The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian broker/dealer was yesterday viewing a Canadian regulator’s decision to modify the freeze on its accounts as “a slight victory”, even though the $2.2 million they once contained was likely to have declined in value by 50 per cent.

Christopher Lunn, compliance director for Gibraltar Global Securities, said it had successfully persuaded the British Columbia Securities Commission (BCSC) to modify the restraining order on its accounts and allow the Bahamian broker/dealer to sell securities in them.

He explained that this would allow Gibraltar to prevent its clients suffering further losses from the declining value of securities/stocks held in those accounts on their behalf.

Mr Lunn estimated to Tribune Business that the assets held in Gibraltar’s frozen accounts, which totalled $2.2 million when the freeze was first imposed, had now declined to “half of that” - a sum likely just over $1,1 million.

The BCSC’s initial asset freeze was imposed on August 5, 2011. That required Gibraltar’s Canadian correspondent broker, Vancouver-based Global Securities Corporation, to hold on to the cash, securities and other assets contained in the Bahamian broker/dealer’s accounts.

Gibraltar could, at that time, make no withdrawals from those accounts. It was, though, allowed to sell stocks and securities, provided the funds generated were retained by its correspondent broker.

However, in handing down its May 22, 2012, ruling against Gibraltar, the BCSC issued a cease trade order that now prevented the broker/dealer from buying and selling stocks until it determined what the company’s punishment would be.

As a result, Gibraltar requested at the September 26, 2012, hearing on its potential sanctions that the BCSC modify the asset freeze to allow it to sell securities from the affected accounts. The BCSC raised no objection, provided the funds raised were retained in the accounts and not transferred.

The BCSC ultimately ruled: “Considering it in the public interest, we order.... that Gibraltar cease trading in, and is prohibited from purchasing, any securities until we have rendered our decision in this matter, except that it may direct Global to sell any securities held in Global Securities Corporation accounts, and any other account in which Gibraltar had a direct or indirect beneficial interest, provided that Global continues to hold the proceeds of any sale.”

Mr Lunn explained that the order modification returned matters to their pre-May 2012 position, where Gibraltar could only sell securities from its frozen accounts.

“That was the position prior to the hearing, where we could still sell but not use, switch or transfer any of the funds,” he told Tribune Business.

“We asked them to vary it, and they saw it was creating difficulty as the value of the stocks may be declining and there was nothing we can do. They agreed, and sent out an order that will now allow us to sell off securities in the account.”

He added: “We looked at it as a slight victory, as they were pretty much not allowing us to do anything with those accounts.

“Some of the clients were still anxious to sell as the value of the stocks was starting to fall, but we couldn’t mitigate any of the losses. They’ve agreed to allow us to sell stocks on behalf of the clients, as in that time period the stocks may have taken a hit in value.

“It does give us some flexibility right now..... It made sense to allow us to sell the stocks, and whatever the ultimate sanctions are, the clients have the power to recover some of the assets in the accounts.

“I know at one time there was $2.2 million worth of assets and cash in those accounts, and now there’s probably half of that.”

If the BCSC had maintained the post-May 2012 asset freeze, Mr Lunn said clients would have seen the value of their securities assets “fritter away” and been left “pretty much helpless in what they could have done”.

Gibraltar, he added, was now waiting to see what sanctions would be imposed upon it by the BCSC.

Mr Lunn said a decision on these penalties could come at any time, and Gibraltar was expecting it before year-end.

The BCSC matter saw the Bahamian broker/dealer earlier this year become involved in a public ‘war of words’ with the Securities Commission of the Bahamas, its primary regulator, over the latter’s decision to pass information on its clients to its Canadian counterpart.

Gibraltar had obtained two legal opinions suggesting the BCSC was engaged merely in ‘a fishing expedition’, and that there were no grounds in Bahamian law for the information to be handed over.

The Securities Commission, though, shot back that everything it did in relation to Gibraltar was “in compliance” with the law.

Ultimately, a BCSC disciplinary panel ruled the Bahamian broker was “unsuitable” to participate in any securities activities connected to the Canadian territory, and that it was not registered to do such business there.

Mr Lunn said it was “very unlikely” that Gibraltar would take legal action in Canada post the sanctions hearing outcome, apart from possibly appealing that ruling, due to the costs involved.

As for action in the Bahamas, Mr Lunn said: “That is something Warren [Davis, Gibraltar’s principal] is still considering, and a lot has to do with how the sanctions play out. But it’s definitely not off the table.

“It’s a cost/benefit to take the Securities Commission to court. We may get a moral victory, but the financial costs are substantial and we don’t know how beneficial that is.

“We may win the battle but lose the war. We had a call from one attorney offering to represent us, and his costs were $250,000 and higher.

“That’s quite a lot of money and we do not have a big war chest. We’ll weigh our options, but are trying to stem the tide. It’s been a rough ride, and unfortunate, but we’re doing what we can in the circumstances.”