Bermuda-based investment firm Lines Overseas Management yesterday refuted any wrongdoing alleged in a recent motion filed by the US Securities and Exchange Commission (SEC) - and vehemently denied that it had profited to the tune of $6.4 million, as claimed in the application.

On June 8, the Commission - as the body charged with regulation of all companies listed on American stock exchanges - accused LOM in a motion to the Court of failure "to show cause why they should not be ordered to comply with four administrative subpoenas" served on April 20, 2004.

The company and its managing director Scott Lines were reportedly issued the subpoenas by the SEC on April 20, 2004 at the Miami International Airport, while Mr. Lines was said to be on a medical visit to the US for "tests relating to a heart problem".

The SEC's request for information was said to relate to its investigations into possible fraud, market manipulation and reporting violations by LOM, and its principals including Scott Lines' brother Brian Lines, also a LOM director, in their trading of the securities of three US-listed companies: Sedona Software Solutions, SHEP Technologies and HiEnergy Technologies.

The SEC's application to the court last week follows LOM's and Mr. Lines' alleged failure to comply with any of the subpoenas' requests, including handing over documents related to the investigations, as well as an order to appear for testimony in Washington DC on May 4 and 5, 2004.

But yesterday LOM, in a Press statement, said the extent of its profit from trading in the three companies was about $500,000, over an extended period of time - not the millions alleged by the SEC.

"LOM would like to make it clear that its principals have not made $6.4 million from illegal securities trades. They have not been involved in stock manipulation. No customers of LOM have been damaged in these matters and LOM has received no complaints or concerns from any customers," the company said.

In addition, LOM said that the returns generated by its trades in these three companies was not out of the ordinary.

LOM said it had "not made profits anywhere near the extraordinary and unsubstantiated amounts claimed by the SEC, nor are the profits made in Shep Technologies unrealistic when related to the size and timing of the investment, or of the market environment at the time. Furthermore these transactions can not be considered substantive in relation to the principals normal trading activities or the amounts they have invested in the securities markets."

SEC lawyer on the case, Yuri Zelinsky, yesterday told The Royal Gazette that he was not in a position to say any more on the SEC's case against LOM as the matter was now in the hands of the court.

If the court approves the SEC application, LOM and Scott Lines would have to come before the court to say why the terms of the subpoenas had not been met. Mr. Zelinsky said he was hopeful this would happen in the "near future".

For its part, LOM said yesterday that it intended to fight the SEC's motion, and said its view was that the Commission had no jurisdiction to issue the subpoenas.

But the Commission claimed that it was within its rights to issue the subpoenas, and pointed out that the SEC said that neither Mr. Lines, nor LOM, had contested the subpoenas that were issued by the Commission.

The SEC said that LOM has claimed "in several conversations with the SEC staff between April 26 and May 11 that the company is prohibited from producing any of the asked for documents by laws in the Bahamas, Bermuda and in the Cayman Islands".

But the SEC said LOM had not cited any specific laws, and indeed, that Mr. Lines and the company would not be in violation of 'secrecy laws' in the various jurisdictions, for answering questions that related to the operations of the company and the conduct of himself, and brother, Brian Lines. The SEC added that LOM, the Lines and their lawyers "have refused to represent to the (SEC) staff that their clients would comply with the subpoenas at some future date".

And the Commission shot down LOM's assertion that they could not comply with the subpoena requests because of laws in the jurisdictions in which they do business.

In the concluding paragraphs of the 102- page court filing, the SEC found that "Scott Lines has no legal defence for not appearing for testimony".

It added: "Scott Lines' failure to appear for testimony in response to a validly served SEC subpoena is reprehensible. There is absolutely no legal basis for his failure to appear," it said.

The SEC said it needed to have access to this information for its "investigations that (have) been authorised for the protection of public investors," and that Mr. Lines' failure to comply, both personally and on behalf of the company, could only be seen as an attempt to hide from the allegations.

The Commission said it could only "assume that he (Scott Lines) was attempting to shield his own potentially illegal conduct from scrutiny under the guise of customer confidentiality". The SEC's action follows LOM coming under pressure last month from Canadian regulator, the British Columbia Securities Commission, who cited the company for failure to provide information requested in regards to trades made in Canadian company, San Telmo Energy Ltd., listed on the TSX Venture Exchange. A hearing date in that matter has been set for October 5 and 6.

In regards, to the SEC investigation, LOM yesterday said: "LOM believes the service of the subpoenas was improper, and LOM is precluded by local laws from releasing the information requested with respect to customers' accounts. Because LOM has been unable to provide the requested information, the SEC has taken the most recent step of asking a US court to enforce the outstanding administrative subpoenas. It should be noted that this is a civil matter only, and that no charges have been brought. Our lawyers have been in contact with the SEC regarding the subpoena and contrary to their assertions have not ignored their requests."

In their Press statement, LOM also claimed the SEC investigation should not raise alarm bells as "regulatory investigations are not unusual for any large active broker-dealer".

However, the company did indicate that the matter had also been taken up by local regulator, the Bermuda Monetary Authority (BMA), although the outcome of that investigation was not known.

LOM also indicated that it was taking the matter seriously enough to have launched their own internal probe into the trades made in these three companies, but that it had uncovered no wrongdoing.

"Because of the allegations made to the BMA by the SEC, the BMA decided to do its own investigation, which it launched in June, 2003. LOM welcomed this and hoped that once completed, the findings could be used to satisfy the SEC's concerns. This investigation was substantially completed and an initial draft report completed in October, however despite repeated requests, the BMA has not shared this report or its findings with LOM.

"The LOM audit committee also launched its own internal investigation in mid-2003, retaining senior US legal counsel to review documents and interview staff. All profits resulting from sales of Sedona shares by accounts in question were frozen by the LOM Executive Committee in February 2003, pending resolution of the investigations."

And the company said it was in a position to "strongly refute the SEC's allegations of fraud and market manipulation" in the Sedona case, and found "no evidence of any improper trading through LOM accounts".

Contrary to the SEC's assertion that LOM and its representatives had not complied with the investigation, the company, in a Press statement issued on Monday night, said: "LOM has been cooperating with the SEC and Bermuda regulators to the extent possible since the investigations began".

However, the SEC stated the contrary in its filing, saying that "neither Lines nor LOM have contested the service or the validity of the subpoenas".

Meanwhile, LOM said it hoped to convince the court in Washington that the SEC was out of bounds in its actions, and to "urge the American court to tell the SEC that it must recognise that it acts in a global community, and while eager to obtain information about LOM's customers, it must respect the duties imposed by the laws of other nations, even smaller nations.

"LOM will also urge the American court to tell the SEC that it should pursue the international procedures available to it to obtain documents and information from citizens of other nations, and not unilaterally seek to enforce American administrative subpoenas against entities and persons in other countries."

The company concluded: "LOM is confident that the evidence will demonstrate that LOM and its personnel have not violated the securities laws of the United States or any other jurisdiction."