The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian broker/dealer and its principal have seen their bid to dismiss one of two US regulatory lawsuits against them rejected by the southern New York court, Tribune Business can reveal.

Documents obtained by this newspaper show that Judge George Daniels also dismissed the request by Gibraltar Global Securities and Warren Davis to have both Securities & Exchange Commission (SEC) lawsuits against them consolidated into one action.

No written reasons were given for Judge Daniels’ decision, although the court papers reveal they were given orally during a hearing in New York last Wednesday.

While undoubtedly a blow for Gibraltar, which is currently in liquidation in the Bahamas, and Mr Davis, the ruling is only on a preliminary matter, and a trial of the substantive allegations made by the US capital markets regulator has yet to occur.

And Judge Daniels made his latest finding despite having previously described that a key element of the Sec case against them as “weaker than any other” he had seen.

He appeared to come close to last year dismissing the allegation that Gibraltar and Warren Davis operated as an unlicensed broker by using their website to solicit US clients, seemingly agreeing with their attorney, Nicholas DeFeis of DeFeis, O’Connell & Rose, that the SEC had employed “junk science” in using a ‘website hits analyser’ to suggest that 25 per cent of visitors to Gibraltar’s website were Americans.

Judge Daniels, at an August 13, 2013, hearing, told the SEC’s attorney, James Kidney: “It is a weaker set of allegations than any other case that I am aware of that gives me a factual scenario in which the SEC says: ‘Look, they [investors] are solicited; it’s obvious they are solicited.

“I mean, every other case I have seen is a stronger set of allegations than this.”

That likely gave Gibraltar and Mr Davis some comfort that a crucial element to one of two SEC cases was on shaky ground. However, it appears this was not enough to cause Judge Daniels to dismiss the action.

In their motion to dismiss this particular lawsuit, Gibraltar and Mr Davis had described themselves as “bit players at most” in two alleged multi-million dollar financial frauds, accusing US regulators of attempting to portray them as “unscrupulous”.

The SEC had previously, in March 2013, charged Mr Davis and Gibraltar in a different lawsuit, claiming they had falsified affidavits and documents in relation to an alleged fraud involving two thinly-traded microcap stocks, Pacific Blue Energy Corporation and Tradeshow Marketing Company.

Calling on the court last year to “consolidate” the two actions into one if it chose not to dismiss them outright, Gibraltar and Mr Davis said the SEC was guilty of an “impermissible logical leap” in the second action - accusing them of operating illegally as a broker/dealer in the US and facilitating the sale of $100 million in securities.

While the US regulator had charged them with soliciting US clients via Gibraltar’s website, the Bahamian defendants said it could identify no specific American investor who had come to them through this route.

And they alleged that the SEC’s claim that Gibraltar’s website attracted 2,200 hits per day, with 21 per cent of traffic coming from the US, was based on “completely unreliable” data from website analysers.

The SEC also charged Mr Davis and Gibraltar with participating in an alleged “illegal unregistered offering and sale” for Magnum d’Or, a small, thinly-traded company. Some 10 million shares were allegedly sold by Gibraltar on behalf of US customers, netting proceeds of more than $11.384 million.

Yet Mr Davis and his company, which is in the process of winding-up, countered that the SEC was charging them with “guilt by association”.

He and Gibraltar argued that they were not “knowing participants” in the Magnum d’Or scheme, and that the perpetrators had deceived others - including a large US law firm.

Referring to the first SEC lawsuit against them, Mr Davis and Gibraltar said: “In both cases the SEC attempts to portray Gibraltar as an unscrupulous ‘offshore’ broker/dealer that flagrantly flouts SEC registration requirements and helps penny stock scammers perpetrate their ‘pump and dump’ schemes.

“In both cases, however, removing the SEC’s conclusory allegations reveals Gibraltar and Mr Davis to be, at most, bit players that the SEC seeks to hold liable for failing to uncover elaborate and carefully concealed schemes. On this basis alone, both complaints should be dismissed.”