22, 24, 25, 26.)  Bellows did not supervise
          Moses.   Although  Bellows   was   a   control  person,  a  "vice
          president/secretary" since February 1993,  H.D.  Vest  had  three
          additional  vice  presidents.  (Resp.  Ex. 19.)  Furthermore, the
          size  of  H.D.  Vest  made it unlikely that  Bellows  could  have
          directly supervised Moses.   H.D.  Vest  had  securities sales in
          1991 of $503 million; in 1992 of $962 million;  and  in  1993  of
          $1,091  million.   H.D. Vest had 2,797 registered representatives
          in 1991; 3,393 in 1992; and 3,855 in 1993.  (Resp. Ex. 20.)
          The H.D. Vest supervision  and  compliance functions were divided
          into  five general areas: registration;  operational;  technical;
          sales;  and  audit.   The compliance department could terminate a
          representative based on  information sent from any section except
          education.  (Div. Exs. 14,  15;  Resp.  Ex.  7.)  Bellows was not
          part of the compliance department from 1990 through 1992.  (Resp.
          Ex. 11 at 01040.)  Bellows was never a compliance manager either.
          The  compliance  manager's  duties encompass twelve  areas.   The
          second area is the supervision  of representatives and registered
          investment  adviser  agents.   Bellows   was   not  a  compliance
          specialist.  The compliance specialist has eleven  duties.  Among
          them is the duty to review correspondence of the salesmen  and to
          ensure  the  accuracy  of  application  forms.  (Resp.  Ex. 11 at
          01041.)  The compliance manual interprets the NASD Rules  of Fair
          Practice and describes fraudulent activity that is forbidden.  Of
          course,  among  the  forbidden  acts  are the fictitious account,
          unauthorized   transactions,   misuse  of  customer   funds   and
          securities,  and  misstatements and  non-disclosure  of  material
          facts by which Moses  promulgated  his  scheme.  (Resp. Ex. 11 at
          01074.)  Bellows did not generate H.D. Vest operations procedures
          that  were defective in the areas of placing  trades,  processing
          orders,  or  the  handling  of mail or other important functions.
          (Resp. Exs. 10, 13.)  On the  contrary,  Southwest Securities was
          responsible for the clearing and trading and  general  securities
          functions  of  H.D.  Vest.   Thus, Southwest was responsible  for
          processing  forms  from the registered  representatives  and  for
          executing their trades.   Southwest Securities thus required most
          of the documents that Moses  falsified  or  forged  in  order  to
          facilitate  his PIC scheme.  Moses even furnished the federal tax
          identification  number  for  PIC that Southwest required.  (Resp.
          Ex. 8 at V-1-12.)
          The senior equities trader was responsible for supervising Moses.
          (Resp. Ex. 12 at 01089.)  In addition,  the  compliance  manager,
          compliance   assistant   manager   and   the  compliance  officer
          supervised Moses. (Resp. Ex. 14 at 01312-15,  01331, 01380.)  The
          compliance  assistant  manager reports to the compliance  manager
          and is charged with the  responsibility of supervising registered
          representatives daily.  (Resp.  Ex.  14  at 01315.)  Furthermore,
          Rick Cepak was directly responsible for supervising  Moses.  (Tr.
          344,  346.)  Two H.D. Vest employees testified at the hearing  in
          the  Division's  case.   Neither  of  them  brought  any  unusual
          behavior  by  Moses to the attention of Bellows, although both of
          them had some responsibility  for  the supervision of Moses.  The
          first  H.D. Vest employee who testified  was  Bill  Cummings.   I
          credit his testimony.
          Bill Cummings,  a  trader  at Kidder Peabody and Company for over
          five years, joined H.D. Vest  in  1989.   In  1991,  he  became a
          registered   options   principal   after  passing  the  Series  4
          examination.  Cummings' duties at H.D.  Vest  included  approving
          accounts  for  options  trading  and reviewing options trades  by
          traders who had an options license.   (Tr.  264-67.)   There were
          five  or  six  other  options principals in the H.D. Vest trading
          room.  (Tr. 267.)  During  1992  and  1993, Cummings was a senior
          trader  and  a  registered options principal  in  the  H.D.  Vest
          trading room.  (Tr. 239-40.)
