The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former Bahamian broker/dealer and its principal have been hit with a combined $24.484 million in financial sanctions by a US court, which found that their “ill gotten gains” were likely higher than allowed for by federal regulators.

Judge George Daniels, in a ruling delivered on Monday, affirmed a previous damages recommendation against the now-defunct Gibraltar Global Securities and its Bahamian principal and sole shareholder, Warren Davis.

He ordered that they “disgorge” $14.449 million in “illicit profits and $2.7 million in prejudgment interest on that sum, and that both - Gibraltar and Mr Davis - each pay a $3.667 million civil penalty.

Whether the Securities & Exchange Commission (SEC), the US capital markets regulator will be able to enforce and collect on this judgment remains to be seen, given that Gibraltar no longer exists, while Mr Davis remains outside its jurisdiction in the Bahamas.

Judge Daniels, who made his ruling after Mr Davis and Gibraltar last year decided to stop contesting the SEC’s allegations, disclosed that neither filed any objection to the recommended damages against them, which were calculated by another judge.

He found, though, that the recommended $3.487 million “illicit profits” disgorgement, representing monies earned by Mr Davis/Gibraltar while the latter was operating as an unregistered broker/dealer in violation of US law, were probably an under-estimate.

This figure was based on the Bahamian company’s 2-3 per cent commission fees, and $116 million in wire transfers sent to US recipients.

However, Judge Daniels said the calculation stripped out $46 million worth of wire transfers to Gibraltar customers whose nationalities were unknown.

“Additionally, the SEC’s requested amount clearly underestimates the defendants’ ill-gotten gains, which were calculated with the assumption that by the time defendants’ [Gibraltar and Mr Davis] wired the proceeds back to their customers, defendants would have already deducted their commission,” Judge Daniels said.

He added that if the SEC had based its calculations on the pre-commission revenues, then the true sum involved was $119.823 million. And, employing the 3 per cent commission rate, Judge Daniels said the “ill gotten gains” would have increased to $3.595 million - a more than $100,000 jump.

The other element to the SEC’s original 2013 lawsuit alleged that Gibraltar and Mr Davis received a further $10.962 million from facilitating a share offering involving stock in a thinly-traded company, Magnum d’Or, which breached capital markets regulations because it was not registered with the SEC.

“Specifically, from November 2008 until about September 2009, Dwight Flatt, David Della Sciucca and Shannon Allen deposited with Gibraltar over 11 million shares of stock in a company called Magnum d’Or that the nominees received from the issuer,” Justice Daniels ruled on Monday.

“Defendants [Gibraltar and Mr Davis] sold over 10 million of those Magnum shares through their US brokers to generate $11.385 million in proceeds.

“Gibraltar eventually wired about $7.175 million directly back to Magnum. During this time, the Magnum securities were unregistered and transferred from the Bahamas to defendants’ US brokers via mail.”

The balance of the $14.449 million “illicit profits” disgorgement thus comes from the Magnum D’Or unregistered offering.

The SEC had previously urged the southern New York federal court to levy a $7.246 million “civil monetary penalty” against both the Bahamian defendants separately.

But the damages recommendation to Judge Daniels said this figure was “inappropriate”, and cut the civil penalty that each of Gibraltar and Mr Davis must pay by almost 50 per cent - from $7.246 million down to the $3.667 million.

This represented a small victory for Mr Davis and Gibraltar, for while the collective financial sanctions imposed on them were reduced by $7.158 million, they are still facing an eight-figure penalty - albeit one that has been reduced from $31.56 million to $24.484 million.