Securities and Exchange Commission v. Goble

North American Clearing, Inc. (NAC) (defendant) was the clearing firm for about 40 small brokerage firms. Richard Goble (defendant) founded NAC, was a director, and actively participated in the firm’s day-to-day operations. To comply with the customer-protection rule promulgated by the Securities and Exchange Commission (SEC) (plaintiff), NAC was required to establish a separate reserve bank account to protect customers if NAC became insolvent. Under the rule’s reserve formula, NAC had to keep in the reserve account an amount essentially equal to the excess of what NAC owed its customers over what customers owed the firm. NAC started to experience severe cash-flow problems. Goble directed NAC’s chief financial officer, Timothy Ward (defendant) to record in NAC’s books a sham $5 million money-market purchase. At Goble’s direction, Ward used the numbers created by the sham transaction to compute the amount NAC had to keep in the reserve account. Goble and Bruce Blatman (defendant), NAC’s president and chief executive officer, signed a wire request to move from the reserve account into NAC’s settlement account the amount that Ward had calculated could be moved. At the insistence of examiners from the Financial Industry Regulatory Authority, Inc., Ward returned the amount to the reserve account. NAC could not meet the reserve required and wound down its business. The SEC filed a complaint against NAC, Blatman, Ward, and Goble, alleging that NAC violated the customer-protection rule and the books-and-records requirements of the Securities and Exchange Act of 1934 (SEA); Goble, Blatman, and Ward aided and abetted those violations; and all four violated the SEA’s antifraud provisions. NAC, Blatman, and Ward settled with the SEC. After trial, the court concluded that Goble aided and abetted NAC’s violations of the customer-protection rule and the SEA’s books-and-records requirements and violated the antifraud provisions of the securities laws. On appeal, Goble argued that no primary securities-fraud violation supported his aiding-and-abetting liability.