Charges tossed, but Finra gadfly not home-free yet
After dodging a fraud charge last week, regulatory gadfly Richard Goble could be set to make a comeback.
After dodging a fraud charge last week, regulatory gadfly Richard Goble could be set to make a comeback.
Or maybe not.
Several years ago, Mr. Goble and his advocacy group, the Financial Industry Association, racked up a series of victories in running dissident candidates for the board of the Financial Industry Regulatory Authority Inc. Mr. Goble himself got on the board in 2007.
But he soon found himself on the wrong side of an enforcement case when, in May 2008, the Securities and Exchange Commission sued him for allegedly engaging in a $5 million sham money market fund transaction to free up funds in a customer reserve account and save his struggling firm, North American Clearing Inc.
North American, which at one time cleared trades for about 40 small broker-dealer firms, was later liquidated.
In April, the U.S. District Court for the Middle District of Florida found Mr. Goble liable for securities fraud, and of aiding and abetting the transaction. He was permanently banned from the industry.
But last week, the 11th U.S. Circuit Court of Appeals threw out the fraud finding and found Mr. Goble liable only for aiding and abetting, which essentially amounts to a books-and-records violation.
The appeals court sent the case back to the district court to reconsider the lifetime ban in light of the fraud finding's reversal.
Last week's decision essentially exonerates Mr. Goble, said his attorney, Eric Lee, a partner at Lee & Amtzis PL.
“I certainly hope he is not going to be barred over a books-and-records violation, [which is] pretty minor,” Mr. Lee said.
The charge against Mr. Goble technically may not have been fraud under federal securities law, “but his actions were clearly impermissible, and ultimately, he probably will be severely sanctioned” by the district court, said attorney Brian Rubin, a partner at Sutherland Asbill & Brennan LLP, who was not involved in the case.
“It will be more than a minimal slap on the wrist,” Mr. Rubin said.
The SEC alleged that the sham transaction put customer funds at risk. Mr. Goble was never found to have used any customer assets for his own benefit.
The SEC would have to appeal the case to the U.S. Supreme Court. SEC spokesman John Nester said the SEC is reviewing the decision.
Finra spokeswoman Nancy Condon declined to comment, as did Mr. Goble.
All along, though, Mr. Goble claimed that the case against him was in retaliation for his outspoken criticism of regulators, and he accused a court-appointed receiver who took control of North American of destroying evidence in his favor.
RETALIATION CLAIMED
In fact, on the first day of Mr. Goble's bench trial in May 2010, he showed up with 10 trash bags of shredded documents that he claimed would have shown his innocence.
“I haven't been able to find any proof” of retaliation, Mr. Lee said, but it seems suspicious that “once he was on the [Finra] board, all of a sudden, [Finra had] examiners at [North American] to find something.”
“The Goble case was a complete catastrophe, a waste of resources,” especially considering that the mortgage crisis was brewing while the SEC pursued Mr. Goble, said Peter Chepucavage, general counsel at Plexus Consulting Group LLC.
Mr. Chepucavage is a compliance consultant and former SEC attorney.
For the SEC “to take that case all the way to the court of appeals takes an enormous amount of time and money for a dinky little issue,” he said.
Nevertheless, even those empathetic to Mr. Goble's advocacy efforts said that he hasn't been vindicated.
“He is still tagged with aiding and abetting,” said Richard Nummi, a managing partner at Nummi & Associates PA, who at one time represented the Financial Industry Association.
The decision “is not totally exonerating,” Mr. Nummi said.
“Some may think [Mr.] Goble was innocent, but that's not what the decision says,” said Bill Singer, a securities attorney. “Aiding and abetting's not a minor issue, given that [North American] went down with a thud.”
AVOIDED QUESTIONING
Indeed, two former employees of North American testified during the trial that they objected to the sham transaction but were bullied into it by Mr. Goble.
One of the employees, Timothy Ward, an operations principal, said that he parked his car down the street from North American's Longwood, Fla., office to avoid being questioned by on-site Finra examiners about the false reserve-account balance.
But the examiners quickly un-covered the trade and turned their findings over to the SEC.
Mr. Ward and the other em-ployee, Bruce Blatman, North American's former president, were co-defendants in the case. They both consented to permanent injunctions against future wrongdoing, and Mr. Blatman paid a $25,000 penalty.
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