          In 1992, H.D. Vest  had  fifteen  to  twenty  investment clubs as
          clients.  One of them, PIC, traded in options.  (Tr. 240-45.)  In
          1992, H.D. Vest did not allow registered representatives  to have
          discretion   to   trade   in   customer   accounts.    Registered
          representatives  who  desired  to  become  a  trustee for a trust
          account  or a joint registrar for a joint account  were  informed
          that those  relationships  were not allowed by the company.  (Tr.
          247-48.)   Cummings  brought the  application  of  Moses  to  the
          attention of Bellows.   Moses  had stated on the application that
          he would be attorney-in-fact for the account of PIC.  It was "not
          uncommon" for a representative to  attempt to establish that kind
          of relationship with a customer.  Because  she was the compliance
          officer  at  the time, Bellows "was to sign off  on  all  options
          applications that came in the office."  (Tr. 248-49.)
          Cummings' immediate  supervisor was Rick Cepak (Cepak).  Cummings
          took the same action on the Moses application, and Cepak rejected
          the application.  (Tr. 251, 268.)  Cummings later contacted Moses
          about the PIC application,  and  Moses  resolved  the  matter  by
          telling  him  on  the  telephone  that  Gary  Glover would be the
          attorney-in-fact  for  the  PIC  account.  Cummings  talked  with
          Glover and questioned him about his net worth, and experience and
          obtained other false information from  him.   (Tr.  253.)   Moses
          sent  in "new paperwork for the PIC account" after Cummings spoke
          with Glover.   (Tr.  254,  268.)  Glover assured Cummings that he
          would be the attorney-in-fact for PIC.  (Tr. 269.)  When Cummings
          received the new PIC application,  it  contained  the  same false
          information  he had learned from Glover.  (Tr. 270-71.)   It  was
          Cummings'  responsibility   to   assign   "a   level  of  trading
          authorization"  to  clients, based on net worth, experience,  and
          income.  (Tr. 271.)   Southwest Securities or National Finance is
          the clearing firm for H.D. Vest.  (Tr. 275.)  The computer system
          at Southwest Securities  "halted"  a trade if it was inconsistent
          with the authorized level for the clients.  (Tr. 279.)  No trades
          in the PIC account were attempted that  would  have  exceeded the
          authorized level for the account, and Cummings never had to go to
          the trading manager of the compliance department with  a trade on
          the PIC account for any reason.  (Tr. 280-81.)
          Because Glover falsely indicated on the options application  that
          he  had  an  estimated annual income of $150,000 and an estimated
          net worth of $300,000,  Cummings approved the application without
          performing a credit check.   He did not know whether the clearing
          firm  did  a  background investigation.   (Tr.  188-89,  285-86.)
          Because it was not unusual for registered representatives at H.D.
          Vest to fill out  an  application  "incorrectly" by attempting to
          become  a  trustee  on a trust account  or  a  participant  in  a
          client's account, Cummings  did  not  attribute  a  bad motive to
          Moses'  attempt  to  become attorney-in-fact on the PIC  account.
          However, he drew the matter of Moses' attempt to the attention of
          Bellows because he had  to  get  her  signature  on  the form and
          because   it   was   consistent  with  company  "procedures"  for
          establishment  of  an  options   account.    (Tr.  290-91.)   The
          disapproval  of  Moses  as  attorney-in-fact,  the  contact  with
          Glover, and the subsequent approval of the new options  agreement
          signed by Glover were actions that were consistent with H.D. Vest
          company policy  (Tr. 291-93.)
          Cummings and other traders and options principals took trades for
          PIC, but they never had any reason to suspect that Glover was not
          the attorney-in-fact for the account.  Cummings was not aware  of
          the  forgeries by Moses during 1992 to September 1993.  (Tr. 293-
          94.)  There was no reason for Bellows to know of any forgeries by
          Moses  either.   Cummings  thought  incorrectly  that all the PIC
          members  had  signed  a  document  appointing  Glover.   "Because
          Southwest   Securities   had  the  ultimate  responsibility   and
          authority to approve the account,  that  account  would  not have
          been   established  unless  they  would  have  received"  such  a
          document.  (Tr. 295, 321.)
          H.D. Vest  did  not  require the individual members of the PIC to
          verify that they had selected  the individual who purported to be
          the  attorney-in-fact  on the application.   (Tr.  310-11.)   The
          trading room manager in  the  operations division was responsible
          for the new account documentation,  not  Cummings.  (Tr. 312-13.)
