The Tribune

By NEIL HARTNELL

Tribune Business Editor

A BAHAMIAN broker/dealer yesterday produced documents it said showed the Securities Commission was "bullied" into passing information on its clients over to Canadian regulators without just cause, describing the affair as "a black eye" for this nation's financial services industry.

Executives from Gibraltar Global Securities, which was last week sanctioned by the British Columbia Securities Commission (BCSC) as being "unsuitable" to participate in any securities activities connected to the Canadian territory, said documents they had obtained during discovery proceedings relating to the case raised serious questions as to "who's calling the shots" when it came to financial services regulation in this nation.

The documents passed to Tribune Business include:

• Two legal opinions from separate Bahamian attorneys advising that the BCSC's request for information on Gibraltar's clients was "no more than a fishing expedition", and contravened the information exchange requirements set out in the Securities Industry Act.

• A March 4, 2009, letter from then-executive director at the Securities Commission, Hillary Deveaux, which sought the BCSC's approval to tell Gibraltar it was actually investigating the Bahamian broker/dealer, as opposed to its clients.

• A March 9, 2009, e-mail from the BCSC's senior enforcement investigator, Paul Bansal, to the Securities Commission's deputy legal counsel, Gawaine Ward, in which he appeared to be 'coaching' the Bahamian regulator on how to word the request for information it was sending to Gibraltar.

• A series of documents that brought the matter to a head in the period between January 18-20, 2011.

A January 18, 2011, e-mail to Mr Ward from Mr Bansal expressed frustration at the BCSC's two-year wait for the information it wanted to obtain from Gibraltar. It described the situation as "simply ridiculous", and demanded to speak to Mr Ward's superiors.

That prompted a January 19, 2011, telephone exchange between the Securities Commission's senior legal counsel and secretary, Mechelle Martinborough, and Mr Bansal and another BCSC official referred to as Romolo.

Mr Bansal's notes on the conversation disclosed how "the Securities Commission had then been trying to find a way to send us the seized records and ensure it remained in compliance with local [Bahamian] laws".

That was a reference to a Securities Commission inspection for-cause carried out on Gibraltar in January 2011, during which the regulator obtained the information the BCSC had first requested in January 2009 - two years before.

The conversation between Ms Martinborough and the BCSC regulators ended badly, according to the notes, with the latter accusing the Securities Commission of "jerking" them around and she allegedly hanging up on them.

There then followed two separate letters written by Ms Martinborough on January 20, 2011, both markedly different in tone. One said the Securities Commission "took exception" to the BCSC's approach, and described its information request on Gibraltar as "unlike any other" it had previously dealt with, raising "legal issues that we had to address".

Yet, in another letter dated the same day, Ms Martinborough and the Securities Commission effectively completely backed down, and handed over the information the BCSC requested. There was no explanation for the abrupt change in approach, which happened on the same day.

Based on this information, Warren Davis, Gibraltar's managing director, told Tribune Business yesterday: "Who are we being regulated by? Who's calling the shots?"

He pointed to the March 9, 2009, e-mail from Mr Bansal to Mr Ward, which said: "I have reviewed the draft of the request that you propose sending to Gibraltar on our behalf. Would it be possible to reword the second paragraph of the request to that it reads as follows....."

Mr Davis and Chris Lunn, Gibraltar's compliance director, who was the former managing director of Suisse Security Bank & Trust and an ex-Central Bank regulator, added that Mr Bansal's suggestions also attempted to keep the BCSC's net as wide as possible by divulging as few details as possible to Gibraltar.

"You will note that I propose taking out all references to 'December 2008, 'Matt Shull', and the 'cease trade issuer in BC'," Mr Bansal wrote. "The reason for this is I would like to keep the background on our investigation as general as possible, and not allow Gibraltar to only identify those BC clients that may have dealt with Matt Shull." Shull left Gibraltar's employment in mid-2009.

Mr Lunn said the two regulators had sought to prevent Gibraltar from knowing fully the background to the BCSC's information request, adding: "They kept things hidden from Gibraltar. We have a right to know what's going on. We're a licensee."

