The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian broker/dealer and its principal are arguing that they “cannot defy” Bahamian law, and expose themselves to client lawsuits, simply because US federal regulators have chosen to do so.

Warren Davis, and his now-defunct Gibraltar Global Securities firm, are reasserting their position that they cannot “disregard Bahaman law” over the Securities & Exchange Commission’s (SEC) demands that they produce ‘evidence’ held in this nation for their New York court battle.

Accusing the SEC of “casually treating” Bahamian law, the duo are arguing that the US capital markets regulator was relying on one of its American attorneys who had no expertise or qualifications on local law.

And Mr Davis and Gibraltar also slammed the SEC or hypocrisy, alleging it was the regulator rather than themselves who was responsible for delaying the case’s progress in the New York courts.

Pointing out that the SEC’s Florida office had taken action over the events involved in their case in 2010, the Bahamian duo said the regulator had subjected them to “multiple investigations and actions” stretching over a five-year period.

“[SEC] fails to make clear how defendants could arguably produce the documents in defiance of Bahamian law,” Gibraltar and Mr Davis argued in filings with the New York court on Friday.

“[SEC’s] casual treatment of Bahamian law relies on the hearsay opinion of an SEC attorney-advisor who appears to have no particular qualifications in this area...... The defendants, resident in the Bahamas, cannot disregard Bahamian law purely because the plaintiff has chosen to do so.”

Mr Davis and Gibraltar are seeking a protective order from the southern New York court that would prevent them from having to disclose Bahamas-based documents the SEC is anxious to obtain.

The federal regulator believes the evidence contained in these documents is vital to its case against Gibraltar and Mr Davis, which alleges they participated in an unregistered securities offering and were not registered to conduct business in the US.

However, the Bahamian duo in their Friday filing alleged that the SEC “simply refuses to acknowledge several irrefutable facts”.

These were that Gibraltar, in ceasing operations, no longer possessed the documents sought by the SEC because they were now held by the firm’s liquidator.

And while the Securities Commission of the Bahamas had “refused to accept the surrender of Gibraltar’s registration without any explanation and, apparently, without any basis in law”, two Bahamian attorneys had agreed the former broker/dealer could not produce the documents.

“The [SEC] has not provided a counter opinion by an expert in Bahamian law,” the Bahamian duo alleged.

Tackling the SEC’s argument that Gibraltar cannot be in liquidation because the Securities Industries Act requires the Securities Commission’s pre-approval for any of its licensees to go into voluntary liquidation, the Bahamian defendants relied on a previous legal opinion provided by Raynard Rigby, the Baycourt Chambers principal.

Mr Rigby ‘s position was that, having complied with all the Securities Commission’s requests, and despite its refusal to accept Gibraltar’s licence surrender, Bahamian law requires all a company’s management functions to revert to a liquidator once it goes into voluntary winding-up.

“Mr Rigby asserts that Gibraltar is no longer in business, has not paid any fees to the Securities Commission for the period of 2014 to 2015, and therefore is not a current registrant of the Securities Commission,” Gibraltar and Mr Davis alleged.

“It is clear that Gibraltar is no longer a functioning entity registered with the Securities Commission, and until told otherwise by the Bahamian Supreme Court, defendants must adhere to the advice of Bahamian counsel that any requests for Gibraltar’s documents should be made to the company’s liquidator, and that any production of documents by the defendants may subject them to liability under Bahamian law.”

The Bahamian duo then accused the SEC of “disregarding any attempts” by themselves “to resolve this conflict amicably”.

They alleged that their offer to exchange Bahamian legal opinions was rebuffed, while the suggestion that the SEC use the Evidence (Proceedings in Other Jurisdictions) Act 2000 - and go through this nation’s court system to obtain the documents - was also “lambasted”.

Mr Davis and Gibraltar also alleged that they were unaware of any attempt by the SEC to contact the latter’s liquidator over the documents, and said their ongoing Supreme Court litigation with the Securities Commission was intended to clarify - not block - the issue of document production.

“Plaintiff cannot have it both ways. The purpose of the litigation against the Securities Commission is in part to clarify who is in control of the documents, not, as [SEC] alleges, to obtain clearance for not producing documents,” the Bahamian defendants alleged.

“Resolution of the case with the Securities Commission would provide finality to this issue, determining once and for all who controls Gibraltar’s documents, and would remove Gibraltar from legal limbo.

“Should Gibraltar’s registration be accepted by the Securities Commission, the [SEC] can still seek production of the documents in question from the liquidator without compromising Bahamian law.”

The documents sought by the SEC relate to a lawsuit it has filed against Mr Davis and Gibraltar, in which it alleges that they participated in an alleged “illegal unregistered [share] offering and sale” for Magnum d’Or, a small, thinly-traded company.

Some 10 million shares were allegedly sold by Gibraltar on behalf of US customers, netting proceeds of more than $11.384 million.

The Bahamian duo were also alleged to have operated as an unlicensed broker by using their website to solicit US clients, facilitating the sale of $100 million worth of securities.

Mr Davis and Gibraltar have denied, and fought, these allegations for more than a year, and have enjoyed some success - a US judge have described the website soliciting case as among the weakest he has seen.

Noting that the SEC’s Miami office began investigating the Magnum d’Or case in 2010, Mr Davis and Gibraltar said they provided documents via the Securities Commission to assist the probe, and were never named in the subsequent action.

Yet the SEC’s New York office saw fit to begin the current case after Gibraltar had ceased business in March 2013.

“What is clear from this chain of events is that the SEC could have brought the instant action years before it finally did, named Davis and Gibraltar in the Miami action covering the same trading activity, or combined the actions against them in New York or DC,” the Bahamian duo alleged.

“Instead, the SEC has subjected the defendants to multiple investigations and actions spanning over five years. Thus, it is plaintiff who is truly responsible for any delay in this case.”

As for the SEC’s claims that they faced no client liability or conflict with Bahamian law, Gibraltar and Mr Davis said Mr Rigby and Sean Moree, partner at McKinney, Bancroft & Hughes, had advised otherwise given the former broker’s “precarious state”.

“Defendants have filed an action against the Securities Commission in the Bahamas Supreme Court alleging improprieties by the Securities Commission,” Gibraltar and Mr Davis alleged.

“The matter is currently in the case management conference stage, and it thus is premature at best to suggest at this time that the Bahamas has no legal interest in these issues. Indeed, the existence of the Evidence (Proceedings in Other Jurisdictions) Act indicates that the Bahamas has an interest in precisely these issues.”