North American Clearing services approximately 40 correspondent brokers and clears transactions for over 10,000 customer accounts.
The SEC requested the relief when it filed a complaint on May 27, 2008, against North American Clearing, its founder and director Richard L. Goble, its president Bruce B. Blatman, and its former financial and operations principal Timothy J. Ward, charging them with fraud and other securities laws violations. The SEC's complaint alleges that the defendants engaged in illegal activities, including the misuse of customer funds, in order to hide North American Clearing's financial problems and to pay for its daily business operations.
In addition to the asset freeze, the SEC obtained a temporary restraining order against the defendants and an order appointing a receiver over North American Clearing.
Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "Protecting customer funds from misuse by a broker-dealer, as we allege here, is a fundamental part of our enforcement efforts. Today's action demonstrates our ongoing commitment to investor protection."
David Nelson, Director of the SEC's Miami Regional Office, added, "The federal securities laws include important safeguards designed to protect investor assets from misuse by broker-dealers. We will take swift action to protect investors when misconduct occurs that puts their money at risk."
The SEC's complaint alleges that the defendants' fraud began earlier this year, when North American Clearing began experiencing severe financial problems. To ease its financial difficulties, North American Clearing secured a bank loan using customer securities as collateral. To comply with the federal securities laws and remain in operation, North American Clearing increased its reserves in an account it maintained for the benefit of customers, which limited funds available to North American Clearing to meet its daily operating expenses.
According to the SEC's complaint, on several occasions in March and April 2008, North American Clearing improperly sold customer money market funds as a means of temporarily freeing up funds that it then used to pay for daily operating expenses. The SEC's complaint also alleges that on May 13, 2008, the defendants manipulated North American Clearing's processing system to overstate net customer money market purchases. This enabled North American Clearing to illegally withdraw more than $3 million from the reserves it was required to maintain for the benefit of customers.
The SEC's complaint, filed in the United States District Court for the Middle District of Florida in Orlando, seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains against North American Clearing and Goble, and civil penalties against all defendants. The SEC's complaint alleges that the defendants violated the antifraud, customer protection and books and records provisions of the Securities Exchange Act of 1934.
On May 27, 2008, the Honorable Gregory A. Presnell granted the SEC's ex parte motion for emergency relief, entering a temporary restraining order against the defendants and freezing North American Clearing's assets. The order also provides for a sworn accounting from North American Clearing and preservation of its records. The Court further appointed Peter J. Anderson, an attorney in the law firm of Sutherland Asbill & Brennan LLP of Atlanta, Ga., as a receiver over North American Clearing. Among other things, the receiver is responsible for marshaling and safeguarding assets held by North American Clearing. A show cause hearing has been set for June 6, 2008, to determine whether the emergency asset freeze and other relief should remain in effect.
The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.
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Regional Director, SEC's Miami Regional Office
Glenn S. Gordon
Associate Regional Director (Enforcement), SEC's Miami Regional Office
Assistant Regional Director (Enforcement), SEC's Miami Regional Office