The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian broker/dealer and its principal allegedly earned nearly $14.5 million in “ill-gotten gains” from breaching US securities laws, regulators alleged in court filings this week.

The Securities & Exchange Commission, in documents released on Wednesday, alleged that the now-defunct Gibraltar Global Securities and Warren Davis gained $3.487 million in trading commissions from US clients while operating as an unregistered broker/dealer.

And the US capital markets regulator claimed that they received a further $10.962 million from facilitating a share offering that breached capital markets regulations because it was not registered with the SEC.

The regulator’s filings in the southern New York district bid are part of its bid to persuade a judge that $31.56 million worth of sanctions should be imposed against Gibraltar and Mr Davis.

Besides the $14.5 million in “ill-gotten gains”, the SEC wants the court to levy $2.7 million in prejudgment interest against the Bahamian duo, plus a $7.206 million “civil monetary penalty” against each of them.

Mr Davis and Gibraltar have stopped defending themselves in this and another case the SEC brought against them, after the two actions ground them down and exhausted their legal resources.

They have, though, succeeded in getting the most serious charge against them - that of knowingly participating in, and facilitating, a securities fraud - dropped.

But, with Gibraltar having admitted it received 2-3 per cent commissions on the value of the trades it conducted for US clients, the SEC simply applied this to the sums that passed through its accounts to US recipients.

The regulator then obtained a spreadsheet from JP Morgan Chase, the correspondent for Gibraltar’s Bahamian bank, Royal Bank of Canada (RBC), detailing the sums involved in wire transfers that were sent to the broker/dealer’s US clients.

“The outgoing wires sent from the Gibraltar bank account at RBC included a total of at least $117 million sent to US recipients,” the SEC alleged.

“Of this amount, approximately $116 million was sent to US recipients during the time period covered by the complaint.

“These totals may underestimate the funds sent by Gibraltar to its US customers since there were $46 million of additional outgoing wires sent to recipients for which no address was provided or determinable.”

The SEC argued that $116 million was a reasonable estimate for the collective worth of the trades that Gibraltar conducted for its US clients while operating as an unregistered broker/dealer.

“Multiplying the actual monthly totals of the outgoing wires to the US recipients for the time period covered in the complaint by the 3 per cent commission rate results in ill-gotten gains of $3.487 million,” the SEC claimed.

It then added $614,995 in interest to produce the $4.102 million it alleged Mr Davies and Gibraltar should pay for acting as an unregistered broker/dealer.

As for their role in the distribution of shares in Magnum d’Or via an unregistered stock offering, the SEC alleged that Gibraltar sold more than 10 million securities via 600 trades, netting more than $11 million in sales proceeds.

“Illustrating the essential role that defendants played in the distribution of the unregistered shares - and demonstrating the reasonableness of total proceeds as the measurement of disgorgement - is the fact that Gibraltar directed approximately $7.175 million of the proceeds to be wired from its own account directly back to the issuer, establishing defendants’ direct knowledge of the improper capital- raising function the shares were being used for,” the SEC alleged.

“Moreover, defendants’ offered their customers international business corporations or IBCs to help conceal the identity of the individual or entity that placed a trade, essentially facilitating the anonymity of any customers who traded in violation of US laws.

“Gibraltar was willing to participate in an illegal distribution, traded in its own accounts, and its participation was necessary and substantial for the success of the scheme.

“Accordingly, having lent themselves to the illegal scheme, requiring them to disgorge proceeds from their illegal transactions is appropriate and equitable.”

The SEC argued that pre-judgment interest of $2.085 million should be added to the $10.962 million “ill-gotten gains”, for a total sanction of $13.048 million in relation to the Magnum d’Or scheme.

With the Bahamian defendants refusing to participate in discovery proceedings, the SEC added: “Gibraltar and Davis received total ill-gotten gains of $14.449 million, which together with prejudgment interest of $2.7 million, amounts to disgorgement of $17.15 million.

“As Gibraltar’s sole owner and president, and controlling participant in the misconduct, Davis is jointly and severally liable with Gibraltar for the ill-gotten gains and prejudgment interest.

“Gibraltar and Davis are liable, jointly and severally, for disgorgement of $14.449 million, the total ill-gotten gains that resulted from their conduct as alleged in the complaint, together with prejudgment interest thereon in the amount of $2.7 million, for a total of $17.15 million.”