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Securities and Exchange Commission v. Gibraltar Global Securities, Inc.

United States District Court, S.D. New York

April 1, 2015

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
GIBRALTAR GLOBAL SECURITIES, INC. and WARREN A. DAVIS, Defendants.

MEMORANDUM AND ORDER

JAMES C. FRANCIS, IV, Magistrate Judge.

An ineffective voluntary liquidation - in effect, a failed attempt at corporate suicide - does not excuse a party from its discovery obligations. This is an action brought by the Securities and Exchange Commission (the "SEC") alleging violations of the federal securities laws. The SEC charges that Gibraltar Global Securities, Inc. ("Gibraltar"), a Bahamian broker-dealer, under the direction of its president and sole shareholder, Warren A. Davis, operated as an unregistered broker-dealer in the United States, in violation of 15 U.S.C. § 78o. (Complaint, ¶¶ 1-2, 4). The SEC also asserts that the defendants participated in the unlawful unregistered offering and sale of shares of a company called Magnum d'Or, in violation of 15 U.S.C. §§ 77e(a) and (c). (Complaint, ¶¶ 3-4).

The SEC seeks the production by Gibraltar and Mr. Davis of all Gibraltar files concerning its United States customers. The defendants have moved for a protective order on the grounds that (1) the documents located in the Bahamas are not within their possession, custody, or control; (2) their disclosure of the documents could expose them to liability in the Bahamas; and (3) in light of considerations of comity, the SEC should be required to use alternative means to seek to obtain the information.

The defendants' motion is denied.

Background

The SEC commenced this action on April 18, 2013. When the defendants issued their initial disclosures pursuant to Rule 26(a)(1) of the Federal Rules of Civil Procedure, they represented that

Gibraltar has retained on its server and in hard copy form documents pertaining to its approximately 1, 200 customers and over 100, 000 transactions as required by Bahamian law. These materials are being preserved. Gibraltar also maintains an email server containing emails dating to approximately 2009. These materials are also being preserved.

(Defendants' Required Initial Disclosures Pursuant to Fed.R.Civ.P. 26(a)(1), attached as Exh. A to Plaintiff's Memorandum of Law in Opposition to Defendants' Motion for a Protective Order, at 4).

On August 29, 2012, Gibraltar's Board of Directors passed a resolution dissolving the company and appointing a liquidator. (Declaration of Raynard S. Rigby dated Dec. 4, 2014 ("Rigby Decl."), attached as Exh. A to Declaration of Philip C. Patterson dated Dec. 5, 2014 ("Patterson Decl."), ¶ 7). Thereafter, on January 31, 2014, Gibraltar sought permission from the Securities Commission of the Bahamas (the "SCB") to surrender its Bahamian broker's license. (Rigby Decl., ¶ 6). The SCB, however, has refused to accept surrender of the license or approve Gibraltar's voluntary liquidation. (Rigby Decl., ¶¶ 6, 8). Gibraltar has responded by filing an action against the SCB in the Bahamas, seeking to compel it to accept the company's liquidation. (Rigby Decl, ¶¶ 4, 6, 8). That matter is still pending. (Rigby Decl., ¶ 6).

Discussion

A. Control

Relevant documents must be produced if they are within the "possession, custody, or control" of the party from whom discovery is sought.Fed. R. Civ. P. 34(a)(1). "[D]ocuments are considered to be under a party's control when that party has the right, authority, or practical ability to obtain the documents from a non-party to the action.'" United States ex rel. Kester v. Novartis Pharmaceuticals Corp., No. 11 Civ. 8196, 2014 WL 6655703, at *3 (S.D.N.Y. Nov. 24, 2014) (quoting Bank of New York v. Meridien BIAO Bank Tanzania Ltd., 171 F.R.D. 135, 146 (S.D.N.Y. 1997))."In the face of a denial by a party that it has possession, custody or control of documents, the discovering party must make an adequate showing to overcome this assertion." Golden Trade S.r.L. v. Lee Apparel Co., 143 F.R.D. 514, 525 n.7 (S.D.N.Y. 1992); accord Securities and Exchange Commission v. Strauss, No. 09 Civ. 4150, 2009 WL 3459204, at *7 (S.D.N.Y. Oct. 28, 2009); Wiwa v. Royal Dutch Petroleum Co., Nos. 96 Civ. 8386, 01 Civ. 1909, 02 Civ. 7618, 2009 WL 529224, at *2 (S.D.N.Y. Feb. 17, 2009). However, where the alleged obstacle to production is foreign law, the burden of proving what that law is and demonstrating why it impedes production falls on the party resisting discovery. See CE International Resources Holdings, LLC v. S.A. Minerals Ltd. Partnership, No. 12 Civ. 8087, 2013 WL 2661037, at *5 (S.D.N.Y. June 12, 2013); British International Insurance Co. v. Seguros La Republica, S.A., No. 90 Civ. 2370, 2000 WL 713057, at *8 (S.D.N.Y. June 2, 2000); Alfadda v. Fenn, 149 F.R.D. 28, 34 (S.D.N.Y. 1993).

Here, the defendants have not met that burden. Section 73 of the Securities Industry Act of the Bahamas (the "SIA"), entitled "Voluntary liquidation, " states:

A registered firm shall not go into voluntary liquidation without the prior approval of the Commission and if proceedings for an involuntary liquidation are commenced against a registered firm the Commission shall be immediately notified in writing by the ...

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