The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

US regulators have blasted a former Bahamian broker/dealer and its principal for allegedly using “baseless legal restrictions” to explain why they cannot produce documents relevant to their ongoing New York legal battle.

The Securities & Exchange Commission (SEC), in an October 17 letter to the New York courts, claimed that Gibraltar Global Securities and Warren Davis were using “unfounded excuses” that had no basis in Bahamian law to defend the non-production of documents held in this nation,

The US capital markets regulator added that it had “reached an impasse” with the Bahamian defendants on the issue, and was now seeking the southern New York district court’s help to force them to provide the information.

And the SEC also accused Gibraltar and Mr Davis of allegedly acting ‘in bad faith’ by filing a Judicial Review action against their Bahamian counterpart, the Securities Commission, challenging document disclosure and other issues key to the New York case.

The Securities Commission’s refusal to accept Gibraltar’s voluntary surrender of its registration is also part of the Bahamian case, and the SEC alleged: “In effect, the defendants are imploring the Bahamian court to tie their hands so that they can shirk compliance with their discovery obligations in the SEC enforcement actions pending in this court.

“However, even aside from whether such a self- petitioned restriction would be sufficient justification to avoid producing documents, Gibraltar has obtained no such assistance from the Bahamian court in over a year. It is time for defendants’ use of baseless claimed legal restrictions to cease.”

Neither Mr Davis nor his Bahamian attorney, Sean Moree, a partner at McKinney, Bancroft & Hughes, returned Tribune Business e-mails and phone calls seeking comment before press time last night.

The documents sought by the SEC relate to New York lawsuit it has filed against Mr Davis and Gibraltar, in which it alleges that they participated in an alleged “illegal unregistered [share] 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.

The Bahamian duo were also alleged to have operated as an unlicensed broker by using their website to solicit US clients, facilitating the sale of $100 million worth of securities.

Mr Davis and Gibraltar have denied, and fought, these allegations for more than a year, and have enjoyed some success - a US judge have described the website soliciting case as among the weakest he has seen.

However, the SEC is nothing if not persistent. It noted in its letter to US district Judge Daniels that Gibraltar had confirmed preserving electronic, and hard, copies of documents relating to 1,200 clients and more than 100,000 transactions. And its server contained e-mails dating back to 2009.

“The defendants continue to assert a number of reasons why they are unable to produce documents under the laws of the Bahamas,” the SEC alleged.

“Indeed, as each of the defendants’ excuses has been demonstrated to be entirely incorrect, the defendants have created other equally futile excuses.”

The US regulator is claiming that there are no restrictions in Bahamian law to providing the documents sought,

Tackling Gibraltar’s reasons for non-discovery, the US regulator said claims it was prevented from disclosing client information by the Bahamas’ Banks and Trust Companies Act were irrelevant.

This was because, as a broker/dealer, Gibraltar is regulated by the Securities Industry Act, and the SEC alleged that it subsequently dropped the ‘Banks and Trust Companies Act’ argument.

According to the SEC letter, Gibraltar and Mr Davis also argued that the broker/dealer was now in the control of a liquidator, because it had been placed into voluntary liquidation.

As a result, they argued that it is now the liquidator - believed to be Philip Galanis of HLB Galanis - that controls the documents the SEC wants, not Mr Davis or the Board of Directors.

But, using contacts with the Securities Commission of the Bahamas, an SEC official is alleging that the Bahamian regulator has not approved Gibraltar’s voluntary wind-up.

As a result, the SEC is alleging that the broker/dealer cannot have a liquidator, meaning that responsibility for producing the sought-after documents still rests with Mr Davis and the Board.

“The Gibraltar defendants specifically have taken the position..... that they are unable to produce extensive documents as a result of claimed Bahamian legal confidentiality prohibitions,” the SEC letter alleged.

“The stated basis for defendants’ claim of Bahamian prohibitions has been demonstrated to consist of unfounded excuses without a basis in law. The SEC has attempted in good faith to resolve these issues but has reached an impasse with the defendants after extensive communications.”

An affidavit sworn by Izabela Reis, an attorney/adviser in the SEC’s international affairs office, said the Securities Commission had still refused to accept the voluntary surrender of Gibraltar’s registration.

The Bahamian broker/dealer had used the ‘surrender’ to explain why it could not produce the information demanded by the SEC, but the latter replied: “This argument is baseless.

“The Gibraltar defendants admit that they possess the documents. Consequently, there is no merit to the claim that they somehow no longer control the documents because they have surrendered their registration...... Gibraltar thus has no ‘surrender of registration’ basis to refuse to produce documents as it has claimed.”

The SEC also shot down the argument that it must seek the documents via the Securities Commission and the Bahamian legal system.

Arguing that Mr Davis and Gibraltar were subject to the New York court’s jurisdiction, it added: “There is no question that discovery under American procedures is more expedited and more efficient than the procedure that the Gibraltar defendants argue must take place.”