          The  original  documents, however, went to Southwest  Securities.
          No missing documents  report  came  from  Southwest Securities in
          reference to PIC.  (Tr. 313.)
          John  Reap  also  testified.   As  noted  earlier,   he  was  the
          operations room manager at H.D. Vest during Moses' tenure  there.
          (Tr. 330-34.)  Although a veteran of the securities industry  for
          eleven  years,  Reap was several management levels below Bellows.
          (Tr. 343.)  I credit  his  testimony.   Reap  joined H.D. Vest in
          1991.  (Tr. 371-72.)  The general securities trading room handled
          stocks,  bonds,  and  options  trades,  and  it  was  staffed  by
          employees   who   had   a  NASD  Series  24  principals  license.
          Principals reviewed each  trade  and  examined each order ticket.
          If a trade was "abnormal" or "stuck out," the trader was required
          by H.D. Vest policy to contact the registered representative, the
          trading room manager, or the compliance department. (Tr. 376-77.)
          Account opening documents were the responsibility  of  "brokerage
          operations"  and  the clearing firm, Southwest Securities.   (Tr.
          377-78.)  In May 1992,  while  Reap  was  in the trading room, he
          never  received  a report from the clearing firm  that  documents
          were missing in the  PIC account.  (Tr. 378.)  Thus, there was no
          reason for Reap or anyone else at H.D. Vest to suspect that Moses
          had defrauded investors.   For  example,  check number 687474 was
          prepared  by  the  clearing  firm  and made out  to  "Physician's
          Investment  Club,  attention care of Gary  Glover,"  consistently
          with company procedures.  (Tr. 380-82.)
          A few days after the  PIC account was opened, when Reap was still
          a trader, Moses stated  that  "he  was  going  to  start  trading
          options  in an investment club."  At the time, there were ten  to
          fifteen investment  club accounts at H.D. Vest.  However, none of
          them traded options.   (Tr.  351.)   Reap  did  not  see  the PIC
          account  paperwork until fall 1993, when the complaint was filed.
          (Tr. 353.)   Reap  had  no  reason  to know that Moses had forged
          checks from the PIC account from May  1992 through June 1993, and
          nobody  at  H.D.  Vest could have learned  of  the  forgery  from
          reasonable performance  of  their duties.  (Tr. 393-94.)  Bellows
          could not reasonably have been made aware of the illegal activity
          by Moses either.  (Tr. 394-95.)   Reap prepared a profit and loss
          reconciliation  of  the  PIC account from  "the  system"  at  the
          request of "somebody" at H.D.  Vest in September 1993.  (Tr. 355-
          56, 371.)  Reap estimated $76,570  (or  about  20% of the account
          balance)  as  the  loss  from eighteen months of trading  in  the
          account.  (Tr. 357-58.)
                                 CONCLUSIONS OF LAW
          From  approximately  May  1992  through  August  1993,  Moses,  a
          registered  representative  of   H.D.  Vest,  willfully  violated
          Section 17(a) of the Securities Act  and  Section  10(b)  of  the
          Exchange  Act  and  Rule  10b-5  promulgated  thereunder.   Moses
          violated  the  federal  securities  laws  through  his pattern of
          misrepresentations,  unauthorized  trading,  forgery, and  theft,
          described in the preceding section.  Of course,  the instant case
          raises  issues  only  as  they  pertain  to  Respondent  Bellows.
          Section   15(b)(4)(E)  of  the  Exchange  Act  provides  for  the
          imposition  of  a sanction against a broker or dealer or a person
          associated with a broker or dealer who:
has failed reasonably to supervise, with a view to preventing violations of the
provisions of such statutes, rules and regulations, another person who
commits such a violation, if  such  other person is subject to his supervision.
For the purpose of this subparagraph (E) no person shall be deemed to
have failed reasonably to supervise any other person, if -
(i)there have been established procedures,  and  a system for applying such
procedures,  which  would  reasonably be expected to  prevent  and  detect,
insofar as practicable, any such violation by such other person, and
(ii)such  person  has reasonably  discharged  the  duties  and  obligations
incumbent  upon him  by  reason  of  such  procedures  and  system  without
reasonable cause  to believe that such procedures and system were not being
complied with.
