Former Lines Overseas Management (LOM) president Brian Lines suggested to attorneys that they destroy a letter that referred to a deal involving the Bermuda-based broker and investment company because it would not look good to regulators.

The evidence, taken from conversations taped on LOM's in-house recording system, appears in a motion filed with a New York court on February 25 this year from the US Securities and Exchange Commission (SEC), to support the allegation of the Bermuda company's involvement in securities fraud seven years ago.

In a conversation in January 2003, Mr. Lines told the attorneys who had written to Canadian national John Cooper to confirm that he had authorised the sending of a quantity of company shares to LOM: "So maybe if we can agree to destroy that letter, that would be appreciated, basically." According to the motion, Mr. Lines went on to say that "from an SEC perspective, that's not a good letter".

The SEC claims that Mr. Lines' call came after Mr. Cooper had urged him to bring the attorneys "into toe", following a call from the SEC. The shares in question were those of Sedona Software Solutions Inc., one of two shell companies at the centre of the SEC probe.

The taped conversation was one of several recordings of telephone calls involving Brian Lines that were turned over to the SEC in discovery after Mr. Lines lost a legal battle to keep them private.

The SEC claims that in the two alleged schemes, LOM and their accomplices artificially drove up the stock prices of two publicly-traded shell companies, Sedona and SHEP Technologies Inc., through the issuance of false and misleading information and price manipulation and then, while recommending that their clients buy shares in the companies, secretly sold their own stock.

In another of the taped conversations, Brian Lines informed Vancouver-based LOM client and alleged scheme participant William Todd Peever that the deal involved "selling paper" and told him that "we are going to make some good coin on this one", according to the SEC.

The SEC is seeking a partial summary judgement in a civil case that the regulator claims comprises "two simple pump and dump securities frauds". The defendants, who include Brian Lines, his brother and the LOM chief executive officer Scott Lines, Canadian national Anthony Wile, as well as LOM and several LOM subsidiaries, have applied to have the majority of the SEC's allegations dismissed.

"In the Sedona scheme, the Lines brothers' trading yielded approximately $1.5 million in illegal proceeds," the SEC stated. "In the SHEP scheme, trading by the Lines brothers and two of their customers, Defendants W. Todd Peever and P. James Curtis, yielded approximately $4.3 million in illegal proceeds."

According to the SEC, Sedona stock was selling at more than $8 per share just seven months after it was trading at three cents. The regulator said the Lines brothers sold $1.5 million worth of Sedona shares the week before the SEC halted trading.

The motions have not yet been ruled on by US District Judge Denise Cote, but LOM's lawyers believe a ruling may be imminent.

"Any trial date will be scheduled once the court makes any such rulings," an LOM spokesman told The Royal Gazette. "In the event the matter does go to trial, LOM and Scott Lines will mount a vigorous defence.

"Most of the SEC's claims are without merit, and we are very optimistic in light of the evidence, numerous depositions and expert analysis that was collected during the one-and-a-half-year discovery process."

The SEC claimed that in an attempt to conceal their trading activity, the Lines brothers "enlisted several friends and associates" to serve as "signature directors" of "various nominee companies" that the Lines family secretly controlled. These included several Bermudians.

LOM and the Lines brothers have denied these claims and have stated, in each case, the business opportunity they were working towards was genuine. In a motion filed on March 5 this year, in opposition to the SEC's motion, the defendants said they "had no motive whatsoever to defraud" LOM's long-term clients. They also accuse the SEC of having a lack of evidence and a lack of witnesses to support its claims.

In the case of Sedona, the opportunity was based around gold mines in Central America. LOM raised $3.3 million for a private placement, for which it received a $284,000 commission, the SEC said. The offering company, Renaissance Mining Corp. had signed a letter of intent to acquire the three mining properties. Renaissance was due to enter into a "reverse merger" — a process through which a private company goes public by merging with a non-operating public company, known as a "shell" — with Sedona.

In public statements and press releases in January 2003, Renaissance said it had purchased mines and that the mines were already producing, neither of which was true, claimed the SEC.

After the promotional material had been released, Mr. Wile referred to investors in Renaissance as "poor lambs" and "sheep" in one telephone conversation with Brian Lines, the SEC claimed.

An LOM spokesman stressed that this was not how anyone at the company talked about its clients.

"While some of the quotes used in the article sound offensive, they were made by the client to Brian Lines," the LOM spokesman said.

"LOM and its staff cannot control comments or remarks made by anyone, however Mr. Wile's comments need to be placed in the context in which they were made.

"LOM has never deceived our clients and continue to hold ourselves to the highest degree of accountability."

The SEC says that the Lines brothers secretly owned and controlled 99 percent of Sedona — a claim the brothers have denied.

Graham Redford, who is president of the Bermuda Employers Council, Stuart Smith and Richard King were among a group of investors who "expressed willingness" to participate in the purchase of Sedona, through the corporations that they owned — Clyde Resources Ltd., Warwick Ventures Ltd. and Iguana Investments Ltd. respectively — the Lines claim. Their discussion with Brian Lines took place over lunch at a pre-Christmas lunch at an Italian restaurant in 2002.

Two others, Kevin Winter and Glynn Fisher, also agreed to participate, after discussions with Brian Lines.

All of those approached were "sophisticated individuals with experience in this sector of the marketplace", the Lines state, and all those who took part were beneficial owners of their respective Sedona shares.

However, the SEC, in its motion, cites testimony from Mr. Smith, who said that he "never made the decision to buy Sedona stock" and that he had been asked to be a director of Warwick by Brian Lines. His duties were to sign paperwork in return for a payment of $2,000 a year, the SEC said.

The SEC also cites a phone call when Brian Lines asked Mr. Redford whether he had been contacted by the SEC. Mr. Redford told Mr. Lines that when asked about Clyde, he said: "I know nothing about Clyde, any inquiries, direct them to LOM." Brian Lines responded: "Good."

When asked by Mr. Lines about what he had told the SEC about the address of Clyde in the Bahamas, Mr. Redford said he had told the regulator: "I don't know." Mr. Lines responded: "Yeah, probably the best thing to say."

In their motion for a summary judgment, the Lines brothers denied artificially pumping up the Sedona stock price through trading manipulation.

They backed up their case through evidence from Jennifer Bethel, the former chief economist of the SEC's division of corporate finance.

Ms Bethel reviewed data on Sedona trading and stated that she found there was nothing to support the allegation that the trading was manipulative, noting that more than 90 brokers traded Sedona stocks during the seven days prior to their suspension and that vFinance, the US market-maker that LOM used for most of its transactions, accounted for 12.7 percent of Sedona's volume over that period.

According to the Lines brothers, the Renaissance Mining private placement, which was part of the Sedona deal, was never completed, as alleged by the SEC, but was cancelled as a result of the SEC's investigation.

"LOM's customers thus never received binding subscription agreements to sign, parted with no funds to buy Renaissance stock, and consequently lost nothing when the Renaissance placement did not go forward," according to the motion for summary judgement.

Brian and Scott Lines had indeed "reached out to their highly valued foreign customer base to assess whether there was interest in the forthcoming Renaissance private placement" but they did not actually make an "offer for sale" and, therefore, they could not have committed fraud as a matter of law, it was claimed.