Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, May 28, 2008

SEC Obtains Asset Freeze Against Clearing Broker

The SEC obtained an asset freeze and other emergency relief to protect investors whose funds were at risk due to fraudulent misconduct at North American Clearing, Inc., a Florida based general securities and clearing brokerage firm that 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.

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. On May 27, 2008, the court granted the SEC's ex parte motion for emergency relief.

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Assuming the accounting concludes that no improper activity actually occured at the brokerage -- What are the remedies for a customer who, as a result of this freeze, has suffered a loss (e.g.,the inability to trade on expiring puts/calls)? Is this covered by a SIPC claim?

Posted by: H.K. | May 30, 2008 8:10:39 AM

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