Global Investment Strategy UK Ltd (GIS) and its principal and founder John William Gunn have failed to secure dismissal of a lawsuit brought by the United States Securities and Exchange Commission (SEC). This becomes clear from an order signed by Judge Alvin K. Hellerstein of the New York Southern District Court on October 19, 2021.
Let’s recall that, in December 2020, the SEC charged Global Investment Strategy UK, a London, UK-based financial services firm, for clearing and settling billions of dollars of U.S. securities transactions without registering as a broker-dealer in violation of the federal securities laws. The SEC also charged John William Gunn with aiding and abetting those violations.
The defendants moved to dismiss the Complaint for insufficient service of process and for lack of personal jurisdiction, as well as for failure to state a claim upon which relief may be granted.
In his order, seen by FX News Group, the Judge denied the motion to dismiss.
The Judge noted that, although Gunn is not subject to general jurisdiction because he is a U.K. citizen, residing in Hong Kong, the Judge holds that Gunn is subject to specific jurisdiction. The Complaint makes the following allegations: Gunn “directed and was involved in all aspects of GIS’s operation, including its brokerage activities for U.S. customers.” He “travelled to the Unites States, including to Manhattan, on a number of occasions to meet with U.S. customers.” He solicited business from U.S. customers in signed emails, indicating that he was “very happy to discuss [GIS’s] services with [them] further.”
“Gunn communicated with the [U.S.] backers and sub-account traders regarding opening and closing accounts at GIS,” and he “assisted the day traders in setting up the delivery versus payment accounts at the U.S. introducing brokers.”
The Judge finds that Gunn has more than “minimal contacts” with the United States, not only traveling here and soliciting business from U.S. customers but also engaging in transactions related to securities bought and sold on the U.S. Exchanges. In addition, the Judge finds it reasonable to exercise jurisdiction over Gunn because in seeking to facilitate U.S. Exchange-based securities transactions, Gunn could reasonably anticipate being haled into a U.S. court to account for the consequences of his actions.
Further, GIS and Gunn move to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. They claim they were not engaged in brokerage activity, and their alleged misconduct is subject to regulation by the Federal Reserve Board, and not under the jurisdiction of the SEC.
As an initial matter, the Court rejected Defendants’ contention that the regulatory authority granted to the FRB ousts the SEC of jurisdiction. The Judge stressed that Defendants offer no authority, in statute or case law, to support this argument. That the FRB has authority to regulate lending does not restrict the SEC’s statutory authority to regulate broker-dealers, simply because broker-dealers engage in lending activities subject to regulation by the FRB.
As to the sufficiency of the allegations regarding GIS’s violation of Section 15(a), the Complaint alleges that GIS performed many of the functions that courts routinely recognize as brokerage activity. The Complaint alleges that GIS handled customer funds and securities.
Contrary to Defendants’ assertions, the Complaint does not merely allege that GIS extended credit or provided margin. Rather, it alleges that GIS engaged in a host of broker activities, essentially the back-end credit and clearing services for securities transactions— services that were integral to and necessary to “effect securities transaction.”
That is why, the Court concludes that the Complaint plausibly alleges that GIS was engaged in brokerage activity, requiring it to register with the SEC.
This means that the lawsuit continues and the defendants will have to respond to the SEC Complaint.