Hit And Run Wall Street Regulation Immunized In Goble and North American Appeal

October 23, 2015

I could attempt to write a brief synopsis of today's featured federal appeal. Sure . . . I could give that a shot; however, a lot of folks would likely accuse me of doing a hatchet job on Wall Street's regulators. Frankly, a hatchet job appears in order but, okay, maybe my hand shouldn't be holding that implement. As such, I'm going to let the federal courts do much of the chopping here. 

The Goble Saga

Under consideration is what must, by now, be called an epic battle pitting Richard Goble, the founder of North American Clearing, against the Securities and Exchange Commission, the Securities Investors Protective Corporation, and a host of assorted folks involved in analyzing, scrutinizing, and reviewing Goble's and North American's conduct. For more details about the tortured history of the events under discussion here, read:

A Little Background

In Richard L. Goble, Plaintiff/Appellant v. Timothy Ward et al, Defendants/Appellees (US Ct App 11th Cir, No. 14-15586, October 22, 2015), the 11th Circuit ("11Cir") offers us this explanation of the facts in the appeal from the District Court for the Middle District of Florida:  


A. Facts1

At the beginning of 2008, Goble was the director of North American Clearing Corporation (North American). On May 27, 2008, Defendant Securities and Exchange Commission (SEC) sued North American for improperly liquidating customer accounts. Relying "almost entirely" on statements from North American's president (Defendant Bruce Blatman) and North American's chief financial officer (Defendant Timothy Ward), the SEC brought a civil enforcement action against Goble alleging that he had liquidated customer accounts to avoid insolvency. No investigator spoke to Goble before the SEC filed the civil enforcement action.

The SEC's complaint included a false allegation that North American's customer accounts lacked the amount of money required under federal securities law. The false allegation arose from the SEC's use of a formula that differed from Goble's, yet the SEC never spoke to Goble, who could have corrected the SEC's misunderstanding. In reliance on Blatman and Ward, the complaint also falsely alleged that North American had unlawfully "swept" customer money market accounts and moved the money from those accounts into North American's operating accounts. Although the SEC doubted the truth of this allegation, it never bothered to speak to Goble, who again could have corrected the error. In reality, each "sweep" and transfer had occurred with customer consent; no sweep was made to prevent North American from failing; and no sweep offset North American's basic operating expenses. The SEC could have discovered all of the above simply by questioning Goble, but it chose not to do so.

In the SEC's civil enforcement action against Goble, the SEC requested an ex parte temporary restraining order and a receiver for North American; the court issued an order granting both requests. Two months later, Defendant Securities Investor Protection Corporation (SIPC) (acting through Defendant Josephine Wang and Defendant Christopher Larosa) began liquidation of North American. The judge overseeing the SEC's action transferred the case to bankruptcy court. Throughout the receivership and the bankruptcy litigation, SIPC and the SEC misrepresented "financials" to the bankruptcy court. Relying on the misrepresentations, the bankruptcy court "destroy[ed]" North American. During the receivership, the SEC paid Ward and Blatman more than the wages they had received when employed by North American. Under 15 U.S.C. § 78eee, SIPC applied for and received a protective decree, but because an inexperienced employee completed the application, it contained inaccurate information. The application estimated that North American was insolvent by $2.5 million, but North American was actually solvent by $3 million. Soon after the bankruptcy court entered the protective order, the bankruptcy trustee discovered that SIPC had miscalculated North American's solvency. Nonetheless, the bankruptcy trustee continued the liquidation of North American.

Defendant Financial Industry Technical Services Inc. (FITS), which "provide[s] operational support and project management services to the financial industry," employed Defendant Henry Lange as chief executive officer. Lange "worked with" the bankruptcy trustee and SIPC to liquate North American. Lange misrepresented "key financial information at stages of the receivership and bankruptcy." Further, Lange "was involved in covering up the true healthy financial condition of [North American] and shredding key financial documents." Similarly, FITS employed Defendant John Rizzo, who "worked with . . . SIPC in the dismantling of [North American], misrepresenting [North American's] financial information, and shredding and hiding important financial documents." 

As noted, in the SEC's enforcement action, the district court found Goble liable for securities fraud and aiding and abetting security law violations. We affirmed in part and reversed in part. Thereafter, Goble initiated the district court proceedings that are the subject of this present appeal  

1 The following facts come from the operative complaint.

District Court Findings

After a five-day bench trial, the District Court for the Middle District of Florida found Defendant Goble liable for committing fraud and aiding and abetting his clearing firm's violations of the Customer Protection Rule and books and records provisions of the Securities Exchange Act of 1934 . The District Court found that Goble and North American's executives made a substantial effort to conceal the firm's financial profits by, among other acts, Goble's direction of a so-called sham transaction by which North American falsely recorded a $5 million money market purchase, which artificially lowered the firm's reserve requirement under the Customer Protection Rule and allowed North American to improperly withdraw more than $3 million from its EBOC Account.

