INITIAL DECISION RELEASE NO. 110 ADMINISTRATIVE PROCEEDING FILE NO. 3-9051 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________ : In the Matter of : : KENNETH J. SCHULTE : INITIAL DECISION : April 10, 1997 ______________________________: APPEARANCES: Scott B. Hamilton and Gregory von Schaumburg for the Division of Enforcement, Securities and Exchange Commission David J. Betras for Kenneth J. Schulte BEFORE: Brenda P. Murray, Chief Administrative Law Judge The Securities and Exchange Commission ( Commission ) initiated this proceeding on July 30, 1996, pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934 ( Exchange Act ). I held a hearing in Cleveland, Ohio, on November 4, 1996.-[1]- The Division of Enforcement ( Division ) did not call any witnesses but introduced nineteen exhibits. Mr. Schulte was present at the hearing but chose not to testify and did not call any witnesses or introduce any exhibits.-[2]- On December 5, 1996, I accepted into evidence five late-filed ---------FOOTNOTES---------- -[1]- I will refer to specific pages of the hearing transcript as (Tr. __), the August 28, 1996, prehearing conference transcript as (Aug. Tr. __), and the October 11, 1996, prehearing conference transcript as (Oct. Tr. __). -[2]- I will refer to the exhibits, which are numbered consecutively, as (Ex. __). The only sworn testimony from Mr. Schulte in evidence is the transcript of the bankruptcy hearing where he was questioned by Division counsel. (Ex. 19 at 63-64.) ==========================================START OF PAGE 2====== exhibits offered by Respondent, and on January 6, 1997, I accepted two late-filed exhibits offered by the Division. (Tr. 62-64.) There was a three month delay in the start of the hearing. At a prehearing conference on August 28, 1996, I moved the hearing to Florida and ordered procedures to accommodate the parties since Mr. Schulte, appearing pro se, had relocated to Florida, and claimed he could not afford to return to Ohio for a hearing.-[3]- At a prehearing on October 11, 1996, I postponed the hearing and moved it to Ohio because in early October Mr. Schulte retained an attorney located in Ohio who was familiar with his situation.-[4]- I postponed the scheduled start of the hearing based on the attorney s request that he needed additional time because of his pre-existing trial schedule and a serious family illness. I received the following post hearing pleadings: (i) Division of Enforcement s Post-Trial Brief, dated December 19, 1996; (ii) Respondent s Reply to the Division of Enforcement s Post-Trial Brief, dated January 14, 1997; and (iii) Division of Enforcement s Rebuttal Reply Brief, dated February 8, 1997. Allegations The Division alleges that from the spring of 1990 to April 1994, Mr. Schulte, while a registered representative, violated the antifraud provisions of the federal securities statutes, in connection with the offer and sale of mortgage backed ---------FOOTNOTES---------- -[3]- When I moved the hearing to Florida so Mr. Schulte could attend, I ruled pursuant to Rule 235(a)(5) of the Commission s Rules of Practice, 17 C.F.R.  201.235(a)(5) (1996), that the Division could introduce in evidence in lieu of oral testimony the transcripts of sworn testimony of persons taken at depositions where Mr. Schulte was represented by counsel. I did this because the Division s public witnesses were scattered throughout Ohio. (Aug. Tr. 14-30.) I affirmed that ruling when the hearing was moved to Cleveland, Ohio. At the hearing, Respondent s counsel objected on grounds that the Division was offering only partial depositions and that the complete depositions should be admitted. I granted his request. (Tr. 50- 63.) -[4]- The law firm had represented Mr. Schulte in the civil case but had withdrawn when Mr. Schulte claimed he had no funds to pay for their legal services. Mr. Schulte retained the firm for his criminal case and the attorneys decided to participate in this proceeding on his behalf. (Oct. Tr. 4-5.) ==========================================START OF PAGE 3====== derivatives, in interstate commerce by making material misrepresentations and omissions concerning, among other things, the nature, the risks, and the government guarantees of derivatives, and that a Final Judgment of Permanent Injunction and Disgorgement was entered by default against Mr. Schulte on April 16, 1996, and amended on April 22, 1996.