The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian broker/dealer’s lawsuit against the Securities Commission proves its “stubborn intent to hide” thousands of documents relevant to a New York court battle, US federal regulators are alleging.

The Securities & Exchange Commission (SEC), in legal filings last Friday, branded as “unfounded excuses” claims by Gibraltar Global Securities and its principal, Warren Davis, that they would violate Bahamian law if they handed over the documents sought.

It claimed that the Bahamian defendants had played “a figurative game of whack-a-mole” over the case, and “spent well over a year” seeking to prevent document disclosure by suing the Securities Commission.

Refuting the now-defunct Bahamian broker/dealer’s argument that it would “act at its peril” if it complied with the SEC’s demands, the federal regulator also took aim at declarations by Gibraltar’s local attorneys.

It alleged that Sean Moree, the McKinney, Bancroft & Hughes partner, “conveniently overlooks” the position that Gibraltar was never placed into voluntary liquidation because this was not pre-approved by the Securities Commission.

Gibraltar and Mr Davis have argued that because the Bahamian broker/dealer was placed into liquidation, they simply do not control - nor have access to - the documents the SEC wants, because these powers now vest with the liquidator.

The SEC, though, is blasting this argument as “sophistry” on the grounds that the Bahamian Securities Industries Act’s Section 73 states that the Securities Commission’s pre-approval is required for any of its licensees to go into voluntary liquidation.

“Mr Moree’s statement provides no support for his clients because Gibraltar was never properly placed in liquidation due to the lack of the prerequisite approval of the Securities Commission of the Bahamas, a fact that Mr Moree conveniently overlooks,” the SEC alleged.

“It is here that defendants’ sophistry evaporates because Gibraltar did not have the prior approval of the Securities Commission for liquidation. There is no liquidation and, ergo, there is no liquidator.

“Defendants’ cart-before-the-horse argument that they somehow can have a liquidator without liquidation, a liquidator without authority, a liquidator without power is unquestionably wrong.”

The SEC also took issue with assertions by Gibraltar’s other Bahamian attorney, Baycourt Chambers’ principal, Raynard Rigby, that Section 73 requires the Securities Commission to approve the voluntary liquidation of its registrants.

The federal regulator alleged that Mr Rigby was ‘engaged in a slight-of-hand”, arguing that this was an incorrect interpretation of Bahamian law.

“There is no question that defendants [Gibraltar and Mr Davis] have possession, custody and control of the documents at issue, in spite of the hollow refrain that a ‘liquidator’ somehow ‘controls’ the documents,” the SEC alleged.

“An unauthorised liquidator and an unauthorised liquidation by any other name is still exactly that, unauthorised. Strip away the refrain, open the curtain, and what you have, at most, is an agent of the defendants, without any of the clothing or power of an authorised liquidator. As such, the documents continue in defendants’ possession, custody and control.”

Gibraltar has previously confirmed that documents related to 100,000 transactions and its 1,200 clients have been retained in the Bahamas, in both electronic and hard copy form.

Yet the former Bahamian broker/dealer and Mr Davis have argued that apart from the voluntary liquidation, they would also violate Bahamian law and be exposed to potential lawsuits from former customers for violating their confidentiality if they complied with the SEC’s demands.

The Bahamian defendants are thus seeking a ‘protective Order’ from the southern New York district court to block the SEC’s demands.

The case has important wider ramifications for the Bahamian financial services industry and its clients, as the matter goes to the heart of the seeming ‘extra-territorial’ reach and demands of US law and regulators.

It may yet serve as something of a ‘test case’ for whether US federal regulators will abide by the proper legal channels for obtaining information held in the Bahamas, and if the local courts and regulators can resist the pressure that may be brought to bear.

The US regulator, though, in its rebuttal filing on January 9, 2015, said there was “no conflict between American law and Bahamian law” on the issues, and no danger of client liability for Gibraltar.

It added that Messrs Moree and Rugby had made “inadequate conclusory and unsworn claims” on these issues, and not shown where it could violate Bahamian law.

Dismissing the Bahamian broker/dealer’s arguments that it could not produce the documents sought because it had voluntarily surrendered its registration to the Securities Commission, the SEC said the Bahamian regulator had not accepted this.

This, it added, was among the issues that Gibraltar was asking the Supreme Court to resolve in its September 156, 2013, legal action against the Securities Commission, which is also challenging the regulator’s refusal to accept its voluntary liquidation.

Gibraltar and Mr Davis have argued that the broker/dealer has been left “in legal limbo” by the Securities Commission’s position, but the SEC alleged they had not provided “a single reason” to show why this would prevent them handing over the documents.

And the US federal regulator claimed that the Bahamian defendants were using their action against the Securities Commission to create roadblocks to producing what it wanted.

“Far from doing everything in their power to overcome any obstacles in order to make their documents available, Gibraltar filed suit against the Securities Commission in the Bahamas,” the SEC alleged.

“The purpose of the suit was not to obtain clearance to allow for the production of documents but, instead, to prevent disclosure of documents in the pending SEC actions. The suit challenges the Securities Commission refusal to accept Gibraltar’s liquidation and surrender of its registration.

“This action demonstrates the defendants’ lack of good faith and stubborn intent to keep the documents hidden. 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.”

The SEC also claimed that Gibraltar and Mr Davis had contradicted themselves, arguing that it should seek to obtain the documents via the Securities Commission, only then to turn around and challenge the Bahamian regulator’s ability to co-operate and exchange information with its international counterparts.

The US regulator added further: “It is time for defendants’ use of baseless claimed legal restrictions to cease.

“Since defendants have not attempted in good faith to obtain permission to disclose relevant documents, and have instituted legal proceedings to block the SEC from obtaining information, this court should deny Gibraltar’s request for a protective order in its entirety and order Gibraltar to produce all of its documents forthwith.”

The SEC alleged that it did not have to use the procedures laid out by the Bahamian Evidence (Proceedings in Other Jurisdictions) Act to obtain what it was seeking, as suggested by Mr Rigby.

It added that the Bahamian government had expressed no concern over a “conflict of laws”, and branded Gibraltar’s claims of legal barriers in this nation as “illusory”.

The documents sought by the SEC relate to a 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.

In response to the SEC’s ‘solicitation’ claim, Mr Davis and Gibraltar said the US regulator had never alleged they sent out the likes of “mailings, phone calls or spam”. And they further argued that the SEC was not being specific on the documents it wanted to obtain.