Bermuda-based investment firm Lines Overseas Management is in a face-off with its home regulator as well as taking on regulatory authorities in Canada and the US.

What is at stake in this battle is whether or not LOM should be required to turn over client information to regulators, or if so-called ‘privacy laws' can lawfully preclude it from doing so.

In actions by the British Columbia Securities Commission (BCSC) and the US Securities and Exchange Commission (SEC), LOM has been asked to hand over information in regards to trades it made in a number of companies.

The BCSC filed a notice of hearing on May 20 against LOM, for its failure to release information on its transactions in Canadian company, San Telmo Energy Ltd., between June, 2002 and July, 2003.

The SEC has taken similar action, with their issuing four subpoenas on the company and its managing director, Scott Lines, after civil investigations that began in 2003 and allege securities fraud.

The SEC's probe is into trading by LOM of three securities - HiEnergy Technologies Inc, Sedona Software Solutions Inc, and Shep Technologies Inc.

Besides asking that Scott Lines appear before the Commission personally, the SEC asked for all telephone records from both Scott Lines and his brother, LOM director Brian Lines, for both landline and mobile phones between December 1, 2002 through February 28, 2003.

In addition, the SEC also asked for a host of documents showing beneficial ownership in a numerous companies LOM traded in, as well as unedited copies of documents that were turned over to the Bermuda Monetary Authority in regards to the probe. In both cases, LOM has said that laws in the jurisdictions it is operating in - Bermuda, Bahamas and the Caymans - prevent it from handing over the requested information.

And LOM revealed yesterday that the requests for information from outside regulators, had prompted home regulator, the Bermuda Monetary Authority (BMA), to conduct its own investigation, beginning in June 2003.

The BMA is also moving to strengthen legislation that deals with the sharing of information with outside regulators, with those close to the matter saying it is imperative for Bermuda's reputation that there be no question that the BMA can require companies to turn over documents, when requests are legitimate.

Meanwhile, LOM has itself taken to the courts regarding the interpretation of Bermuda legislation when it comes to the sharing of customer related information with foreign regulators.

LOM chairman Donald Lines, in a January interview, said the company had taken the legal action against the BMA as changes to this law could have a detrimental impact on the Island's wealth management business.

“This is a matter of principle,” said Mr. Lines about the writ that was filed at the end of December, 2003 and added that changes to the law could “affect all business in Bermuda not just LOM”.

In a Press statement issued on Monday night, LOM said: “Based on the legal opinion of a senior Queen's Counsel in London in December 2003, LOM was concerned that providing client-specific information requested on behalf of foreign regulators could open LOM to potential liability. LOM therefore filed a motion in the Supreme Court of Bermuda asking the Court to review the legislation and make a determination of the meaning of the law.” LOM said it had, pending the outcome of that hearing, put “documents responsive to the single request regarding Sedona and Shep made by the BMA (on behalf of the SEC) subsequent to December 18 were collected and placed in escrow”.

But LOM maintained that their actions with those documents were not taken to “foreclose the SEC's access to LOM records, but rather to clarify a very important principle in Bermuda law”.

Yesterday it became clear that Government planned to move ahead on amending legislation to strengthen “beyond doubt” the BMA's authority to require companies to hand over information to foreign regulators, as demanded.

In a circular being sent out to the industry by Government, the Finance Ministry said it would amend the Bermuda Monetary Authority Act 1969 “in order to clarify the powers vested in Authority to exchange information with foreign regulators”.

A closed industry meeting on the matter has been called for Friday, and Financial Secretary Donald Scott told The Royal Gazette yesterday that the amended legislation should come before the House in the next month.

For its part, the SEC said its view was that LOM could not be prevented from cooperating with much of the US investigation even if ‘secrecy laws' were in place in these jurisdictions.

In specific, the SEC said it doubted whether secrecy laws would prevent LOM and its principals, Brian and Scott Lines, from answering “the numerous questions” the Commission wanted to ask the Lines brothers, which were said to relate to the “operations of LOM” as well as to their own conduct.

“Surely, these topics do not all implicated the secrecy laws of Bermuda, Cayman or the Bahamas,” an SEC motion on June 8, naming LOM and Scott Lines as respondents, said.

It added that there were also additional questions to be asked in regards to documents that had already been produced either directly by LOM or through the BMA.

“Again, such questions would not implicate any secrecy laws, even if they were applicable,” the SEC document said, and accused LOM and Mr. Lines of “flagrant disregard for the SEC”s authority,” by refusing to “appear for testimony altogether”.