-[5]- Findings of Fact My findings and conclusions are based on the record. I applied preponderance of the evidence as the applicable standard of proof. I have considered all proposed findings and conclusions and all contentions, and I accept those that are consistent with this decision. Kenneth J. Schulte From the spring of 1990 to April 1994, Mr. Schulte, who held himself out to the investing public as a specialist in mortgage backed securities and their derivatives, was a registered representative with Murchison Investments Bankers, Inc. ( Murchison ), Hart Securities, Inc. ( Hart ), and Comprehensive Capital Corporation ( Comprehensive Capital ). (Exs. 1 at 7; 19 at 7-9, 55-58.) In 1989, when Mr. Schulte began his employment at Murchison in Houston, Texas, he was part of the firm s boiler room operation where thirty or so salespeople stood making continuous telephone calls in which they read from a script to whomever would listen urging them to buy bonds immediately or else they would lose a wonderful investment opportunity. The firm urged its salespeople to smile and dial, and referred to its procedures as slamming bonds. (Ex. 20 at 16-24.) In 1991, Mr. Schulte and other salespeople at Hart worked together in a room in Houston, Texas, from which they made continuous phone calls to small financial institutions in various states soliciting sales of Government National Mortgage Association ( Ginnie Mae ) and Federal National Mortgage Association ( Fannie Mae ) derivative securities which Hart s management had selected. Hart management monitored sales calls and told the sales force what to say. The solicitation calls did not cover the risk or suitability of the investments. (Ex. 22 at 11-24.) From the spring of 1990 through April 1994, Mr. Schulte sold over 39.4 million dollars worth of derivative securities, including interest only securities ( strips or IOs ), inverse IOs, and inverse floaters, to at least thirteen municipalities ---------FOOTNOTES---------- -[5]- The term derivative is short for derivative instrument, a contract whose value is based on the performance of an underlying financial asset, index, or other investment. Barron s Dictionary of Financial and Investment Terms 136 (4th ed. 1995). ==========================================START OF PAGE 4====== and school districts in the State of Ohio (the Ohio Investors ).-[6]- (Ex. 1 at 7-9.) Purchasers of IOs are entitled only to the interest stream generated when a government agency, such as Fannie Mae, pools thousands of mortgages together and offers investors different ownership interests in that pool. If interest rates decline, the prepayment of mortgages generally increases and the purchaser of an IO receives interest from a smaller pool of mortgages. (Ex. 1 at 8.) Mr. Schulte s sworn testimony demonstrates a detailed knowledge of sophisticated financial instruments, and leaves no doubt that he knew that IOs are risky investments in that the entire amount of an investor s principal is at risk and the interest stream is not guaranteed. (Ex. 19 at 127-29, 136-37.) In September 1991, Mr. Schulte signed a letter sent to prospective clients in Ohio, including the Ohio Investors, on Hart letterhead stationery that falsely represented we have chosen to view the quest for high yields subordinate to a product s liquidity and the safety of our clients investment capital. (Exs. 6 at 46-47; 19 at 61-62, 139.) The Ohio Investors were not sophisticated investors and did not understand derivatives. (Exs. 12 at 4-10; 13 at 4-9; 21 at 25, 93-94.) They informed Mr. Schulte that they had conservative investment policies and maintained essentially risk-free investment portfolios. (Exs. 1 at 9-10; 6 at 26-34; 12 at 34-39; 19 at 58-60, 121-22; 21 at 49-53.) Mr. Schulte knew that the Ohio Investors investment policies dictated that the securities they purchased had to be guaranteed by the United States government or its agencies, that their main investment objective was the safety and preservation of principal, and that principal was never to be placed at risk. (Exs. 1 at 9-10; 6 at 34-35; 12 at 36-42; 13 at 13-17, 20, 26, 69-72; 19 at 58-59; 21 at 52-53.) Mr. Schulte represented that he understood these investment policies and that he would follow them. (Ex. 1 at 10.) Mr. Schulte used aggressive and intimidating sales tactics, and conducted all his activities by telephone. He threatened to recommend that the City of Euclid, Ohio, fire Kenneth R. Kentosh, an investment advisor specializing in municipalities, in August or September 1990 because Mr. Kentosh believed IOs were ---------FOOTNOTES---------- -[6]- All the products Mr. Schulte sold to Ohio Investors were securities. (Exs. 1 at 7-8; 16 at 2.) According to Mr. Schulte, the sales occurred primarily in 1990-91, and the big losses occurred in 