The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Securities Commission fears the US government will treat it as “powerless and ineffective” because a broker/dealer’s legal “stalling” tactics are preventing it from assisting its foreign counterparts.

Christina Rolle, the Bahamian regulator’s executive director, alleged in a February 24, 2015, affidavit that the action initiated against it by Gibraltar Global Securities was causing it “serious prejudice” in its dealings with the Securities & Exchange Commission (SEC).

And she warned that, as a result, Gibraltar was “interfering unduly” with its responsibilities under the Securities Industry Act - especially its ability to co-operate, where appropriate, with foreign regulators seeking enforcement-related information from its licensees.

Gibraltar, which is facing two SEC lawsuits in the New York courts, filed a legal action against the Securities Commission on September 16, 2013, seeking 21 separate declarations and orders.

Apart from compelling the Securities Commission to accept the voluntary surrender of its licence, Gibraltar is also asking the Supreme Court to rule that several sections of the Securities Industry Act - particularly those relating to co-operation and information sharing with foreign regulators - violate the Bahamian constitution.

Ms Rolle, though, alleged that Gibraltar and its attorney, Raynard Rigby, were doing little to move the action towards trial and resolution.

By not prosecuting the action, the Securities Commission’s newly-appointed top executive alleged that Gibraltar was thus able to “hold off” the SEC and its demands for documents deemed relevant to the two New York actions.

In effect, Ms Rolle is alleging that Gibraltar’s legal action against the Securities Commission is merely designed to create an obstacle preventing it from passing documents to the SEC, with the ultimate goal of frustrating the New York court proceedings against it.

Her affidavit added that while the Bahamian broker/dealer resolved to go into voluntary liquidation on August 29, 2012, this was never revealed to the Securities Commission in the January 31, 2013, letter from Warren Davis, Gibraltar’s managing director, surrendering its registration.

Ms Rolle claimed that Gibraltar may thus have exposed itself to “criminal charges” and “heavy fines”, on the grounds that it had violated the Securities Industry Act by not gaining the Commission’s prior approval for the registration surrender.

She added that the registration surrender occurred just when the Securities Commission was in the process of assisting the SEC to obtain information from Gibraltar in relation to their legal battles.

“Under Section 73 of the [Securities Industries] Act, it is provided that a registered firm shall not go into voluntary liquidation without the prior approval of the defendant [Securities Commission],” Ms Rolle alleged.

“The plaintiff [Gibraltar] has gone into voluntary liquidation without the prior approval of the defendant. The plaintiff may then have opened itself to criminal charges which carry heavy fines.”

The Securities Commission alleged it only learnt of Gibraltar’s 2012 ‘voluntary liquidation’ move via a declaration by its attorney, Mr Rigby, which was filed earlier this year with the New York courts.

Ms Rolle’s affidavit, which was filed last Thursday by the SEC in the same court, added: “Caught in the position in which it found itself, [Gibraltar] sought to employ a delaying tactic by filing a writ of summons against the defendant, claiming the inordinately high number of reliefs set out hereof, many of which are repetitive and irrelevant.”

The Securities Commission’s executive director alleged that by opting for a writ of summons, instead of the faster ‘originating summons’ approach, Gibraltar “is able to stretch out the proceedings to give itself more stalling time”.

The Bahamian regulator, and its attorneys, Sharon Wilson & Company, are now asking the Supreme Court to dismiss the action due to Gibraltar’s failure to prosecute it.

They are also arguing that the Limitation Act prevents Gibraltar taking any legal action against it 12 months after the information is exchanged with a foreign regulator.

“Having used the writ of summons, the plaintiff [Gibraltar] has not sought to move the proceedings along, nor has it shown that it really intends to have the matter progress timeously to completion,” Ms Rolle alleged.

“The defendant [Securities Commission] is driven to the belief that the plaintiff is delaying the matter, and such delay is causing serious prejudice to the defendant, since it is preventing the defendant from carrying out its statutory function in dealing with the plaintiff, and allowing the plaintiff to interfere unduly with the defendant’s responsibilities under the Act.”

Ms Rolle further claimed: “The defendant [Securities Commission] is unable to carry out its statutory responsibilities to foreign agencies as is permitted under section 37 of the Act.

“The said behaviour of the plaintiff [Gibraltar] in not prosecuting the action is permitting it to use its irregular position to hold off the Securities & Exchange Commission of the United States of America, which is likely to cause parts of the Government of the United States to think of, and treat, the defendant as a powerless and ineffective body.”

Ms Rolle’s fears, if valid, would be a major concern for the Bahamas. A key factor in this nation’s 2000 ‘blacklisting’ was perceived weaknesses in this nation’s ability to co-operate with international regulators and share information, and the last thing it wants to do is foster such perceptions again.

And this is not the first time that the Securities Commission has been stymied in its efforts to co-operate, and take enforcement action, against its broker/dealer licensees.

Tribune Business revealed last year how Alliance Investment Management won a Judicial Review action challenging the capital markets regulator’s effort to temporarily block it taking on new business, and to submit to a solvency test.

And some cynics would likely suggest that the Securities Commission has already shown evidence of being a weak regulator, given the apparent lack of tough, appropriate enforcement action in the cases involving Caledonia Corporate Management, Montaque Capital Partners and the Norshield Group/Cardinal International.

The SEC has charged Gibraltar with participating in two unregistered securities offerings, and also acting as an unlicensed broker/dealer in the US.

The Bahamian broker/dealer and its principal, Mr Davis, have been resisting the SEC’s demands that it produce documents stored in this nation, and that they submit to depositions in New York.

Mr Rigby previously argued that the Securities Commission’s refusal to accept Gibraltar’s voluntary licence surrender had left it in “legal limbo”. That, together with its voluntary liquidation move, had left the now-former broker/dealer unable to comply with SEC demands.

“Generally, it is the custom for the Securities Commission to agree to the surrender once it is granted safeguards with respect to the retention of the documents for the required statutory period of seven years,” Mr Rigby previously alleged.

“In this instance, the Securities Commission refused to agree to surrender the licence/registration of Gibraltar. The Securities Commission has provided no reason for its refusal.”

And he added: ““The Securities Commission….. must approve a registrant’s decision to proceed to a voluntary liquidation. Gibraltar has complied with all of the requests from the Securities Commission in respect of the surrender of its licence/registration, and for it to proceed to a voluntary liquidation.

“The appointment of a liquidator, and the unexplained failure of the Securities Commission to approve Gibraltar’s liquidation, leave Gibraltar in legal limbo.”

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.

In the second case, Gibraltar was alleged to have participated in another unregistered share offering for two companies, Pacific Blue and Tradeshow, which netted $11 million.