The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian broker/dealer has blamed the Securities Commission’s “inaction” for creating its dispute with US regulators over their document production demands.

The now-defunct Gibraltar Global Securities and its principal, Warren Davis, are alleging that the “legal limbo” created by the Bahamian regulator’s failure to accept the surrender of its registration resulted in its ‘discovery dispute’ with the Securities and Exchange Commission (SEC).

As previously revealed by Tribune Business, the US capital markets regulator is demanding that Gibraltar and Mr Davis produce thousands of documents based in the Bahamas as part of the two sides’ battle in the New York court.

The former Bahamian broker, and its principal, have filed a motion seeking a ‘protective order’ against the SEC’s demands from the southern New York district court, on the grounds that complying would expose them to “peril”.

This newspaper disclosed yesterday Gibraltar’s fear that automatically meeting the SEC’s request, without the protection of a Bahamian Supreme Court Order, could expose it to damages claims and lawsuits by former clients for breach of confidentiality.

Mr Davis and his former company are also arguing that the Securities Commission’s failure to-date to accept Gibraltar’s voluntary liquidation, a dispute currently before the Supreme Court, is preventing the SEC approaching the liquidator for the necessary documents.

The move by Gibraltar and Mr Davis to blame the Securities Commission for sparking the ‘discovery dispute’ with the SEC adds a new twist to their legal fight, which is being conducted before both the Bahamian and New York courts.

In documents supporting their bid for a ‘protective order’, Gibraltar and Mr Davis allege: “The [SEC Washington] DC office contends that Gibraltar’s action in the Bahamas against the Securities Commission is somehow intended to impede discovery in this action.

“This allegation makes no sense. If the Securities Commission had accepted Gibraltar’s surrender of its registration – as it should under Bahamian law – the DC office could still request the Gibraltar documents from the liquidator.

“Thus, it is the inaction of the Securities Commission, rather than Gibraltar, that actually created this discovery dispute.”

Hillary Deveaux, the Securities Commission’s acting executive director, was heading into a meeting when contacted by Tribune Business yesterday. He did not return this newspaper’s call prior to press deadline last night.

Meanwhile, Gibraltar and Mr Davis slammed as “baseless” the SEC’s accusation that they were ‘delaying’ the progress of their Supreme Court case against the Securities Commission.

“The DC office also implies that Gibraltar is somehow dragging its feet in its action against the Securities Commission,” they noted in their December 5, 2014, filing with the southern New York court.

“Gibraltar is not delaying the action against the Securities Commission. Instead, the action remains pending and is awaiting a trial schedule. Accordingly, the SEC’s accusation of intentional delay by Gibraltar is baseless.”

The Bahamian duo also accused the SEC of attempting to ‘ride roughshod’ over Bahamian law by simply demanding that they hand over the sought-after documents, and submit to the supposedly superior US legal processes.

“The DC office argues that it should not make a request for Gibraltar’s documents through international channels because ‘[t]here is no question that discovery under these American procedures is more expedited and more efficient than the procedure that the defendants argue must take place’,” Mr Davis and Gibraltar alleged.

“In effect, the DC office argues that Bahamian law should be disregarded for the sake of expediency. The defendants cannot ignore Bahamian law for the sake of convenience. This is particularly true when the defendants long ago proposed alternative means of seeking the documents that are consistent with Bahamian law.”

Gibraltar and Mr Davis are thus arguing that the SEC should seek to obtain the documents sought using established legal procedures, and obtain a Bahamian Supreme Court Order under the Evidence (Proceedings in Other Jurisdictions) Act.

They alleged that they spent 16 months in ‘good faith’ negotiations with the SEC attempting to resolve the matter, prodding it to follow Bahamian law with its requests, but to no avail.

Calling for the interests of sovereign nations to be “balanced”, Mr Davis and Gibraltar added: “Although the US has an interest in upholding its laws and procedures in an enforcement action, the presence of Bahamian law in this area indicates that the Bahamas also has a strong interest in the issues at stake herein.

“The Bahamas has applicable laws and authorities in the areas in dispute, and an interest that its laws and authorities are respected.”

Mr Davis and Gibraltar said the “hardship” they would face if they complied with the SEC demands, in the form of client lawsuits, also weighed against producing the documents.

“The defendants have acted in good faith, beginning with Gibraltar’s compliance with the SEC’s document requests, made via the Securities Commission back in 2010,” Gibraltar and Mr Davis said.

“Furthermore, during more than a year of correspondence with the DC office, the defendants repeatedly raised the issues of Bahamian law to the SEC.

“The defendants even sent the DC office copies of Bahamian cases to support their contentions, and advised the DC office that an application through international channels consistent with Bahamian law could remove obstacles to production.”

The Bahamian duo concluded: “Finally, the DC office’s arguments regarding expediency and intentional delay ring hollow, given that the two SEC offices commenced two enforcement actions against the defendants three years after Gibraltar complied with the SEC’s document requests, and after Gibraltar had ceased operations.

“Under the circumstances, the court should reject the SEC’s arguments in favour of ‘expediency’ and permit the defendants to comply with Bahamian law.”