The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian broker/dealer and its principal were elated yesterday after a court threw out a US regulator’s claims that they knowingly helped perpetrate, and participated in, an $11 million securities fraud.

Both Warren Davis and his Gibraltar Global Securities firm, which is currently being wound-up in the Bahamas, are understood to believe that the southern New York district court has dismissed the most serious, and damaging, of the Securities & Exchange Commission’s charges against them.

Judge George Daniels, in a ruling issued on Thursday, March 20, granted Gibraltar’s bid to dismiss the first of two SEC lawsuits against it “in part”, on the grounds that the SEC had “failed to state a claim”.

The three claims, or counts, dismissed all relate to the SEC’s contention that Gibraltar and its Bahamian principal deliberately engaged in, and provided assistance to, the perpetrators of an alleged $11 million ‘pump and dump’ securities fraud. The US court’s decision is thus a major blow to the US regulator’s case against the Bahamian duo.

Mr Davis declined to comment yesterday when contacted by Tribune Business, saying he had been advised by his attorneys not to speak on the US cases, but there was little disguising the upbeat tone in his voice.

He and Gibraltar are understood to believe that with the dismissal of the fraud claims, they now face the less serious SEC allegations against them, which span two lawsuits.

The remaining charges are that they participated in the sale of unregistered securities, and that they also solicited US clients without having the permission to do so. And Judge Daniels has already described the latter SEC claim as being among “the weakest” he has seen.

But, despite the dismissal of the fraud allegations, both Gibraltar and Mr Davis are understood to have instructed their US and Bahamian attorneys to continue the legal battle in a bid to have all the SEC charges either dropped or dimissed.

The fraud charges were part of a wide-ranging lawsuit the SEC filed in March 2013, in which it accused Gibraltar and Mr Davis of 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, were 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 had claimed 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”.

But Judge Daniels dismissed these fraud-related claims, and the SEC’s contention that the Bahamian broker/dealer had acted “knowingly or recklessly” in relation to the scheme. He also threw out claims that Gibraltar and Mr Davis had benefited financially, and that they “knowingly provided substantial assistance to Ben Kirk”.

The judge seemingly found favour with the Bahamian duo’s defence, in which they argued that the SEC“cannot make a case for securities fraud” against them. They had also alleged that of all the defendants, they were the ones “least involved” and “most removed” from the alleged scheme.

And Gibraltar and Mr Davis, in a July 12, 2013, court filing, said the US capital markets regulator had failed to specify “a single misrepresentation” they had made to investors - a key charge in the lawsuit.

“The SEC fails to cite any evidence to suggest Gibraltar made any statements to investors in Tradeshow or Pacific Blue at any time, a necessary component for a violation,” their defence argued

“Second, the SEC points almost exclusively to the actions of others and pleads no facts upon which one could even infer that Gibraltar should have uncovered the scheme. Accordingly, the SEC cannot make a case for securities fraud against Gibraltar or Mr Davis, and both these claims should be 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.

Gibraltar and Mr Davis fared less well in their bid to dismiss the other SEC lawsuit against them, Tribune Business revealing earlier this week that Judge Daniels had rejected this effort and their arguments that the two cases should be consolidated into one.

Judge Daniels made that finding despite having previously described 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.”

In this case, the SEC is alleging that Mr Davis and Gibraltar participated 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.

Mr Davis and Gibraltar have countered that the SEC is charging them with “guilt by association”. They 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.

Mr Davis and Gibraltar have previously alleged: “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.”