The District Court permanently enjoined Goble from violating Sections 10(b), 15(c)(3), and 17(a) of the Exchange Act and Rules 10b-5, 15c3-3, and 17a-3 thereunder. On its own initiative, the District Court enjoined Goble from attempting to secure any securities licenses or otherwise attempting to engage in the securities business. Goble was ordered to pay a reduced civil penalty amount of $7,500 based, in part, upon consideration that North American had been liquidated in a Securities Investor Protection Corporation bankruptcy proceeding.

11Cir 2012 Remand

Following Goble's appeal of the District Court's decision, the 11Cir ruled as follows: In the Matter of the Securities and Exchange Commission v. Richard L. Goble (US Ct App 11th Cir, No. 11-12059, May 29, 2012):

  • affirmed the District Court's judgment that Goble aided and abetted North American's violations of the Customer Protection Rule and books and records requirements of the Exchange Act;
  • reversed the District Court's conclusion that Goble committed securities fraud in violation of § 10(b);
  • vacated portions of the District Court's court's injunction that:
    • bar Goble from procuring a securities license, engaging in the securities business, or violating § 10(b) or Rule 10b-5, and 
    • address compliance with §§ 15(c)(3) and 17(a) of the Exchange Act because these paragraphs simply cross-reference the statutes and regulations; and
  • remanded   to the District Court for consideration in the first instance whether Goble's violations of the Customer Protection Rule and books and records requirements warrant the lifetime bar from the securities business. (The lower court was instructed to afford Goble an opportunity to be heard on the propriety of this relief; and the court should draft an injunction addressing compliance with §§ 15(c)(3) and 17(a) that allows Goble to understand his obligations under the injunction

11Cir 2015

It still ends badly for Goble. He emerged in 2012 with an 11Cir ruling that walks like the duck of victory but, on further consideration, honks like the goose of futility. Armed with findings that strongly suggest misfeasance, nonfeasance, and malfeasance by various regulators and their agents, Goble goes ahead and sues everything and everyone in sight. Unfortunately, it still doesn't end well: 

Following this partial vindication, and alleging wrongdoing and negligence committed by governmental entities and private individuals, Goble sued ten defendants involved in the liquidation of his company. The district court dismissed each claim. Goble appeals these dismissals and the three orders that denied his motions to amend. We affirm.

Page 2 of the 2015 11Cir Opinion

In attempting to further his claims against the defendants, Goble ran into procedural headwinds and found himself smack dab against a wall of immunity claims. As explained in the 2015 11Cir Opinion:

The district judge (1) dismissed with prejudice each claim against FITS, Lange, and Rizzo (whom the bankruptcy trustee had hired) for lack of subject matter jurisdiction because Goble had failed to obtain leave to sue the bankruptcy trustee; (2) dismissed with prejudice each claim against the United States and the SEC because neither party had waived sovereign immunity; (3) dismissed with prejudice each claim against SIPC, Wang, and Larosa because Florida's litigation privilege conferred them absolute immunity from the first four counts and the only remaining claim failed to state a claim against them; and (4) dismissed without prejudice the claims against Ward and Blatman because Goble failed to plead an independent basis for jurisdiction and the court declined to exercise supplemental jurisdiction. 

Page 8 of the 2015 11Cir Opinion.

As summed up in the "Conclusion," 11Cir affirmed the District Court:

We review only the district court's denials of the motions to amend and the district court's dismissal of the claims against the United States and the SEC. Goble waived the right to have us review anything else. We AFFIRM the district court's dismissals because both the United States and the SEC are immune from suit on the claims alleged in the complaint. Finally, we AFFIRM the denials of the three motions to amend because Goble's three proposed complaints alleged only futile claims against the United States and the SEC

Page 21 of the 2015 11Cir Opinion

Bill Singer's Comment

No . . . you didn't misunderstand the gist of this dispute: Goble got the license plate of the hit-and-run driver but the courts are telling him it doesn't matter: the driver was a diplomat with full diplomatic immunity.

Okay, sure, you're right, there was an aiding and abetting finding, and you are free to place whatever weight you wish upon that misconduct. On the other hand, I thought the goal was zealous but fair regulation. Reading through the allegations and findings of fact, I come away with the sense that the SEC and SIPC drove the firm out of business and with an abundance of bad faith. Maybe there is yet a final appeal to the Supreme Court? We'll have to wait and see.

If you don't fully appreciate Goble's frustration, please re-read the two 11Cir Opinions and, while you're at it, peruse through this related bit of sordid doings:

In Re North American Clearing, Inc.,Debtor.  / Robert N. Gilbert, Trustee, Plaintiff, vs. Richard Goble, Defendant. (MDFL, US Bankruptcy Court, FINAL JUDGMENT, Case No. 6:08-ap-00145-KSJ, Adversary No. 6:10-ap-00151-KSJ)

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