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Sanctioned Broker Eyeing Canada Exit

By NEIL HARTNELL

Tribune Business Editor

A BAHAMIAN broker/dealer yesterday said it was assessing whether to re-domicile millions of dollars in assets, belonging to both itself and its clients, away from Canada due to concerns over a regulatory "domino effect" resulting from a recent ruling against it.

Christopher Lunn, compliance director for Gibraltar Global Securities, told Tribune Business the broker/dealer was concerned that other Canadian regulators may follow the lead of the British Columbia Securities Commission and implement 'cease trade' orders and account freezes in their own territories.

Emphasising that Gibraltar was committed to protecting its clients' assets and was trying to find the "optimal solution" to its concerns, Mr Lunn said the various Canadian securities regulators all belonged to the same organisation, regularly taking the same action against firms even if they had not been found guilty of committing an offence in their territory.

"What has happened, and what we're looking into, is that there is a concern that what happened in British Columbia may spread to the rest of Canada," Mr Lunn told Tribune Business.

"All the regulators there are part of the same organisation, and if action is taken in, say, Alberta, then regulator in Ontario may take similar action in the form of sanctions, asset freezes etc.

"It's a legitimate concern, because the regulators in Canada are part of a particular organisation. We're looking at our interests throughout Canada, and rather than taking a chance of leaving assets there and other regulators taking similar action, we're looking at the option of re-domiciling those assets."

Mr Lunn said Canadian regulators often followed a policy of implementing similar measures introduced by their counterparts regardless of whether a broker/dealer or other securities market player had "done anything in their area".

"It's like a domino effect," he told Tribune Business. "We're looking to protect client assets as well as Gibraltar's, and are trying to work out the optimal solution."

Tribune Business has reported extensively on how a British Columbia Securities Commission (BCSC) disciplinary panel has ruled that Gibraltar Global Securities was "unsuitable" to participate in any securities activities connected to the Canadian territory.

As a consequence, it has imposed a 'cease trade' order on Gibraltar, barring it from participating in the territory's securities market, and frozen the some $2.2 million in accounts belonging to the Bahamian broker/dealer. A significant percentage of those assets are likely to be client monies.

In response, Gibraltar Global Securities has called for an investigation into how the Securities Commission of the Bahamas handled the BCSC's request for information on its clients, and how the details were ultimately passed to the Canadian regulator.

This is because the Bahamian broker/dealer obtained two separate legal opinions from local attorneys that found the BCSC's information request was merely a "fishing expedition", and did not meet the legal requirements set out in the then-Securities Industry Act. As a result, those opinions said the information did not have to be passed over.

In its ruling on the Gibraltar Global Securities case, the British Columbia Securities Commission confirmed that it contacted the Bahamian Securities Commission in January 2009 to seek this information, but the broker/dealer refused to supply it on the 'fishing expedition' grounds.

However, the British Columbia Securities Commission finally obtained what it was looking for in January 2011 - more than a year later - after the Securities Commission found it during a scheduled on-site inspection of Gibraltar Global Securities.

"Over two years later, in January 2011, the Securities Commission provided British Columbia Securities Commission staff with a list entitled 'Gibraltar Global Securities Inc. Clients - British Columbia, Canada', which it obtained from Gibraltar during a visit to the firm," the Canadian regulator's ruling confirmed.

"The list contained 22 account names of corporate clients, as well as two names of individual clients. For each corporate client, the beneficial owner and his current address were listed. The list contained names of at least 16 beneficial owners holding more than one corporate account. A number of the accounts were offshore corporations with beneficial owners resident in British Columbia."

In its ruling, the BCSC disciplinary panel said Gibraltar Global Securities' accounts were used to conduct trading in $14 million worth of shares on the Toronto Stock Exchange's (TSX) Venture Exchange during the 12 months to end-June 2011.

The Canadian regulator said it had uncovered evidence that 26 British Columbia residents either held accounts directly, or were beneficial owners, of facilities at Gibraltar Global Securities.

"Of the Gibraltar clients BCSC staff identified subsequently, one was guilty of securities fraud and several are subjects of past and ongoing BCSC investigations for suspected market manipulation," the ruling said.

"Gibraltar opened its accounts with Global Securities Corporation in 2006. In 2007, Gibraltar sent letters to Global stating that Gibraltar's trading in its BC accounts was proprietary and not for the benefit of its clients. The letters read: "I am writing this letter to ensure you that our account with you is based on proprietary trading for Gibraltar Global Securities Inc, and only for Gibraltar'."

But the regulator found: "Notwithstanding, BCSC staff produced evidence of multiple examples where Gibraltar was taking instructions from clients for its trading in Gibraltar's Global accounts.

"BCSC staff produced evidence for Gibraltar's Global accounts showing Gibraltar was an active trader, both buys and sells, predominantly in shares that trade on the TSX Venture Exchange. For the 12 months ended June 30, 2011, the aggregate value of the trading in the accounts was more than $14 million."

In its ruling, the BCSC said "the secrecy laws of the Bahamas are no basis" for failing to provide it with the required client information.

It added: "The evidence shows that Gibraltar made multiple trades for at least eight BC residents. We find that Gibraltar acted as an intermediary for BC residents for trades of securities.

"The evidence shows that at least 26 clients resident in BC requested Gibraltar to provide trading services for them. We find that Gibraltar provided trading services with repetition, regularity and continuity."

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