"Obey-the-Law" Injunction Too Vague in Sham Transaction Case

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The U.S. Court of Appeals for the Eleventh Circuit last month held that a generic Securities and Exchange Commission injunction barring the owner of a securities firm from further violating securities laws was invalid because it lacked the specificity required. Richard Goble, owner of securities firm North American Clearing Inc., was held liable for aiding and abetting violations of the Consumer Protection Rule and Sections 15(c)(3) and 17(a) of the Securities Exchange Act of 1934 (the Exchange Act). The SEC issued an injunction barring Goble from the securities business and from violating securities laws. On appeal, the Eleventh Circuit held that the generic “obey-the-law” injunction was too vague and did not clearly give fair notice to the defendant. The court reasoned that a defendant could not be subject to the constantly changing judicial interpretation of the Exchange Act without some objective criteria. This reasoning seems to bar routine SEC injunctions prohibiting violations of securities laws without sufficient specificity or guidance as to what would be violative of the injunction.

Securities & Exchange Commission v. Goble, No. 11-12059 (11th Cir. May 29, 2012).