The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

US federal regulators are embroiled in a new dispute with a former Bahamian broker/dealer and its principal - this time over the location where they should give their sworn testimony.

Warren Davis and his now-defunct Gibraltar Global Securities business are arguing that the Securities & Exchange Commission (SEC) should come to the Bahamas to take their depositions for the two cases it has charged them with.

Not surprisingly, the SEC wants their depositions to take place in New York, fearing “innumerable refusals to answer” by the Bahamian defendants and other logistical problems if they give their testimony in this nation.

Mr Davis and Gibraltar are thus seeking the court’s protection from the SEC’s New York deposition demand, while arguing that this matter is “intertwined” with another unresolved row over whether the former broker/dealer must disclose documents held in the Bahamas.

The depositions dispute is the latest flashpoint in the almost two-year fight that Mr Davis and Gibraltar have waged to clear their name, after the SEC charged them over their role in two separate securities offerings.

The depositions for both cases are to take place simultaneously, with Mr Davis and Gibraltar receiving deposition notices from the SEC on February 4 and February 10, respectively. These set February 25-26 as the dates for Mr Davis’s testimony, and February 27 for Gibraltar, with both scheduled to take place at the regulator’s New York office.

Attorneys for Mr Davis and Gibraltar, though, urged in a February 13 letter to Judge James Francis that the depositions should take place in the Bahamas.

They wrote: “As the SEC is well aware, Davis is a citizen and resident of the Bahamas. He has never owned a home or business in the United States.

“In addition, defendant Gibraltar was a Bahamian broker/dealer located in the Bahamas. It has never had an office or employee located within the United States.”

The Bahamian duo’s US attorneys also warned that Gibraltar’s continued “legal limbo” in this nation, as a result of the Securities Commission’s refusal to accept the company’s registration surrender, meant it could not supply a witness to testify at the deposition.

Pointing to an upcoming March 19 hearing on the dispute over whether Gibraltar should produce documents held in the Bahamas, the broker’s US attorneys told the judge: “A central issue in that application is the fact that Gibraltar is defunct and a liquidator has been appointed by Gibraltar’s Board of Directors.

“Gibraltar’s regulator in the Bahamas, however, has not accepted the surrender of Gibraltar’s registration, leaving Gibraltar in legal limbo in the Bahamas.

“We therefore note that, with respect to the SEC’s deposition notice for Gibraltar, Gibraltar is not in a position to designate a witness in the immediate future. We are seeking advice from Bahamian counsel on this issue.”

The latter assertion has left the SEC distinctly unimpressed, judging by a February 20, 2015, letter sent by its attorney, Kevin O’Rourke, to Judge Francis.

Referring to what he described as “serial excuses” by Mr Davis and Gibraltar for failing to produce the sought-after Bahamian documents, Mr O’Rourke questioned how the Bahamian broker/dealer was unable to designate a witness when it had appointed an attorney and filed a defence to the SEC’s actions.

“Not only is defendant Davis an agent of Gibraltar, but he is the founder, president and sole owner of Gibraltar,” Mr O’Rourke wrote. “If Gibraltar’s intent is to fail to show up for its own deposition, the situs of the deposition should be New York.

He also makes clear the SEC’s reluctance to come to the Bahamas to take the defendants’ testimony, both for logistical and jurisdictional reasons.

“Since the Commission is an agency of the US government, substantial effort and time are required to seek country clearance to enter the Bahamas on official government business,” Mr O’Rourke wrote.

“Multiple steps, including liaising with the US State Department, are required for foreign travel by Commission staff, all of which emphasise that New York is the most convenient forum. It is unclear whether the Bahamian authorities would permit a deposition to take place in the Bahamas without their prior approval.”

The SEC attorney then added: “It is clear that if the depositions are even allowed to be taken at a Bahamian location, there will be innumerable refusals to answer based on claimed confidentiality, putting the court in the untenable position of having to repeatedly reach into the foreign country to order the witness to answer.

“After invoking Bahamian secrecy, defendants may argue that this court does not have the power to order/compel answers to questions at a deposition in a foreign country. That obviously would not be the case if the depositions took place in New York.”

Gibraltar and Mr Davis’s nearly two-year battle with the SEC thus still appears to have no end in sight, with both sides digging themselves into entrenched positions.

In the first case, the US capital markets regulator alleged that they knowingly participated in an alleged $11 million scheme to artificially inflate the value of two companies’ stocks.

It had claimed that Gibraltar had provided false affidavits and share deposit forms to conceal from a US broker “the fact that a client, Ben Kirk, beneficially owned and controlled Pacific Blue and Tradeshow stock”.

Gibraltar, though, received a big boost when the southern New York court dismissed the SEC’s fraud allegations against them in relation to the scheme. This eliminated the most damaging claim against it and Mr Davis, leaving them facing the lesser allegation of participating in an unregistered securities offering.

As for the second lawsuit, the SEC is alleging that Gibraltar and Mr Davis participated in an alleged “illegal unregistered [share] offering and sale” for Magnum d’Or, another 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. Here again, though, Mr Davis and Gibraltar have enjoyed some success, with the US judge describing the SEC’s complaint on this score as “one of the weakest” he has seen.