1994. (Ex. 19 at 37.) The customers are not specified in the record but it appears likely that they included the cities of Ashland, Mansfield, Jackson, Hilliard, Englewood, and Painesville; the counties of Preble and Mercer; and the school districts of the Harrison Hills, Shadyside, Strongsville, Vermilion, and Danbarry. (Exs. 8 at 19; 19 at 57-58.) ==========================================START OF PAGE 5====== unsuitable investments for public bodies and would not recommend that the city buy IOs from Mr. Schulte. (Ex. 8 at 75-76.) He criticized government officials for not doing their jobs in getting the highest return available on risk-free investments when they hesitated in purchasing IOs. (Ex. 12 at 14, 47-48.) He falsely represented that Richard C. Simpson, an attorney in Columbus, Ohio, with an extensive municipal bond practice, supported his representations. (Ex. 11 at 11 and attachment.) On December 2, 1991, Attorney Simpson informed Mr. Schulte that (1) he would take action against him and Hart if Mr. Schulte used him as a reference in soliciting clients, and (2) he considered the investments Mr. Schulte was selling far too speculative for investment of public funds, even if they comply with Ohio statutory requirements, which is questionable. (Exs. 11 at 11- 17 and attachment; 19 at 66-69.) Using persistent phone calls, Mr. Schulte pressured the Ohio Investors to purchase derivative securities. (Ex. 21 at 13-14, 98-100.) They relied on his false representations that the IOs were essentially risk-free investments guaranteed by the United States government or a government agency; that their investment principal would not be placed at risk; that the yield was far greater than on certificates of deposit; and that they had to invest quickly because the opportunity was limited. (Exs. 1 at 9-11; 6 at 50-54; 12 at 12-15, 23-24, 32-33; 21 at 21-24, 50-51; 22 at 25-26.) Mr. Schulte knew that the statements he made to the Ohio Investors were false when he made them, and he persuaded these investors to purchase derivative securities regardless of whether the investment was appropriate for their investment objectives.-[7]- (Exs. 1 at 9-10; 19 at 61-66.) Mr. Schulte did not provide Ohio Investors with written materials which described the derivative securities he offered; he failed to disclose or discuss the substantial risks involved in these investments or that the IOs were sensitive to interest rate fluctuations in that an increase in mortgage prepayments could potentially wipe out their entire investment; and he rarely used the term interest only strips to describe the investments and failed to inform some investors of the type of securities they had purchased.-[8]- (Exs. 1 at 9-11; 12 at 21; 13 at ---------FOOTNOTES---------- -[7]- Part of Mr. Schulte s job responsibilities was to qualify investors, which was to gather information as to an investor s prior investment history, investment objectives, liquidity requirements, and risk tolerance. (Ex. 19 at 104-05.) -[8]- In October 1993, the Attorney General of Ohio issued an opinion that IOs and certain other investments were illegal because they were not redeemable within two years as required by Ohio law. (Ex. 6 at 88-89.) ==========================================START OF PAGE 6====== 23-25, 47-52, 74-75; 21 at 24-25, 45.) In 1991, the Ohio Investors began to suffer losses from their purchases of IOs from Mr. Schulte. Nevertheless, Mr. Schulte continued to solicit additional sales of IOs in 1992 when he left Hart and became associated with Comprehensive Capital in Boca Raton, Florida. (Ex. 6 at 62.) As a result of Mr. Schulte s material misrepresentations and omissions in the offer and sale of these securities, the Ohio Investors sustained losses in excess of $8.2 million. When interest rates declined dramatically beginning in 1991, many consumers refinanced their mortgages so that there were fewer mortgages in the pool and interest payments were reduced to virtually nothing. (Ex. 1 at 8-11.) Mr. Schulte earned almost $400,000 in commissions from the sales of derivative securities to the Ohio Investors. (Exs. 1 at 11; 19 at 34.) On May 30, 1996, Mr. Schulte had been employed as a registered representative with Comprehensive Capital for almost four and a half years. (Ex. 19 at 8.) His earnings from commissions was $125,987 and $54,500 in 1994 and 1995, respectively. (Id. at 14-16.) On November 4, 1996, Mr. Schulte was an active participant in the securities industry. (Tr. 21.) Permanent Injunction The Commission initiated a civil action against Mr. Schulte on December 27, 1994. On April 16, 