Made millions from alleged law breaches
But held off Securities Commission for year
And able to flee jurisdiction for St Vincent
Tribune Business Editor
A former Bahamian broker/dealer, which held the Securities Commission at bay for more than a year, has been charged with making millions of dollars through violations of US federal law.
Guy Gentile andMintBroker International, the former Swiss America Securities, were this week accused by the Securities & Exchange Commission (SEC) of enabling thousands of American clients to circumvent the rules by operating as an unlicensed broker/dealer from their Bahamas base.
The SEC, which has long targeted Mr Gentile and his operations, credited assistance from itsBahamian counterpart in helping build a case against a broker/dealer that was said to have expanded over an eight-year period to employ 75 local staff with 40,000 customer accounts and $10m in assets.
Mr Gentile did not respond to Tribune Business phone and e-mail messages before press time last night.However, this newspaper can reveal that he managed to successfully hold-off the Securities Commission of The Bahamas own efforts to initiate regulatory action until MintBroker International and its business had managed to flee the jurisdiction for St Vincent and the Grenadines.
Represented by Philip Davis QC, the Oppositions leader, Mr Gentile successfully obtained a Supreme Court injunction to overturn the Securities Commissions five-day suspension of MintBroker Internationals licence in late September 2019.
Healso launched a Judicial Review challenge on the basis that the Securities Commission had exceeded its authority and was not properly exercising its power in relation to the five-day suspension,with the combined legal moves thwarting the regulator by tying the matter up for over a year in the Supreme Court.
Christina Rolle, the Securities Commissions executive director, in a March 1, 2021, affidavit obtained by Tribune Business confirmed that Justice Ruth Bowe-Darville had set aside both Mr Gentiles injunction and Judicial Review challenge.
In summary, the Judicial Review application failed, Ms Rolle alleged. In her oral decision, her ladyship [Justice Bowe-Darville] was not satisfied that there was any unreasonable conduct on the part of the Commission finding, among other things, that the Commission did not act for an improper purpose, and there were several breaches committed by Swiss America Securities both before and after the Judicial Review matter.
John Delaney QC, who represented the Securities Commission in the case, subsequently told this newspaper that the judge had found Mr Gentile and his companies had failed to give full and frank disclosure.
Ms Rolles affidavit revealed that a written ruling is still awaited from the judge, who gave an oral decision back in November 2020. In the meantime, well-placed sources said Mr Gentile used the wait for a verdict to wind-up his company without the Securities Commissions approval in a breach of Bahamian law, and transfer the entire business and client portfolio to St Vincent and the Grenadines.
Mr Gentiles near decade-long stay in The Bahamas wasboth colourful and controversial, featuring numerous regulatory battles in both this nation and the US. He even enjoyed several successes in defeating SEC actions against himself and his businesses in the New Jersey federal court.
The US capital markets regulator is persistent, though, and has now come back with a south Florida lawsuit that alleges Mr Gentile and his Bahamas broker/dealer - which operated in this nation from late 2011 to at least November 2019 - breached federal securities laws by soliciting American clients despite not being registered/licensed to conduct business there.
The SEC, in itsMarch 22, 2021, lawsuit alleges that MintBroker International, which did business under the name SureTrader, operated an offshore broker/dealer in The Bahamas designed to help day traders in the United States circumvent the USrules that regulate pattern day trading.
Claiming that this started almost from the moment Mr Gentile arrived in The Bahamas and set-up his broker/dealer in Bay Streets Elizabeth on Bay Plaza in downtown Nassau, the SEC implied that this rules-breaching strategy was critical to the businesss survival.
With only about 100 customers and bleak business prospects, Gentile recognised that SureTrader would go out of business absent an influx of new customers, the SEC alleged. Gentile focused his gaze on the US, where pattern day traders are subject to the Financial Industry Regulatory Authoritys (FINRA) Pattern Day Trader Rules.
Asserting that Mr Gentile began marketing SureTrader as a way to avoid the rules by trading through an offshore broker-dealer, the SEC added: Lest US customers miss the point, SureTraders website explicitly advertised itself as a way to avoid the nasty PDT [Pattern Day Trading] rule.
Gentiles plan worked. At various times, up to 80percentof SureTraders customer base was comprised of UScustomers. SureTrader grew from a three-man shop to one with 75 employees, more than 40,000 customer accounts and assets of more than $10 million. According to Gentile, SureTrader effected transactions in excess of $1bn on behalf of its customers.
And Gentile and SureTrader profited from the broker-dealer services they provided. US customers paid SureTrader commissions on their transactions to the tune of millions of dollars.
And, in failing to comply with US laws that require all broker/dealers to be registered there if they are seeking US clients, the SEC alleged that Mr Gentile and his business were able to avoid regulations subjecting them to its regulation and oversight, plus strictures on financial record-keeping.
Noting that all MintBrokers accounts were transferred to F1Trade Ltd, a St Vincent and Grenadines broker that appeared to be run by several of Mr Gentiles management executives, the SEC action also noted how the Securities Commissions attempted regulatoryintervention.
In September 2019, the Securities Commissionsuspended SureTraders broker/dealer registration for five days based on, among other things, concerns regarding whether SureTrader customers orders were entered into the market as represented and for failing to disclose the existence of Canadian and UK subsidiaries, the SEC alleged.
In March2020, the Securities Commissionfiled with the Supreme Court of the Bahamas a winding up petition seeking a court-supervised winding up of SureTrader and the appointment of a joint provisional liquidator to take possession of SureTraders books and records. The litigation is ongoing.
So-called pattern day trading involves persons, who are trading on margin andusing borrowed money secured by their securities holdings, trading in the same stock (buying and selling) on the same day. They repeat this four or more times in five days, with the transactions worth more than 6 percent of the clients total trading activity.
FINRA, according to the SEC, has identified such trading patterns as high risk - especially for persons with limited means and financial resources - and implemented rules to govern these practices as a result.
The US capital markets regulator alleged that Mr Gentile and MintBroker International did not require their clients to comply with these rules, allowing customers to open an account and trade with as little as $500 and no margin account balance.
As of October 25, 2017, Suretrader.com attracted over 5,759 visitors per day and, as of December 14, 2017, approximately 56percentof the traffic to SureTrader.com for the prior three months was from the US, with the next highest concentration of traffic coming from Italy with 4.2percent, the SEC claimed.
According to a sample of IP addresses, from about 2016 until about 2017, more than 50percentof trades placed by SureTrader were for UScustomers. The US regulator also alleged that Mr Gentile and his company sought to conceal their solicitation of American clients by requiring them to sign account opening documents denying this had occurred.
And the web-based Internet Protocol (IP) blocker telling that was added to SureTraders website in October 2017, saying it was not intended to solicit US clients, was branded as nothing but window dressing by the SEC which alleged that the company was still directly advertising to them via its affiliates and social media.
As a result, the SEC is seeking a permanent injunction against Mr Gentile and his businesses to bar them from such conduct in future, along with an order that they disgorge all ill-gotten gains and proceeds generated by their conduct.
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