The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A now-defunct Bahamian broker/dealer and its principal have reiterated that they were “not a substantial factor” in an alleged $11 million stock fraud, and the allegations against them were “deficient”.

In their latest arguments as to why a second Securities & Exchange Commission (SEC) lawsuit against them should be dismissed, Gibraltar Global Securities and Warren Davis said the US regulator had produced nothing to show they should have known of the alleged scheme.

The Bahamian duo, via their attorneys, pointed out that while the SEC was alleging participants in the claimed ‘pump and dump’ scheme deliberately misled investors, “neither Gibraltar nor Mr Davis is alleged to have made any misrepresentations to investors”.

“Nor are they alleged to have even profited from the scheme,” the court filings, obtained by Tribune Business, added. “Instead, the SEC seeks to hold Gibraltar liable for fraud – in what is clearly a misrepresentation case – on a theory of ‘scheme liability’.

“The complaint also fails to raise any inference that Gibraltar or Mr Davis should have known of the alleged fraud. For these reasons, all claims against Gibraltar and Mr Davis should be dismissed.”

The SEC charged Mr Davis and Gibraltar this March with falsifying affidavits and documents in relation to an alleged fraud involving two thinly-traded microcap stocks, Pacific Blue Energy Corporation and Tradeshow Marketing Company.

A group of Canadian stock promoters, John and Benjamin Kirk, Dylan Boyle and James Hinton, are alleged to have “used false and misleading promotions” to artificially pump up the prices of the two stocks, prior to dumping the large blocks of shares they controlled on the market, and profiting at the expense of unwitting investors.

The SEC is claiming that Gibraltar facilitated the scheme through the “false affidavits and misleading statements”, which allowed Benjamin Kirk to “secretly sell” his shares in the two companies. Mr Davis was charged individually because he allegedly “signed misleading representations”.

The Gibraltar principal previously vehemently denied the allegations to Tribune Business, and his latest defence argument noted that he and the Bahamian broker/dealer were the only ones not accused of making misleading statements to investors.

They were instead accused of “misleading” other brokers, but Gibraltar’s attorneys argued this was not enough.

“In contrast, Gibraltar at most is only alleged to have been minimally involved in a broad and complex scheme designed by others to benefit others. Gibraltar’s involvement is simply too remote and inconsequential to support liability,” its attorneys argued.

The SEC had claimed that the Bahamian broker/dealer was “critical to concealing the scheme because it provided affidavits” giving false ownership information for three entities controlled by Ben Kirk.

Yet Gibraltar’s attorneys alleged that other defendants also opened ‘nominee’ accounts with the same US broker “the SEC claims could not have been deceived without Gibraltar’s participation.

“The SEC cannot raise the inference that Gibraltar was necessary for deceiving Scottsdale when other defendants allegedly opened nominee accounts directly with Scottsdale, and without any involvement by Gibraltar,” its attorneys added.

They further argued that Gibraltar was not alleged to have participated in any of the actions taken to conceal the scheme, and said the SEC had failed to explain why it was wrong to have accounts placed in ‘nominee’ corporate names.

“The complaint also fails to allege motive for Gibraltar to participate in a fraud,” its attorneys alleged.

“The SEC’s memo in opposition repeats the complaint’s generalised statements about Gibraltar receiving ‘proceeds’ of the scheme, but then comes close to acknowledging outright what can only be gleaned from a careful reading of the complaint: Gibraltar is not alleged to have shared in any of the profits from the alleged fraud.

“The SEC acknowledges that Gibraltar wired all the ‘proceeds’ to “other offshore accounts,” but apparently cannot bring itself to clarify that these are offshore accounts owned by other defendants. Nowhere in the complaint or memo does the SEC allege that Gibraltar retained any of the profits from the alleged fraud.”

Suggesting that the SEC resorted to defaming Gibraltar’s business model, the broker/dealer’s attorneys added: “In sum, the SEC’s fraud claims fail for lack of sufficient allegations of Gibraltar’s involvement in, or knowledge of, the alleged fraud.

“Gibraltar’s and Mr Davis’ involvement in the alleged scheme was de minimis at best. Neither Gibraltar nor Mr Davis is alleged to have played any role in controlling the corporations, reissuing shares or drafting public filings, corporate resolutions or legal opinions.

“In short, neither Gibraltar nor Mr Davis was a substantial factor in the sales of unregistered securities. Accordingly, the Section 5 claims against them should be dismissed.”