          Bellows was  a  person associated with H.D. Vest, a broker-dealer
          company.  However,  Bellows  did not fail reasonably to supervise
          Moses, because Moses was not subject to her supervision.  Even if
          Moses had been subject to her  supervision,  however,  I conclude
          that  Bellows still reasonably supervised him.  Finally,  in  the
          alternative, procedures and systems at H.D. Vest would reasonably
          have prevented  and  detected  Moses' violations, and Bellows had
          reasonable cause to believe that  Moses  had  complied with those
          procedures and systems.
          The  Division's contention, that Bellows' position  in  1992  and
          1993 as  compliance  officer  created  supervisory responsibility
          over  Moses,  is  not well taken.  Indeed,  this  idea  that  any
          compliance department  personnel  acts  as  supervisor  has  been
          rejected  by  the  Securities Industry Association. Task Force on
          Broker-Dealer Supervision  and  Compliance  of  the  Committee on
          Federal Regulation of Securities of the American Bar Association,
          Broker-Dealer  Supervision  of  Registered  Representatives   and
          Branch  Office  Operations,  44  Bus.  Law. 1361, 1373 n.58 (Aug.
          1989).  The fact that Bellows later in 1993  to 1995 was promoted
          to executive vice president and to a membership  in the executive
          committee  does  not  per  se  create  supervisory responsibility
          either.   "The public is well protected by  state,  federal,  and
          common law  without subjecting employers to insurer liability for
          acts  they  did   not   commit  and  could  not  have  reasonably
          anticipated  or guarded against."   Hollinger  v.  Titan  Capital
          Corp., 914 F.2d  1564,  1583  (9th  Cir. 1990) (Hall, Rymer, JJ.,
          dissenting).  The broker-dealer as personified  by Bellows is not
          an insurer of Moses and she cannot be made vicariously liable for
          his nefarious deeds.  See id. at 1575.
          The Division contends that, like a president of a  broker-dealer,
          Bellows bears ultimate responsibility for compliance.   It relies
          on  Sheldon  v.  SEC,  45  F.3d  1515  (11th  Cir. 1995), for its
          contention.   However,  Sheldon  states  "`unless  and  until  he
          reasonably  delegates particular functions to another  person  in
          the firm, and  neither  knows  nor  has  reason to know that such
          person's   performance   is   deficient,'"   the   president   is
          responsible.  Id.  (quoting Universal Heritage Investment  Corp.,
          47  S.E.C.  839,  845  (1982)).   Indeed, the Commission has long
          recognized that individuals like Bellows who may have overarching
          supervisory responsibilities for thousands  of  employees must be
          able   to  delegate  supervisory  responsibility  to  subordinate
          qualified  individuals,  such  as Reap, Cummings, and Cepak.  The
          standard   of  review  for  delegated   authority   was   clearly
          articulated  in  Stuart  K.  Patrick,  54 SEC Docket 232 (May 17,
          1993) and Mabon, Nugent and Co., 44 SEC  Docket  1348  (Sept. 27,
          1989).   It is the responsibility of the broker-dealer to  ensure
          that its executives can delegate effectively:
Apart from adopting  effective procedures broker-dealers must provide
effective staffing, sufficient resources and a system of follow up and
review to determine that any responsibility to supervise delegated to
compliance officers, branch managers and other personnel is being
diligently exercised.
           Stuart K. Patrick,  54  SEC Docket at 236 (quoting Mabon, Nugent
          and Co., 44 SEC Docket at 1348-49). (Sept. 27, 1989).
          In  the  instant  case,  the  responsibility   to  supervise  was
          diligently  exercised.   I  conclude that the record  establishes
          supervision over Moses by Cummings,  Cepak, and Reap, two of whom
          were  called  as  witnesses  for  the Division.   Each  of  these
          employees  had  control  over  related   specific   actions.   My
          conclusion  that Cepak was the immediate supervisor of  Moses  is
          supported by  the  testimony  of both Cummings and Reap, which is
          now  evidently rejected by the Division.   (Tr.  251,  268,  344,
          346.)   I  credit the testimony of the H.D. Vest employees, and I
          conclude that  the  three  of  them fall within the definition of
          "supervisor" that the Commission has articulated:
In light of the statutory language and history, and the Commission's prior
decisions, we believe that a supervisor for purposes of Section 15(b)(4)(E)
ought to be defined by the Commission as a  person  at  a broker-dealer
who has been given (and knows or reasonably should know he has been given)
 the authority and the responsibility for exercising such control  over  one  or
more  specific  activities  of  a supervised person which fall within the
Commission's purview so that such person could take effective action to
 prevent a violation of the Commission's  rules which involves such activity or
activities by such supervised person.
