By NEIL HARTNELL
Tribune Business Editor
THE Securities Commission yesterday said its decision to share information on a Bahamian broker/dealer's clients with a Canadian regulator was fully "in compliance" with the law, and questioned why the company had not challenged its actions in court despite having months to do so.
Responding to claims by Gibraltar Global Securities that the decision to pass client information to the British Columbia Securities Commission (BCSC) was "inappropriate and questionable", Mechelle Martinborough, the Securities Commission's in-house legal counsel, said the foreign regulator's request had met "the standard required" for it to provide the needed assistance.
The Bahamian broker/dealer's position is that the British Columbia Securities Commission was engaged in nothing more than a 'fishing expedition', and therefore there was no legal requirement to hand over the client information sought, but Ms Martinborough said Gibraltar had failed to back up this assertion.
Arguing that Gibraltar's position was "unjustifiable", Ms Martinborough said the broker/dealer had failed to provide the Securities Commission with the two 'fishing expedition' legal opinions it said it had obtained, despite the regulator requesting these numerous times.
And she also questioned why, if Gibraltar felt so strongly about its treatment, it had failed to-date to challenge the Securities Commission's decision in the Bahamian courts. The information had been supplied to the British Columbia Securities Commission in January 2011, some 15 months before it rendered its decision, and Gibraltar had first been approached for the client details in early 2009 - more than three years ago.
"The Commission's position is simply that we shared the information with the British Columbia authorities in compliance with our legislation," Ms Martinborough told Tribune Business.
Adding that she, and the Securities Commission, were speaking more freely than normal because Gibraltar had "opened the door" by taking its case public, Ms Martinborough said the broker/dealer had used the 'fishing expedition' defence "for quite some time".
"In regard to the assertion that this was a fishing expedition, and it was advised by its attorneys, we conducted our own review and confirmed we were acting properly," Ms Martinborough said. "We contacted Gibraltar on several occasions for a position from its attorneys, and never got it.
"There are standards that an international regulator has to meet before we address a request from them. In this case, the Commission assessed the request and found the request met the standard required.
"All I can say is that the approach Gibraltar took, I don't think it is a justifiable position. We are prepared, have been prepared and will be prepared to support the position we have taken.
"Throughout this period, it was open to Gibraltar to challenge the Commission's position through the courts. We haven't been served with any action."
Gibraltar's senior executives, managing director Warren Davis and compliance director Chris Lunn, told Tribune Business on Wednesday that the Securities Commission's decision to pass on information relating to its clients had left it "vulnerable" and "exposed to liability" from Canadian sanctions.
A British Columbia Securities Commission (BCSC) disciplinary panel ruled the Bahamian broker was "unsuitable" to participate in any securities activities connected to the Canadian territory, and imposed a 'cease trade' order against it. It will also hold June 2012 hearings on potential financial sanctions against Gibraltar.
The Gibraltar executives argued that the decision to share the information with the Canadian regulator meant its rights as a Securities Commission licencee were "trampled on", and the whole affair sent "a very bad message" to the wider Bahamian financial services industry - and potential and existing clients.
Ms Martinborough and the Securities Commission, though, vehemently denied those assertions. She pointed out that the British Columbia Securities Commission (BCSC), an outside authority, had found against Gibraltar, and the matter needed to be considered in that context.
"The judgment was not about what the Commission did and didn't do. They conducted business outside the regulatory ambit of that [British Columbia] territory, not this country," she said. "I don't think our evidence was the only reliable evidence."
In its ruling, the British Columbia Securities Commission 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.
Ms Martinborough and the Securities Commission were tight-lipped on whether they would conduct their own, further probe of Gibraltar, or take further action in the Bahamas in light of allegations about the activities of some clients. Messrs Davis and Lunn have denied any wrongdoing on the broker/dealer's part.
Dave Smith, the Securities Commission's executive director, added: "One thing the public can be very certain of is that the Commission is very serious about fulfilling its mandate, and where necessary taking action to protect investors and mitigate system risk."
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