The Tribune

By NEIL HARTNELL

Tribune Business Editor

A BAHAMIAN broker/ dealer has been forced to "pull back" on potential expansion plans following a Canadian regulatory ruling against it, telling Tribune Business it has to-date refrained from legal action against the Securities Commission of the Bahamas because the "horse was already out of the gate".

Executives from Gibraltar Global Securities, which was last week sanctioned by the British Columbia Securities Commission (BCSC) as being "unsuitable" to participate in any securities activities connected to the Canadian territory, are questioning why the Bahamian regulator did not "err on the side of caution" over the client information request submitted by its foreign counterpart.

Documents that Gibraltar obtained during the discovery process for the BCSC case, detailing the exchanges between the Securities Commission and Canadian regulator, reveal that the Bahamian supervisor was facing "challenges" and "difficulties" when it came to "legal issues" surrounding the information the BCSC was seeking.

In particular, Tribune Business has obtained two letters, both dated January 20, 2011, that were sent to Paul Bansal, the BCSC's senior enforcement investigator. The first came from Mechelle Martinborough, the Securities Commission's in-house legal counsel and secretary, and the second from then-chairman and executive director, Philip Stubbs.

The difference in tone and approach between the two is marked. Ms Martinborough's letter indicates the Securities Commission is digging its heels in against what it perceives as undue BCSC pressure. Yet Mr Stubbs's letter is effectively a total climbdown and apology to the BCSC, with the client information the latter was seeking attached.

As a result, Gibraltar executives are questioning what happened on January 20, 2011, to make the Securities Commission change its mind that very day, performing a "180 degree u-turn", and what kind of pressure was placed upon it by the BCSC.

The broker/dealer is also questioning what the legal and regulatory process for sharing information with overseas regulators is, given that it had obtained two separate legal opinions - revealed in Tribune Business last week - finding that the BCSC's information request was a 'Fishing expedition", and did not comply with the Securities Industry's Act's requirements.

Warren Davis, Gibraltar's managing director, told Tribune Business that the broker/dealer's run-in with both the BCSC and the Securities Commission had had a 'chilling effect' on its business, and the possibility of taking legal action over the situation had not been completely "taken off the table".

"The business was growing, and we had just hired six-seven persons when this came about," he said. "Following this, the business has not been well. We had been growing at a sustainable rate until this broke, and we'd contemplated setting up our own space."

Gibraltar currently operates from rented premises at Sandyport, but Mr Davis told Tribune Business the broker/dealer had been considering building its own offices before the BCSC problems put the brakes on.

"We were outgrowing the facility," he added. "We were deciding whether to go ahead and build our own building. This has had a direct impact, not only on our 20 staff in terms of threatening their job security.... This situation has caused us to pull back, re-evaluate and re-assess, even with regard to the Bahamas as a jurisdiction. Are we better off somewhere else?"

Ms Martinborough and her deputy, Gawaine Ward, were both said to be out of office yesterday when Tribune Business called seeking comment, as it had attempted to do before the Labour Day holiday weekend. Dave Smith, the Securities Commission's executive director, did not return a phone call from this newspaper seeking comment.

In a previous interview, Ms Martinborough had said the Securities Commission was in full compliance with Bahamian law and its international obligations in passing the requested information to the BCSC.

She added that the regulator's position was justified, while Gibraltar's was not, and questioned why the broker/dealer had not taken the Securities Commission to court if it felt so aggrieved.

In response to the latter point, Mr Davis said Gibraltar would have initiated court action if the correct procedures had been followed. Yet it only learnt that the information had been provided to the BCSC after the fact, when its clients started calling and some $2 million in its correspondent accounts were frozen in Canada.

"If proper protocols had been followed to go through the court process [after Gibraltar first refused to pass the client details over], we would have fought this tooth and nail," Mr Davis told Tribune Business. "Unfortunately, the information was already passed to the BCSC by then. What benefit was it to go to court?"

Chris Lunn, Gibraltar's compliance director, who was the former managing director of Suisse Security Bank & Trust and an ex-Central Bank regulator, added: "The horse was already out of the gate."

Pointing to the fact the Securities Commission had a defined information exchange process in its Act, Mr Lunn questioned why it had not disciplined Gibraltar for failing to pass over the requested information via a fine or court action.

"We don't have a problem with that," Mr Lunn added. "By the time we found out, this information was already released, so it would have been a pointless exercise to take them [the Securities Commission] to court when the documents were already in British Columbia."

Initiating court action, he added, would have taken several years to resolve, likely cost $500,000-$700,000 in legal fees, and seen Gibraltar potentially "winning the battle, but losing the war". Mr Davis said it came down to a simple "cost/benefit analysis".

The Gibraltar managing director, though, warned that the broker/dealer had not totally eliminated the possibility of taking legal action from its mind.

"It's a matter of fact we're weighing our options," Mr Davis told Tribune Business. "It's a matter of record that we've not put off the table entirely taking legal action.

"We have consulted with several senior attorneys who believe we may have good grounds on this matter. We may very well take the Commission up on its comments, and are well within the statutorily limited time to do so at this point."

Mr Lunn also expressed concerns that the financial sanctions the BCSC is planning to levy against Gibraltar will be paid from the $2 million in its frozen accounts in Canada. Given that much of those funds belong to its clients, he fears that it is they who will ultimately bear the penalty.