          Arthur  James  Huff,  48  SEC  Docket  878,  891  (Mar. 28, 1991)
          (Lochner,  Schapiro,  Commissioners, concurring).  Even  if  H.D.
          Vest had not required these employees or other specific employees
          to supervise Moses, that failure would not have created liability
          in Bellows, but rather in the broker-dealer itself:
If a broker dealer fails clearly  to assign such supervisory authority and
responsibility to specific individuals, its supervisory procedures will not
be reasonably designed to prevent and  detect  violations  of  the  securities
laws by its employees, and though theoretically no individual in such a
circumstance could be charged with a failure to supervise, the firm itself
would have committed such a violation.
          Id. at 891 n.14.
          In  Huff,  the  Commission clearly articulated that the power  to
          fire, demote or reduce  pay  is  not  dispositive  of supervisory
          responsibility,  but  rather who has control over the  individual
          acts of the employee:
An important element in these cases  is  the extent to which they focus
on the fact that the employees had particular authority and responsibility for
the salespersons' violative conduct (apparently  even  more  so than did
the branch and regional managers who were also responsible for supervision
of the salespersons), and had the employees wished to exercise it  could
have prevented the salespersons from continuing their activities in those
areas in which they exercised that authority and responsibility, even if they
did not have the power to fire, demote or reduce the pay of the salesperson in
question.
          Id.  at  890.   I  conclude that the supervision of Moses was not
          perfect, and a factual  analysis  indicates  that a more thorough
          investigation  might have revealed Moses' misconduct.   "However,
          the  statute  only  requires  reasonable  supervision  under  the
          attendant circumstances."   Id. at 883 (citing Louis R. Trujillo,
          43 SEC Docket 690, 694 (Mar.  16, 1989).  The test is whether the
          "supervision was reasonably designed to prevent the violations at
          issue."  Albert Vincent O'Neal, 56 SEC Docket 2447, 2456 (May 26,
          1994).  Viewed in that light, I  conclude  that  Bellows' overall
          discharge of any supervisory duties met the statutory standard.
          The evolution of the supervision standards is a triumph of common
          sense  that makes oversight of the market more responsible,  more
          accountable and more practical.
The [Commission],  like  virtually  all institutions, both public and private, is
not immune from the tendency of organizations to stagnate over time.
Government institutions, in particular, need to guard against the stagnation
born of mindless recitation of rules.  In many respects, the [Commission]
has shown itself adept at responding to changes in the capital markets and
reacting to conduct that is fraudulent and inimical to investor protection.
Whether or not one agrees with the agency's position on a particular issue,
the [Commission] has generally kept in close step with market developments
and has adapted well to market challenges.  This institution's adaptability may
be attributable to the traditionally high caliber of its staff, to the fundamentally
dynamic nature of the marketplace,  and  the  business  of  market  oversight,
or some combination of these.  The [Commission] has often demonstrated an
institutional responsiveness to the real world that is unusual among government
institutions.
          William  R.  McLucas,  et.  al.,  Common  Sense, Flexibility, and
          Enforcement of the Federal Securities Laws,  51  Bus.  Law. 1221,
          1238 (August 1996).
          Cummings  reasonably  supervised  Moses.   During  1992 and 1993,
          Cummings  was  the  senior  trader  at H.D. Vest and a registered
          options  principal with nearly ten years  of  experience  in  the
          securities  industry.  (Tr. 264-67.)  It was Cummings who brought
          the application (with Moses as attorney-in-fact) to the attention
          of  Bellows, who  was  the  compliance  officer.   (Tr.  247-49.)
          Cummings'  immediate supervisor, Cepak, rejected the application.
          Unlike the supervisors  of  the  salesman  in O'Neal, none of the
          H.D. Vest supervisors here were presented with  an  employee  who
          had a prior disciplinary history.  Like Lehman Brothers in SEC v.
