By NEIL HARTNELL

Tribune Business Editor

A BAHAMAS-based broker/dealer yesterday said it had been left "vulnerable" and "exposed to liability" from Canadian sanctions as a result of the Securities Commission's "questionable" decision to hand over information on its clients, and demanded an investigation into the Bahamian regulator's conduct.

Top Gibraltar Global Securities executives, speaking to Tribune Business after 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, urged that the matter - and the Securities Commission's handling of the case - not be "swept under the rug".

Arguing that the episode "sends a bad message" to the global and Bahamian financial services industry, along with the latter's client base, Chris Lunn, Gibraltar Global Securities' compliance director, told Tribune Business the company felt its rights had been "trampled on" by the Bahamian regulator.

He added that in finding that Gibraltar Global Securities was not registered to conduct securities business in British Columbia, the Canadian regulator had relied almost exclusively on documents supplied by the Securities Commission - information which, the broker/dealer contends, it had no good reason to hand over.

Mr Lunn told Tribune Business that Gibraltar Global Securities obtained two separate legal opinions from Bahamian attorneys that concluded the British Columbia regulator, in seeking to obtain details on its citizens who held accounts with the broker/dealer, was engaged "in nothing more than a fishing expedition".

Indeed, 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.

Mr Lunn said no specific details or client names were ever provided to Gibraltar Global Securities, and the company refused a direct British Columbia request in December 2009 for the same account holder information.

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."

But Mr Lunn and Warren Davis, Gibraltar Global Securities' managing director, said the broker/dealer was not informed by the Securities Commission that it had handed over the information from its files. It only realised something had happened when its correspondent brokerage accounts with Global Securities Corporation were frozen on August 5, 2011.

"They came to Gibraltar, did a review of Gibraltar, and during the course of this review took documents from our files and sent it to British Columbia," Mr Lunn said.

"We've never heard of a case where the regulator comes in, does an inspection, takes documents from the file and, without telling you, sends them to a foreign regulator."

Pointing to the impending June 2012 sanctions hearing against Gibraltar Global Securities in British Columbia, as well as the existing cease trade order, Mr Lunn added of the Securities Commission's actions: "At the end of the day, it has put us in a vulnerable position. It has exposed us to some liability in British Columbia.

"What concerned us was, the thrust of their case referenced the information provided to them by our regulator, the Securities Commission of the Bahamas. We felt what rights we had in the Bahamas have been trampled on by the regulator. We got two legal opinions that it was a fishing expedition; what's to stop them doing this with other companies?"

"It doesn't send a good message to their [the Commission's] licensees, to people employed in this sector, as well as to the clients." Mr Lunn said the Canadian regulator had also used the information provided to contact clients directly.

Despite numerous messages to obtain a comment from the Securities Commission, Tribune Business was unable to do so. This newspaper was told Dave Smith, the executive director, was out of office, while a phone message left for senior in-house counsel, Mechelle Martinborough, was not returned.

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 response, Mr Davis pledged that Gibraltar Global Securities would appeal the BCSC decision, while Mr Lunn vehemently denied that the broker/dealer had ever been involved in - or facilitated - criminal activity or wrongdoing.

"We have not been involved in any criminal activity or wrongdoing, and are running a business within the confines of the law," Mr Lunn told Tribune Business.

He added that Gibraltar Global Securities had operated its British Columbia correspondent accounts for many years, and its correspondent broker had been registered in the territory, so it assumed it was "compliant" as well.

Mr Davis accused the British Columbia regulator of "throwing mud at the wall and seeing what sticks" in a bid to smear Gibraltar Global Securities, and support its actions.

"The cards were stacked against us from the beginning," he told Tribune Business. "We are not surprised at where we are, but more so disappointed at how we got here. We were disappointed, but not surprised, at the outcome."

Describing the Securities Commission's decision to release the information was "questionable and inappropriate", Mr Davis added: "The BCSC, before applying significant pressure, and the Securities Commission prior to succumbing to that pressure, was unable to identify any BC clients that may or may not have had accounts with Gibraltar Global Securities.

"There was also no question of any crime or wrongdoing on the part of Gibraltar Global Securities or its clients. We are of the view that the release of this information by the Securities Commission prejudiced one of its own licenses and has exposed us to liability.

"We feel that our sovereign rights were violated and that the actions of the Securities Commission jeopardised the jobs and well being of Gibraltar Global Securities. The fact of the matter is that the Securities Commission, through the release of this information, has placed one of its own licensees and the employees of the licensee in a precarious position, coming at a time when the financial services sector is under pressure with firms laying off Bahamians and no real expansion.

"On the other hand, Gibraltar Global Securities is a fully-owned Bahamian-based firm employing close to 20 employees....... We believe that the handling of this matter should be thoroughly reviewed, as it has significant implications not only for Gibraltar Global Securities, its clients, its employees but for the entire Bahamian financial services industry."

And Mr Lunn reiterated: "We feel it is necessary that this matter be reviewed at the local level. It's very questionable how this information was turned over, and how the sovereign rights of a licensee in the Bahamas were affected in this case.

"We're asking that this matter be reviewed. It shouldn't go without any secondary follow-up. This has put us at a very bigs disadvantage, and we feel it should not be swept under the rug."

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."