1996, the United States District Court for the Northern District of Ohio, entered by default an order permanently enjoining Mr. Schulte from violating the antifraud provisions of the federal securities laws, and ordering him to disgorge approximately $400,000 in commissions that he obtained through fraudulent means. SEC v. Schulte, No. 1:94 CV 2657 (N.D. Ohio April 16, 1996)(amended on April 22, 1996). According to the district court: Schulte s conduct is egregious. Schulte did not disclose the nature of these securities and misrepresented the risks inherent in derivatives including the prepayment risks, the risk to principal and their lack of a government guarantee. Schulte repeatedly violated the antifraud provisions of the federal securities laws. Over a four-year period, Schulte sold over $39.4 million . . . of derivatives in Ohio alone. Schulte[ s] sales were based on cold calling finance directors and treasurers throughout the state. . . . Schulte was aware that these investors held virtually riskless investments in their portfolio prior to purchasing the IOs and other derivative securities. Schulte knew the nature of the derivative securities ==========================================START OF PAGE 7====== and the risks involved in their purchase, but failed to disclose these risks to investors and misrepresented the structure of derivative securities. Schulte also falsely represented these securities to be guaranteed by the government. (Ex. 1 at 15.) The district court concluded: In connection with the offers and sales of derivative securities, including IOs, Schulte engaged in a massive fraud which cost Ohio municipalities and school districts millions of dollars in losses. Consequently, in view of his fraudulent scheme, Schulte violated the antifraud provisions of the federal securities laws. Schulte violated these provisions by making material misrepresentations and omitting to state material facts to investors regarding the nature, risks, and lack of government guarantees associated with derivative securities such as IOs, Inverse IOs and Inverse Floaters. (Ex. 1 at 11-12.) The district court found that Mr. Schulte willfully violated the antifraud provisions of the securities statutes; that he had full knowledge of the inappropriateness of his behavior, yet he continued to make material misrepresentations to investors which he knew, or was reckless in not knowing, were false; that his employment in the securities industry presented him with daily opportunities to commit future violations ; and that it was likely that Mr. Schulte would continue to solicit investors using the same techniques he used in Ohio. (Ex. 1 at 13-15.) Bankruptcy On March 20, 1996, Mr. Schulte filed a voluntary petition under Chapter 7 of the Bankruptcy Code. Kenneth J. Schulte, No. 96-31108-BKC-SHF (Bankr. S.D. Fla. March 20, 1996). When he was examined by the bankruptcy trustee on May 30, 1996, Mr. Schulte was living in a house in Delray Beach, Florida, that he had purchased with his wife for $320,000. (Ex. 19 at 6.) In a Final Judgment and Order dated December 9, 1996, the United States Bankruptcy Court for the Southern District of Florida ruled that: Kenneth J. Schulte, is collaterally estopped from denying that he defrauded Ohio investors based on the judgment entered against him by the United States District Court for the Northern District of Ohio in Securities and Exchange Commission v. Kenneth J. Schulte, Case No. 1:94 CV 2657 (N.D. Ohio, April 16, ==========================================START OF PAGE 8====== 1996). The Court accordingly GRANTS the Commission s motion for summary judgment and finds that Schulte s $387,787.62 disgorgement debt to the Commission is not dischargeable under Section 523(a)(2)(a) [sic] of the Bankruptcy Code because Schulte obtained that money by false pretenses, false representations and actual fraud. (Ex. 26, Kenneth J. Schulte, No. 96-31108-BKC-SHF (Bankr. S.D. Fla. December 9, 1996).) Other Regulatory Authorities In 1994 and 1995, the National Association of Securities Dealers ( NASD ) made two awards in arbitration matters on claims against Mr. Schulte based on the allegations that are the subject of this proceeding. It found Mr. Schulte liable and ordered him to pay the sum of $4,500, interest specifically excluded, in City of Englewood v. Murchison Investment Bankers, Ltd. and Kenneth Schulte, No. 93-03625 (July 27, 1994), and it found him liable and ordered him to pay $169,320, inclusive of interest, in Harrison Hills School District v. Hart Securities, Inc. and Kenneth Schulte, No. 94-00235 (December 5, 1995). (Exs. 