          Lum's  Inc.,  365  F. Supp. 1046 (S.D.N.Y. 1973), Cummings, Reap,
          and Cepak were dealing  with  a  "respected and trusted employee,
          with substantial responsibility."   Id.  at  1065.  I find it was
          reasonable for Cummings to rely on the representations that Moses
          made to him about Glover and the PIC account and  I am "unwilling
          to impose hindsight liability" on Bellows based on the activities
          of Moses.  Id.
          Unlike  the  supervisors in Goldman, Sachs & Co., 55  SEC  Docket
          3208, 3214 (Feb. 3, 1994) and in Edwin Kantor, 54 SEC Docket 293,
          301 (May 20, 1993),  Cummings  conducted a further inquiry beyond
          questioning Moses.  His conversations  with  Glover  consisted of
          misrepresentations  by  Glover  that  were corroborated by  later
          submissions  and  forged  documents.   (Tr.  251-71.)   Cummings'
          approval  of  the PIC application and of subsequent  trading  was
          reasonable under  the  circumstances.   His misplaced reliance on
          the  clearing  firm  for  processing of the documentation  was  a
          failure  of  H.D.  Vest  oversight  policy,  not  of  supervisory
          responsibilities by individual  H.D.  Vest  employees.  (Tr. 293-
          321.)
          Reap, the operations room manager with over ten  years experience
          in  the  industry,  also supervised Moses.  Because the  clearing
          firm prepared the fraudulent  account  documents  for Moses, Reap
          was unable to discover the forgeries and theft of investor  funds
          in  a  timely manner.  H.D. Vest must take responsibility for its
          assignment  of operations to the clearing firm.  The third direct
          supervisor,  Cepak,   had   also  rejected  the  PIC  application
          initially, thus precipitating  the  fraudulent  use of Glover and
          the complex scheme whereby Moses looted the customer accounts.
          The very complexity of the scheme generated by Moses absolves his
          supervisors.  Indeed, the use of an outsider with no relationship
          to  the  investors,  like  Glover,  is  an  unusual  feature   in
          investment  fraud  cases.   Because Moses used wire transfers and
          checks to loot the accounts,  he  needed Glover to circumvent the
          controls at H.D. Vest.  It was the  strength  of  those  controls
          that forced Moses to such extremes.  Glover's testimony reveals a
          conspiracy   that   few  supervisors  would  have  been  able  to
          penetrate.  It would  be  unreasonable to charge Bellows with the
          responsibility of ferreting  out  the machinations of the plan in
          time to prevent its execution.
          Indeed, where registered representatives  have launched similarly
          complex  plans,  the  Commission  and  courts  have  consistently
          refused  to find failure to supervise.  For example,  in  Paulson
          Investment  Co.  Inc.,  47 S.E.C. 886, 890 (1983), the Commission
          set aside an NASD  finding  of  failure  to  supervise  where the
          salesmen  successfully  hid  their illegal transactions from  the
          firm and their supervisor.  Also,  in  Thomas F. White, 51 S.E.C.
          1194 (1994), the Commission dismissed the  case  and reversed the
          Administrative  Law  Judge's  finding  of  failure  to  supervise
          against  the  chief executive officer of a broker-dealer.   White
          involved  selling  away  and  theft  by  the  salesman,  but  the
          Commission  found  reasonable delegation of responsibility and no
          reason  to conclude that  anything  was  amiss.   The  registered
          representative,  Steven  M.  Roberta,  had  carried  out a scheme
          similar to Moses':
The stipulated facts with respect to Roberta's fraudulent conduct  may be
summarized as follows.  On at least five occasions, Roberta recommended that
clients invest in a fictitious entity called "Srecor."  He falsely represented that
Srecor was being underwritten by the firm, that it was a fund that
invested in high quality securities, and that Srecor securities had  a  fixed
maturity date and paid interest that increased as that date drew closer.
After obtaining his customers' agreement to invest, Roberta caused the firm
to  issue  checks payable to Srecor drawn on the customers' accounts, and
obtained possession of those checks.  He deposited the checks in a bank
account that he opened in Srecor's name, and later converted the funds, in the
total  amount  of  about  $157,000, to his own use.  In furtherance of his
scheme, Roberta sent  his  customers  forged  receipts  and  confirmations,
fraudulent stock certificates, and fictitious press releases.
          Id. at 1195.
