The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian broker/dealer has blasted attempts by US regulators to re-plead previously dismissed fraud allegations against, arguing that its “boilerplate claims” would only create “a pointless burden and expense” for all.

Attorneys for Gibraltar Global Securities, which is now being wound up, in a May 9, 2014, letter to the southern New York court urged that it “summarily deny” the Securities & Exchange Commission’s (SEC) bid to amend its fraud claims against the Bahamian company.

The southern New York court earlier this year dismissed SEC charges against Gibraltar and its principal, Warren Davis, that they knowingly helped perpetrate, and participated in, an $11 million securities fraud.

At the time, both Warren Davis and Gibraltar felt the most serious, and damaging, of the SEC claims against them had been dismissed.

However, the US capital markets regulator, in an April 11, 2014, letter to Judge George B. Daniels sought to “re-plead” its fraud claims against the Bahamian defendants, switching from charges it ‘aided and abetted’ the purported stock ‘pump and dump’ scheme to allegations that it made “false statements and omissions”.

Seemingly determined not to let go, the SEC is altering the ‘point of attack’, now claiming that Gibraltar misled a US broker as to the beneficial ownership of “millions of shares” in two thinly-traded, microcap stocks, Pacific Blue and Tradeshow.

The Bahamian broker/dealer, in what is largely a regurgitation of previous SEC claims, allegedly “provided false affidavits and misleading representations” to Scottsdale that concealed Ben Kirk’s stock ownership.

The SEC alleged that Scottsdale would never have allowed the shares to be deposited and sold if it knew Kirk, a ‘control person’ of Pacific Blue and Tradeshow, owned the stock.

Some 5.4 million Pacific Blue shares were allegedly deposited at Scottsdale in April 2010 after Gibraltar allegedly provided forms stating they were owned by nominee entities - not Kirk.

The SEC claimed that this contradicted the information contained in these entities’ account opening documents with Gibraltar, with the Bahamian broker ultimately selling - through Scottsdale’s accounts - Pacific Blue and Tradeshow shares that netted Kirk “over $3.5 million.

In response, Gibraltar’s US attorneys, De Feis, O’Connell and Rose, said: “We question the point in the SEC proceeding against Gibraltar, and particularly now seeking leave to re-plead fraud claims against Gibraltar that have been dismissed.

“Gibraltar is now out of business. The SEC’s application for leave to re-plead against Gibraltar thus constitutes a pointless burden and expense not only for Gibraltar, but for the court and the SEC itself.”

Gibraltar’s attorneys said the court dismissed the previous fraud allegations because the SEC “does not allege any facts upon which one could reasonably infer that Gibraltar intended to join the specific purported pump and dump.”

They added that the SEC’s new claims again failed to back up its “fraud theory” against their Bahamian client, adding that the facts used to support them were “exactly the same facts” used in the original lawsuit.

Arguing that the SEC had again failed to provide evidence to support its case, Gibraltar’s attorneys questioned why the regulator was treating the trading of “large blocks of penny stocks” by the Bahamian broker as a ‘red flag’.

And De Feis, O’Connell and Rose argued that it was impossible for the SEC to argue that Gibraltar blocked Scottsdale from learning of Kirk’s affiliation with the two companies, as the latter also opened up nominee accounts directly with the US broker.

“The court gave the SEC two choices for articulating its fraud theory against Gibraltar, but the SEC has simply repeated the same theory with the same facts,” the US attorneys argued.

“The only difference now is the SEC tacks on two boilerplate claims naming only Gibraltar. Adding these two claims does not cure the underlying problem with the facts.”

Gibraltar’s attorneys accused the SEC of “lowering the bar” by adjusting its fraud allegations to focus on ‘negligence’, adding that simply opening an account in a corporate name did not amount to any breach.

“The same allegations followed by two boilerplate claims naming only Gibraltar does not cure the SEC’s failure to plead fraud as to Gibraltar,” the attorneys added.

“The SEC’s proposed amendment is simply a repetition of the claims the court has already dismissed.”

The only surviving allegation against Mr Davis and Gibraltar, in relation to the Pacific Blue and Tradeshow case, is that they facilitated the sale of unregistered securities as “necessary participants and/or substantial factors”. That claim, if true, would put them in violation of the US Securities Act but this, too, has been denied by the duo.