The Tribune

• Commission right to ‘nip in the bud’ Gentile’s activities

• EY accountants appointed as Mintbroker’s liquidators

• Regulator chief says verdict not too late; work remains

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Securities Commission’s intervention to “nip in the bud” conduct by a Bahamian broker/dealer once used as FBI “bait” was yesterday vindicated by a Supreme Court judge.

Justice Diane Stewart ordered that Mintbroker International, the former Swiss America Securities, which was owned and managed by its colourful principal, Guy Gentile, be wound-up under the Supreme Court’s supervision with the EY (Ernst & Young) accounting firm appointed as official liquidators.

Some may view the ruling as too late, given that Mr Gentile closed his Bahamas operations almost two years ago and exited this jurisdiction for Puerto Rico after purportedly returning all client assets to their owners.

He himself, and Mintbroker, alleged that a court-supervised winding-up would be akin to shutting the stable door after the horse has bottled as the broker/dealer “had less than $25,000 in assets” when the Securities Commission first presented its liquidation petition to the Supreme Court in March 2021.

However, Christina Rolle, the Securities Commission’s executive director, told Tribune Business that there still remains work for EY accountants, Igal Wizman and Eleanor Fisher, to perform. Besides safeguarding any remaining assets, they will also have to assess whether Mintbroker accurately and fairly returned client assets it was holding in escrow to their owners.

“The judge ruled in our favour over the winding-up petition,” Ms Rolle confirmed. “She ruled that Swiss America Securities (Mintbroker) is to be wound-up and EY appointed as official liquidators.”

Asked whether this was too late, given that Mr Gentile voluntarily surrendered Mintbroker’s licence and exited The Bahamas as far back as December 2019, she replied: “That will be for the official liquidators to determine.

“Obviously they will have to look at whatever assets are remaining in the company, and to really look at whether the transfers made out to the clients were thorough and proportionate. It will be for the official liquidators to determine.”

Mr Gentile previously bought time to voluntarily wind-up Mintbroker International by filing a Judicial Review challenge to the Securities Commission’s enforcement actions on September 23, 2019, which resulted in Supreme Court justice, Ruth Bowe-Darville, “vacating” all the regulator’s orders and directives.

That move “fully disabled the Commission from further investigation into” Mintbroker’s activities, Ms Rolle admitted. The attorney representing Mintbroker and Mr Gentile in that Judicial Review challenge was now-prime minister Philip Davis QC. And Philip McKenzie and Glenda Roker, both of Davis & Company, represented them in the winding-up petition hearing.

Justice Stewart’s judgment recalled how the Securities Commission previously fined Mintbroker $120,000 as a result of regulatory breaches discovered from various examinations over the period 2016-2018, having increased scrutiny after becoming aware that Mr Gentile and his firm were being investigated by both the US Justice Department and the Securities & Exchange Commission (SEC).

“In 2019, the Commission conducted an investigation and discovered that Mr Gentile had incorporated unregulated entities bearing the names Swiss America Custody Ltd and Mintbroker International Ltd in various jurisdictions in including Canada and the United Kingdom,” Justice Stewart recorded.

“They were used to accept the company’s client funds instead of being remitted to an account in the company’s name which would be subject to the supervision of the Commission. The funds were transferred to the company’s operational account at Deltec Bank & Trust and resulted in the lack of segregation of clients’ funds contrary to statute.”

Ms Rolle and the Securities Commission feared this “comingling of funds” would mix client assets and those owned by Mintbroker itself, and which it used to fund its operations. Justice Stewart added: “The transfers also raised the concern as to whether the company was conducting fraudulent activities.”

Further concerns were raised during a September 12, 2019, meeting between the Securities Commission and Mr Gentile. The regulator said it was “informed of even more irregularities”, including that Mintbroker was in a “short” position relative to its clients who did not own the securities they believed they had purchased. Other issues were also raised.

“The company’s operational structure meant that not actual trading was done in the market based on client orders,” Justice Stewart said of the Securities Commission’s concerns. “The company did not own shares in its inventory even though they [clients] were of the belief it did, which was unacceptable to the Commission and contrary to industry practice.