          Finally, in Huff,  the  Commission reversed an Administrative Law
          Judge's finding of failure  to  supervise  and dismissed the case
          where the salesman's scheme was very similar  to  the  one in the
          instant case:
It is undisputed that Greenman,  the "biggest producer" in
[PaineWebber's  (PW)]   Miami  office  and  ranked  nationally  by
PW as its fifth largest producer  of  commissions,  engaged in a massive
securities fraud in which he used investors' funds without their authorization
for  options  trading, incurring heavy losses.  In order  to  conceal  those
losses  from customers, Greenman employed various deceptive devices.
He intercepted customers' account statements and sent them fictitious
ones, arranging for  the genuine statements to be sent to fictitious addresses
including post office boxes that he controlled and incorrect or non-existent
street addresses.  The fictitious statements generally showed monthly rates
of return ranging from 5% to 7%.  Greenman did not even open accounts at
PW for some of the customers  participating  in  his  program,  depositing
their  funds instead in the accounts  of  other  customers participating in the
program. His customers suffered total losses of some $7.6 million.
Greenman also  went  to  great lengths to deceive PW with respect to his activities.
          Id. at 879-80.
          I have concluded that Moses was not subject to the supervision of
          Bellows.  In  the  alternative,  if  Moses  was  subject  to  her
          supervision,  Bellows reasonably delegated her supervisory duties
          to the men who  worked  closely  with  Moses  on  a  daily basis,
          specifically Cummings, Cepak and Reap.  Bellows had good  reasons
          to  conclude  that these employees were diligent in their efforts
          to prevent the  wrongdoing.   The  Division  has  not proved by a
          preponderance  of  the  evidence  that  any  of  them could  have
          anticipated   the   complicity   of  the  outsider  Glover,   the
          fabrication of documents, or the forgeries of customer signatures
          that  ensued.   I conclude that Moses'  thwarted  attempt  to  be
          designated as attorney  for the PIC account and to control it did
          not  constitute  misconduct.   I  credit  the  testimony  of  the
          witnesses, who did  not  consider it unusual.  The record reveals
          no wrongdoing that came to  the attention of Bellows or the three
          men that should have alerted them to Moses' scheme.  Certainly, a
          close  examination  of Moses' files,  an  effort  to  corroborate
          Glover's  representations,  and  thorough  interrogation  of  the
          investors would  have  thwarted  the incipient scheme.  H.D. Vest
          might be culpable, but the statute  does  not  allow me to impose
          those investigative obligations on Bellows or on other individual
          H.D. Vest employees, based on the record before  me.   Therefore,
          the proceeding must be dismissed.
                             CERTIFICATION OF THE RECORD
          Pursuant to Rule 351(b) of the Commission's Rules of Practice, 17
          C.F.R.    201.351(b),  I hereby certify that the record includes
          the items set forth in the  Revised  Record  Index  issued by the
          Office of the Secretary on September 12, 1996.[2]
                                        ORDER
          IT  IS ORDERED that the proceeding against Patricia Ann  Bellows,
          be, and it hereby is, DISMISSED.
          This  Order shall become effective in accordance with and subject
          to the  provisions  of  Rule  360  of  the  Commissions' Rules of
          Practice, 17 C.F.R.  201.360.  Pursuant to that rule, a petition
          for review of this initial decision may be filed  within  twenty-
          one  days  after  service  of  the decision.  It shall become the
          final decision of the Commission  as  to  each  party who has not
          filed  a  petition  for review pursuant to Rule 360(d)(1)  within
          twenty-one days after  service  of  the initial decision upon the
          party,  unless  the  Commission,  pursuant   to  Rule  360(b)(1),
          determines on its own initiative to review this  initial decision
          as to any party.  If a party timely files a petition  for review,
          or  the  Commission  acts  to  review  as to a party, the initial
          decision shall not become final as to that party.
          Lillian A. McEwen
          Administrative Law Judge
          **FOOTNOTES**
          [1]: Citations are to the hearing transcript  "(Tr.__  )"  and to
          the exhibits admitted into evidence at the hearing.  The Division
          exhibits  are "(Div. Ex.__ )," and the Respondent's exhibits  are
          "(Resp. Ex.__ )."
          [2]: The Record  Index  was initially issued by the Office of the
          Secretary on August 20, 1996.