14, 15, 16.) In 1995, the Ohio Commissioner of Securities found that Mr. Schulte was not of good business repute as that term is used in the Ohio Code and revoked Mr. Schulte s securities salesman license. Kenneth James Schulte, Final Order of Revocation, Order No. 95-071 (October 6, 1995). Mr. Schulte consented to the order and agreed to a permanent bar from ever reapplying for a license to sell securities in Ohio. (Ex. 5.) Criminal On February 11, 1997, a jury found Mr. Schulte guilty of wire fraud, mail fraud, and securities fraud in connection with the same factual allegations set out in the Order Instituting Proceedings ( Order ). United States v. Kenneth J. Schulte, No. 1:96CR305 (N.D. Ohio February 14, 1997). Mr. Schulte had not been sentenced when I issued this decision. The Order does not refer to the criminal case because Mr. Schulte s indictment was returned after the Commission issued the Order.-[9]- (Ex. 4.) Public Interest ---------FOOTNOTES---------- -[9]- I took official notice of the conviction on March 4, 1997. Rule 323 of the Commission s Rules of Practice, 17 C.F.R.  210.323 (1996). ==========================================START OF PAGE 9====== Section 15(b) of the Exchange Act requires that the Commission sanction Mr. Schulte if it is in the public interest to do so on several independent bases: because he was associated with a broker-dealer when he willfully violated the securities statutes and regulations; he has been permanently enjoined from further violations of those provisions; and he has been convicted of a felony involving the purchase or sale of a security within ten years of the institution of the administrative proceeding. To determine the public interest involves consideration of the following factors as well as the need to deter Mr. Schulte and others from similar conduct: the egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the defendant's assurances against future violations, the defendant's recognition of the wrongful nature of his conduct, and the likelihood that the defendant's occupation will present opportunities for future violations. Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981). The severity of a sanction depends on the facts of each case and the value of the sanction in preventing a recurrence. Berko v. SEC, 316 F.2d 137, 141 (2d Cir. 1963); Richard C. Spangler, Inc., 46 S.E.C. 238, 254 n.67 (1976); Leo Glassman, 46 S.E.C. 209, 211-12 (1975). In granting the permanent injunction and ordering disgorgement against Mr. Schulte, Judge Oliver considered his actions as measured against the factors the Sixth Circuit considers relevant in determining the likelihood of future violations as set out in SEC v. Washington Utility District, 676 F.2d 218, 277 & n.19 (6th Cir. 1982).-[10]- The district court found Mr. Schulte s actions egregious, willful, and committed with scienter over a four year period. All of these ---------FOOTNOTES---------- -[10]- The factors are: 1. the egregiousness of the violations, 2. the isolated or repeated nature of the violations, 3. the degree of scienter involved, 4. the sincerity of the defendant s assurances, if any, against future violations, 5. the defendant s recognition of the wrongful nature of his conduct, 6. the likelihood that the defendant s occupation will present opportunities (or lack thereof) for future violations, and 7. the defendant s age and health. (Ex. 1 at 14.) ==========================================START OF PAGE 10====== determinations involve factors as set out in Steadman. SEC v. Schulte, No. 1:94 CV 2657 (N.D. Ohio April 16, 1996)(amended on April 22, 1996). Mr. Schulte s criminal conviction, based on the same facts that are at issue here, demonstrates that Mr. Schulte engaged in intentional wrongdoing of major significance to defraud investors and supports a determination that a bar is required. Elliott v. SEC, 36 F.3d 86, 87 (11th Cir. 1994); Alexander V. Stein, 59 SEC Docket 1493, 1500-02 (June 8, 1995). This record leaves no doubt that Mr. Schulte was a willing and knowing participant in a very successful scheme to defraud a specific group of vulnerable investors. The Ohio Investors were small public entities with financially unsophisticated investing officials lacking the expert investment advice available to larger public bodies. Using high pressure, aggressive sales tactics, lies, and deception, Mr. Schulte took advantage of their lack of knowledge and their need to replace income that was no longer available because of falling interest rates on certificates of deposits to cause them to invest public money in unsuitable