SEC Charges FINRA Board Member with Fraud
Securities Industry News
By Carol E. Curtis
June 2, 2008
Richard Goble, a Financial Industry Regulatory Authority (FINRA) board member and founder and owner of North American Clearing (NACI), has been charged with fraud and other securities violations by the Securities and Exchange Commission. The agency has obtained a freeze on Longwood, Fla.-based NACI's assets and appointed a receiver to oversee the firm.
In a complaint filed May 27 in the U.S. District Court in Orlando, the SEC says that Goble, NACI president Bruce Blatman and operations principal Timothy Ward engaged in illegal activities including misuse of customer funds to pay for the firm's business operations.
Finra spokesperson Herb Perone acknowledged that Goble is still on its board. "This is a board responsibility, and they will figure out how to deal with it," he said, adding that the SRO has no further comment. A request for comment from Goble was referred to Peter Anderson--appointing by the Florida court as receiver--who pointed to the NACI Web site.
A May 27 notice on the site says that Anderson is "taking steps to assess the situation and attempt to determine whether customers' funds and securities are adequately protected." The site also says that NACI is now only able to accept "certain buy-to-close and sell-to-close option orders" and cannot accommodate Acats, or automated customer account transfers.
The SEC complaint alleges that the fraud began earlier this year, when a large client left NACI because of exposure to high-risk collateralized mortgage obligations. As a result, the firm needed to secure a bank loan, and used customer securities as collateral. The additional debt required NACI to increase the reserves held in an account for the exclusive benefit of customers, which in turn forced it to draw down funds available for operating expenses. Then, in March and April, the firm "improperly sold customer money-market funds and used those funds to pay North American operating expenses," according to the complaint.
Moreover, the SEC said that on May 13 the firm manipulated its processing system to overstate customer money-market purchases, allowing it to obtain funds to pay a portion of the bank loan. "By engaging in this conduct, the defendants violated, and are reasonably likely to continue to violate, the antifraud, customer-protection and books-and-records provisions of the federal securities laws," says the SEC.
North American Clearing's severe financial problems began last year, when its financial condition began to "deteriorate continuously," says the complaint. The decline accelerated after the large client's departure further reduced NACI's assets and revenues and it lost more than $7 million in connection with customer transactions in a penny-stock company.
The defendants engaged in "numerous fraudulent transactions" to hide the financial crisis and continue operations, putting customer funds at risk as a result, says the agency.
The case "demonstrates our ongoing commitment to investor protection," said Linda Chatman Thomsen, the SEC's director of enforcement, in a statement. "Protecting customer funds from misuse by a broker-dealer is a fundamental part of our enforcement efforts." The commission also noted the assistance of Finra in bringing the charges.
On Aug. 13, FINRA also brought a complaint against NACI, charging that from March 2004 to March 2005 it improperly liquidated customer money-market fund positions to create cash flow to meet daily settlement obligations. Alleged violations included having an unregistered compliance officer, permitting an unregistered person to act as operations manager, deficient anti-money-laundering systems, inaccurate net capital computation and an inaccurate box account (Securities Industry New, Sept. 17).
Goble is also a co-founder of the Financial Industry Association, a group of mostly smaller FINRA member firms that has been a vocal critic of the election process used by the recently formed self-regulatory organization (SRO), as well as the way it investigates, examines and sanctions members.
North American Clearing services approximately 40 correspondent brokers and clears transactions for over 10,000 customer accounts with a value of more than $500 million.
Originally published in Securities Industry News.
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