(CN) - The 11th Circuit court overturned a trial court's finding that North American Clearing founder Richard Goble committed securities fraud - even though he allegedly pushed through a $5 million fake money market purchase.
     The appeal court's decision reversed a U.S. District Court judge in Florida, vacating a bar on Goble acquiring a securities license, and remanding for reconsideration of Goble's lifetime ban from the securities business.
     However, the appellate panel upheld the finding that Goble aided and abetted North American's violations of the Customer Protection Rule and books and records requirements of the Exchange Act.
     Forbes contributor Bill Singer said the "dramatic" ruling may end up in the Supreme Court.
     "Given the swirling rumors around JP Morgan, MF Global, Goldman Sachs, Facebook, Morgan Stanley, and just about every other high-profile company that's had the recent misfortune of being the subject of rumors about alleged regulatory misconduct, this decision will likely be parsed and scrutinized by a lot of high-priced lawyers contemplating the same and similar defenses," Singer wrote.
     In 2008 the Securities and Exchange Commission accused Goble, Northern America Clearing Inc., and its principals Bruce Blatman and former chief financial officer Timothy Ward of fraud and federal securities laws violations. The SEC claimed that Goble had attempted to conceal North American's financial problems and pay for its business operations by ordering Ward to record a $5 million money market purchase on the company's books. The transaction was allegedly made while the Financial Industry Regulatory Authority was conducting an on-site audit of the securities and brokerage clearing firm.
     The SEC obtained an asset freeze, and restraining order against North American Clearing, and later reached a settlement with the company, as well as Blatman and Ward. After a five-day bench trial the district court found that Goble had committed securities fraud.
     But in its 33-page opinion, the 11th Circuit reversed the decision, ruling that the sham market transaction was not a material misrepresentation under anti-fraud provisions of securities laws.
     The SEC argued that the sham transaction "would have been material to an investor's choice of broker-dealers," according to the opinion. But Judge Emmett Ripley Cox rejected that theory.
     "We decline the SEC's invitation to expand our definition of materiality to capture Goble's misrepresentation," Cox wrote for thee three-judge panel. "We hold that a misrepresentation that would only influence an individual's choice of broker-dealers cannot form the basis for § 10(b) securities fraud liability."
     The sham transaction was not connected to the purchase or sale of securities either, the judge ruled.
     "[T]he alleged 'purchase' did not involve a change of ownership, an exchange of value, or a promise to purchase a security. And, recording a fake transaction in North American's books had no effect on the broader securities market and would not impact an investor's decision to purchase a security," Cox wrote.
     Judges Stanley Marcus and Eugene Siler joined the decision.