“Efforts were then made to halt the company’s operations and to prevent exposure to clients due to the company’s improper trading practices.” The Securities Commission, on September 18, 2019, ordered Mintbroker to suspend its operations for five days so it could investigate further without disrupting its operations.

James Gomez, then of the Baker, Tilly Gomez accounting firm, was appointed to audit the financial transactions conducted by Mr Gentile’s firm and Securities Commission staff entered the company’s premises on September 19, 20 and 23, 2019.

However, its enforcement efforts were halted by Mr Gentile’s Judicial Review application and subsequent obtaining of a temporary injunction. Prior to its overturning, Mintbroker wrote to the Securities Commission on December 3, 2019, informing it that would voluntarily wind-up its Bahamas operations and return all client assets to their owners.

Such a move required the regulator’s approval, and Mr Gentile and Mintbroker failed to comply with the terms and conditions it set out. As a result, the Securities Commission on February 4, 2020, warned it would suspend the registration for the broker/dealer, which was based in Bay Street’s Elizabeth on Bay plaza, and seek a court-supervised liquidation.

“Ms Rolle averred that it was paramount that the Commission protect the welfare of investors and/or clients as well as maintain the integrity of The Bahamas’ securities and investments market,” Justice Stewart noted.

“As a result, it sought the requested orders in order to prevent any further or potential harm to the company’s clients. She added that it was in the public interest for a court-supervised winding-up to be ordered.”

Mr Gentile countered by saying the uncertainty caused by the five-day suspension, as well as Mintbroker’s Judicial Review challenge, meant it was impossible to continue operations. Its clearing house, Interactive Brokers, terminated their relationship with 30 days’ notice and finding a replacement proved fruitless.

Voicing surprise that the Securities Commission had never voiced objection to Mintbroker’s business model during its seven previous years in operation, Mr Gentile said it “liquidated all of its client accounts and client relationships” while informing the Bahamian regulator of its actions.

“The company had no ability to operate and its customers obviously wanted their money back so they could not wait for the Commission,” Justice Stewart said of Mr Gentile’s position. “The company felt pressured by the Commission’s request for it to surrender its licence.”

EY were appointed as joint provisional liquidators on March 17, 2020, but Ms Rolle alleged that Mr Gentile’s actions “were at best unhelpful and, at worst, calculated to obfuscate and stymie” the accounting firm’s work.

Taking all these into consideration, Justice Stewart said the Securities Commission had been correct to seek the Supreme Court’s help to “nip in the bud” Mintbroker’s breaches of Bahamian law. “The statutory provisions are not whimsical or arbitrary. They are there for a reason,” she found. “The purpose for the requirements is clear - to protect investors and the reputation of the industry.”

The failure to obtain the Securities Commission’s approval for the voluntary winding-up, and non-co-operation with EY when it was provisional liquidator, were also cited by Justice Stewart as justifying the compulsory liquidation.

Mr Gentile enjoyed a somewhat colourful stay in the Bahamas, with Tribune Business reporting in 2016 how he and his broker/dealer, based in the Elizabeth on Bay Plaza on Bay Street, were allegedly used as “bait” by the Federal Bureau of Investigations (FBI) to help snare numerous international securities fraudsters.

Mr Gentile claimed that he and his Bahamian businesses were “forced” to play key roles in undercover ‘sting’ operations targeting criminals earning millions of dollars from market manipulation scams.

Their participation even extended to the ‘bugging’, both by video and sound, of Swiss-America’s Bahamian head office in a successful bid to gain evidence against a Canadian fraudster who subsequently pleaded guilty to the charges against him.

He also attracted international media coverage after his Russian-born, model girlfriend, Kristina Kuchma, 24, in a fit of rage drove his Mercedes S400 hybrid into the pool at his Ocean Club home after he ended their 18-month relationship by text and allegedly reneged on a promise to provide $50,000 for one of her business ventures.