The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian broker/dealer has slammed US regulators for “contradicting themselves” over whether it should have uncovered an alleged $11.834 million ‘illegal unregistered share offering’.

In their latest barb trading with the Securities & Exchange Commission (SEC), Gibraltar Global Securities and its principal, Warren Davis, said the regulator’s position in the case filed against them in the southern New York district court “flies squarely in the face” of the stance it took in Florida two years ago.

In their latest filing, Gibraltar and Mr Davis noted that the SEC previously described the offering of 10 million shares in Magnum d’Or, a small, thinly-traded company, as being so well designed that the wrongdoing was almost impossible to detect.

Yet, they alleged, the SEC’s New York lawsuit was now alleging that the scheme was “so obvious” that Mr Davis and Gibraltar had to know what was happening.

“The SEC’s position flies squarely in the face of the position it took two years ago in Florida,” the Bahamian defendants alleged.

“At that time, the agency described a scheme so carefully concealed that it deceived transfer agents and Magnum d’Or’s corporate law firm.

“Now, however, the SEC claims that the scheme was so obvious that Gibraltar must have known about it. The SEC should not be permitted to contradict itself through separate actions by separate offices.”

Responding to the SEC’s attempt to rebuff their efforts to have the case against them dismissed, Gibraltar and Mr Davis said the regulator was “missing a critical piece” of evidence to prove they violated US law.

This was the SEC’s inability to prove that Gibraltar solicited a single US customer via its website, which has now been shutdown as the Bahamian broker/dealer completes the winding-up of its business.

“The SEC again simply asserts that, because Gibraltar had a website and US customers, those US customers necessarily came to Gibraltar as a result of the website,” they argued.

“Yet there is nothing improper about Gibraltar having US customers. Liability is only implicated if those customers came to Gibraltar as a result of website solicitations. Nothing in the complaint permits this inference.”

While the original SEC complaint alleged that they had operated “unlawfully” in the US by selling $100 million worth of stocks, Gibraltar and Mr Davis argued that the regulator was using “unreliable” analysers of traffic to their former website to prove American clients were solicited via this means.

“The SEC’s failure to identify a single US customer who actually came to Gibraltar as a result of its website is fatal to the... claim,” the Bahamian defendants alleged.

“The SEC says, in effect, that there were so many transactions that somebody in the US must have been solicited. The SEC’s reliance on what is tantamount to a guess underscores its failure to identify any specific investor induced into transactions by the website.”

Referring to a second SEC-initiated lawsuit in which Gibraltar and Mr Davis have also been named as defendants, the duo said both cases collectively involved ‘pump and dump’ schemes covering $15 million worth of shares - some 15 per cent of the alleged US transactions it was said to have facilitated.

“In neither case does the SEC assert that the alleged organisers of the schemes came to Gibraltar as a result of website solicitations,” the broker/dealer and Mr Davis argued.

“In fact, it makes no sense to infer that individuals engaging in transactions of bulk quantities of shares found Gibraltar by surfing the Internet.

“The far more likely inference is that the individuals heard about Gibraltar or were referred to it - not solicited by its website. Neither complaint describes any other investor transacting shares through Gibraltar, and so the only inference that can be drawn is that a handful of individuals decided to use Gibraltar for unsolicited bulk transactions.”

When it came to the Magnum d’Or situation, Gibraltar and Mr Davis said the only basis for the SEC to allege they should have uncovered the scheme lay in the fact the sales proceeds were transferred back to the company.

Yet they argued that the SEC’s original Florida lawsuit against the scheme participants noted that “sham promissory notes” were created to explain why the sales proceeds went back to Magnum d’Or.

“Thus, Gibraltar could not have known from the face of the shares that they were restricted,” the Bahamian defendants argued.

“The overall Magnum d’Or scheme was so carefully concealed by the Flatt nominees that it even duped Magnum d’Or’s own corporate law firm.

“The SEC simply cannot have it both ways. One office cannot allege in federal court that a scheme was meticulously concealed while another office in a sister court alleges that the same scheme must have been obvious to anyone with any level of involvement.”

Gibraltar and Mr Davis also argued that the two SEC lawsuits against them should be consolidated into one as they dealt with the same themes.

“The SEC complains of prejudice as a result of consolidation, but the only prejudice will be suffered by Gibraltar and Mr Davis. The notion, for example, that Mr Davis should be deposed twice by two separate SEC offices on these interrelated subjects is simply unfair,” they alleged.

“The SEC should not be permitted to divide its claims and pick and chose jurisdictions in a manner that suits it but prejudices the defendants.

“Finally, the only prejudice the SEC might suffer from consolidation is delay. Given that the SEC has been investigating the various parties for years, and that it filed its Magnum d’Or action over two years ago, the SEC can only blame itself for delay.

“In addition, as the SEC is aware, Gibraltar’s website has been changed to a simple log-in screen and Gibraltar itself is winding down. Thus, there is no potential continuing violation that might prejudice the SEC.”