The Securities Commission itself appears to have had some difficulty with the BCSC's approach, Mr Deveaux having written to Mr Bansal on March 4, 2009, saying: "We wanted to ensure that you would have no objection to our providing Gibraltar (the party under investigation) with information that would essentially disclose that they themselves are being investigated."

Messrs Davis and Lunn yesterday said this was never disclosed to Gibraltar - the fact that the broker/dealer was itself under investigation - during the two-year long saga since the BCSC made its first information request in January 2009.

Assessing the implications of the affair, Mr Davis said the documentary evidence suggested the Securities Commission had its own doubts as to whether the BCSC request was in compliance with Bahamian law, but was pressured and worn down into submitting.

"They were being beaten down," he told Tribune Business. "They were being bullied. They wanted to stand on their own feet, then got hauled down.

"We feel now, more confidently than then, based on the information we have, that the Commission erred in judgment.

"We don't want this to happen to other industry participants. A lot of them have started to worry about how this matter was handled. This is why we're calling for an independent Judicial Review by a bi-partisan group to review the handling of this issue. It's critical to Gibraltar, industry participants and the Bahamas at large."

Warning that the episode might undermine confidence in the Bahamas as a financial services jurisdiction, and its regulators' authority, Mr Lunn added: "We want the Commission to understand this has an impact beyond Gibraltar.

"Gibraltar happens to be the one caught in the cross-fire. It was difficult for them [the Commission]. They struggled with this. We can see they were being bullied by a bigger jurisdiction, and they succumbed to it."

Questioning whether other overseas regulators would be encouraged to employ the same pressure tactics as the BCSC, Mr Davis told Tribune Business: "I think it's definitely a black eye for this jurisdiction, the way this matter was handled.

"The most important thing is not only its affect on Gibraltar, but for industry participants at large. I've had 10-15 calls in the last week with regard to the decision they made, and it's a hot topic... This is an issue of national importance and national interest."

Mr Davis said the BCSC episode had given Gibraltar pause for thought, and forced it to reevaluate whether it wanted to remain in the Bahamas. It had also put on hold plans to construct its own offices, as it fought to "save our business".

Gibraltar refused to supply the required details, to the BCSC on the grounds it was a 'fishing expedition'. It produced two legal opinions to support this stance, and contradicted Ms Martinborough's assertion to Tribune Business last week that these were never passed to the Securities Commission.

The two opinions, dated April 14, 2009, and November 2, 2009, were addressed to Mr Deveaux and stamped as 'received' by the Bahamian regulator on April 16, 2009, and November 9, 2009.

In the first, Bryan Glinton, attorney and partner at Glinton, Sweeting & O'Brien, questioned why the BCSC had used the fact that a Canadian broker had assisted a client in opening an account with Gibraltar to launch a probe into the Bahamian broker/dealer.

Noting that this was a common practice in the global financial services industry, Mr Glinton wrote: "We are unable to understand how this mere act would result in the foreign-based financial institution carrying on an unlicensed activity in Canada.

"This would be tantamount to the Securities Commission of the Bahamas making a like allegation against HSBC Switzerland because Credit Suisse Bahamas assisted one of its clients in opening a trading account at that institution."

Mr Glinton said the BCSC's request failed to meet the Securities Industry Act's information exchange requirements, and said: "We are of the opinion that the BCSC's spurious request is no more than a fishing expedition and a blatant attempt to obtain information concerning its residents for other purposes."

Mr Glinton was backed by the second opinion from attorney Reno Bethell at Bethell Legal. Noting that the Act's provisions attempted to prevent fishing expeditions by requiring specific civil and criminal offence details to accompany information requests, Mr Bethell said: "The Bahamian Parliament did not intend for section 34A(1) to be used wittingly or unwittingly for assistance in so-called fishing expeditions or fiscal matters.

"We therefore reiterate the sentiments of our predecessors, Glinton, Sweeting & O'Brien: The request of the BCSC is too broad in scope and in contravention of [the Act]. To use section 34A(1) in this way would be contrary to Parliament's intent and public policy."