investments. Mr. Schulte s outrageous business threats to Mr. Kentosh, his unauthorized use of Attorney Simpson as a reference, and his dismissal of advice that he was offering unsuitable and probably illegal investments all demonstrate his determination to defraud investors and his complete lack of business honor. It is disquieting, and the record does not explain how under the statutory disqualification process administered by the NASD, that Mr. Schulte was able to be active in the securities industry on August 28, 1996, and November 4, 1996, when he had been the subject of a permanent injunction on April 16, 1996. (Tr. 21; Aug. Tr. 7-8.) In issuing the permanent injunction, Judge Oliver found that Mr. Schulte s participation in the industry gave him daily opportunities to commit future violations. SEC v. Schulte, No. 1:94 CV 2657 (N.D. Ohio April 16, 1996)(amended on April 22, 1996). As a government agency this Commission has a legitimate interest and obligation, to take strong action to prevent fraud of taxpayers funds. Mr. Schulte s blatant acts of fraud and deception continued over a four year period and caused losses of over $8 million in public funds, much of which was earmarked for public education. Mr. Schulte received $398,787.62 from these fraudulent activities. The City of Englewood was unable to collect on its arbitration award because Mr. Schulte and Murchison filed for bankruptcy. (Ex. 12 at 51.) The record does not reveal whether the Harrison Hills School District was able to collect its arbitration award, because Hart filed under Chapter 11 of the United States Bankruptcy Code on March 3, 1995. (Ex. 14 at 10.) At least one of the persons who purchased IOs from ==========================================START OF PAGE 11====== Mr. Schulte lost his employment in 1993 because of the investments. (Ex. 6 at 68.) Finally, I postponed the hearing so that Mr. Schulte could attend and be represented but Mr. Schulte did not testify, did not call any witnesses, and the only evidence he offered was complete copies of depositions where the Division had offered partial versions. The Division proved the allegations in the Order with its exhibits. Mr. Schulte did not establish any defenses to the allegations or any evidence on the public interest issue.-[11]- The clear implication is that Mr. Schulte acted to delay a final determination in this proceeding and in the civil injunctive action so as to remain active in the securities industry for as long as possible.-[12]- (Ex. 1 at 6-7.) I reject as false his counsel s argument that he has not had a chance fully to defend himself. (Resp. Reply Brief at 8.) It is necessary in the public interest to impose the severest possible sanction for all the reasons stated, and to prevent Mr. Schulte, who has neither recognized that he has committed any wrong nor provided any assurance that he will not commit illegal actions in the future, and other persons who might be inclined to follow his example from future illegal acts. Record Certification Pursuant to Rule 351(b) of the Commission's Rules of Practice, 17 C.F.R.  201.351(b) (1996), I certify that the record includes the items set forth in the record index issued by the Secretary of the Commission on February 6, 1997, and corrected on March 4, 1997. Order Based on the findings and conclusions set forth above, I ORDER, pursuant to Sections 15(b) and 19(h) of the Exchange Act, that Kenneth J. Schulte is barred from being associated with a broker, dealer, a member of a national securities exchange, or ---------FOOTNOTES---------- -[11]- An adverse inference can be drawn from Mr. Schulte s failure to offer testimony on matters at issue of which he had personal knowledge. Strathmore Securities, Inc., 43 S.E.C. 575, 590 (1967), petition for rev. denied, 407 F.2d 722 (D.C. Cir. 1969). I did not rely on the adverse inference in reaching my decision. -[12]- In the civil action, Mr. Schulte hired and withdrew two sets of counsel. Judge Oliver found that Mr. Schulte had been dilatory in his defense and that his failure to attend the trial was willful. (Ex. 1 at 6.) ==========================================START OF PAGE 12====== registered securities association, and from participating in an offering of penny stock. This order shall become effective in accordance with and subject to the provisions of Rule 360 of the Commission's Rules of Practice, 17 C.F.R.  201.360 (1996). 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 him, 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. ______________________________ Brenda P. Murray Chief Administrative Law Judge