John B. Busacca, III, former president and registered principal of North American Clearing, Inc., formerly a FINRA member firm, lost his appeal to have the SEC reverse the disciplinary action taken by FINRA, involving Mr. Busacca's alleged supervisory in early 2004 - i.e., failures that apparently followed the Firm's adoption, in February 2004, of a new computer software system to maintain its back-office operations.  FINRA had suspended Busacca for 6 months as a principal, fined him $30K, and assessed $2,079 in costs.  (Link to Case, Below.)

SEC Commissioners Casey, Aguilar and Paredes decided the case on behalf of the Commission.  In their decision, the Commissioners note the following "undisputed" points:  (i) that the Firm's software conversion caused widespread operational breakdowns throughout 2004 and early 2005, resulting in an influx of customer complaints;  (ii) a March 2005 FINRA exam further identified, during this time period, numerous instances of noncompliance with various customer protection, recordkeeping, reporting, and credit extension requirements.

    Seeking Less Expensive Back-Office Software.   Although Busacca didn't become president until shortly after the software conversion, the commissioners note he was involved in the selection of the software, knew, at the time he became president, of the resulting operational problems and customer complaints, and understood his duties as president included supervision of the Firm's operations.  Busacca's testimony, however, showed that, during the period at issue, he admittedly focused his efforts on marketing the Firm's services to new clients rather than on the Firm's operational deficiencies.  Evidence further indicated that Busacca's selling efforts, in fact, compounded operational problems by adding more client accounts to an already overwhelmed system.

North American was a FL-based clearing broker that, in addition to clearing and executing trades, conducted back-office functions on behalf of introducing broker-dealers.  Until late 2003, the Firm, then known as Advantage Trading Group, Inc., was a wholly-owned subsidiary of Empire Financial Holding Company.  In May 2003, a dispute arose between Empire's co-owners, Richard Goble and Kevin Gagne, that resulted in Empire's removal of Goble as an officer and employee of Empire and its affiliates.  While Goble retained his ownership interest, he sued to dissolve Empire.  In November 2003, Goble and Gagne settled their dispute by, among other things, spinning off Advantage to form an independent clearing firm - later renamed North American).  Goble became the Firm's sole owner and initially served as its president.

North American used a back-office computer software program to assist in its preparation of required books and records and compliance with regulatory requirements.  In December 2003, primarily as a cost-cutting measure, Goble decided against renewing the Firm's licensing agreement with its existing back-office software provider, ADP/SIS.  While the ADP/SIS software was the most commonly used system in the brokerage industry and had worked well for the Firm when it was part of Empire, it cost the Firm approximately $50K per month to maintain.  According to Busacca, Goble claimed at the time that "[t]here was no way [the Firm] could survive" if it continued to use ADP/SIS.

Almost immediately following the conversion, North American began experiencing a wide range of systemic breakdowns in its operations, caused primarily by the system's inability to receive and process information from other internal and external software programs. The system's problems required Firm operations personnel -- who were accustomed to an automated system under the ADP/SIS system -- to input manually large amounts of data to make up for the malfunctioning system, which led to further processing errors. The BCS system, for example, proved incompatible with the Firm's trading software program, "Xavier," with the result that Firm personnel were required to enter manually into Xavier "in excess of 1000 trades per day."  As a result of the system's problems, North American and its correspondent brokers received an influx of customer complaints about missing and inaccurate information in customer accounts, as discussed more fully below.

For complete information, click onto:   [ SEC Admin. Procedural File 3-13750, 11/15 ]