The Court of Appeals is poised to rule today on a Supreme Court declaration which authorised Lines Overseas Management to disclose telephone recordings and documents to US regulators in compliance with subpoenas served on LOM managing director Scott Lines two years ago.

Given the importance of the case, Justices Sir Murray Stuart Smith, Edward Zacca and Gerald Nazareth who only heard the appeal two days ago, said they would consider the matter immediately.

Puisne Judge Geoffrey Bell ruled earlier this year that LOM was entitled to make disclosure of confidential client and employee records to the US Securities and Exchange Commission on the grounds that in the absence of an injunction restraining compliance, there would be serious consequences for LOM and Scott Lines.

The SEC subpoenas relate to probes of alleged market manipulation involving Sedona Software, SHEP Technologies and Inside Holdings.

Lawyer Timothy Marshall, who represents former LOM president and appellant Brian Lines, told the Court of Appeals that Justice Bell made the declaration on the grounds that it was in the interests of LOM to avoid what Mr. Marshall deemed the ?hypothetical possibility? of a contempt of court proceeding in the US.

He argued that LOM was not excused from its duty of confidentiality to its clients and employee Brian Lines on the grounds of its own interest because there was little evidence of any adverse effect on LOM.

But Lawyer Paul Smith, for LOM, argued the subpoena itself threatened sanction for non-compliance and pointed out that Mr. Justice Bell had noted that breach of a court order such as a subpoena usually results in deleterious consequences.

The Court of Appeals commented that the subpoena can only be exercised in the US, so Scott Lines would have to be physically present there for it to be enforced.

In his ruling, Justice Bell granted an injunction preventing LOM from disclosing Brian Lines? personal or legally privileged telephone conversations or transcripts of interviews with the Bermuda Monetary Authority to the SEC.

Mr. Marshall also noted that foreign courts generally respect foreign injunctions, so it would be difficult to see how a US court was going to hold a company in contempt in face of such an injunction.

Mr. Marshall presented a number of other lines of argument on his client?s behalf including one that had not been presented to the Supreme Court.

He argued that the injunction protecting Brian Lines? personal information could be extended to include Brian Lines? conversations related to the three companies under SEC scrutiny.

He pointed to an affidavit by Scott Lines which was sworn in support of LOM securing the declaration and offered an overview on the transactions involving Brian Lines and the three companies being scrutinised by the SEC.

In that affidavit, Mr. Marshall said Scott Lines made it plain that Brian Lines? communications were not for the benefit of LOM but rather for his own personal benefit.

?If we accept Scott Lines? evidence, then the relief Justice Bell gave to prevent the personal affairs of Brian Lines being released covers any discussions he (Brian Lines) had regarding the three companies,? Mr Marshall said.

Save for one element related to a private placement, the injunction ought to cover the buying and selling of shares for Brian Lines, his family and trusts for his and his brother?s families, he said.

?It is quite clear anything of a personal nature ought not be released to the SEC because Brian Lines had an interest in protecting his own privacy right,? Mr. Marshall said.

Mr. Smith said that since the matter had not been argued in the Supreme Court it should be returned to Mr. Justice Bell so he could resolve whether the calls regarding the three companies were covered by the injunction protecting personal information.

Brian Lines? authority to act on behalf of the LOM customers, whose documents and telephone conversations would be disclosed to the SEC in compliance with the subpoenas, was another issue at appeal.

In his ruling, Mr. Justice Bell said there was no evidence whatsoever to suggest that Mr. Lines had authority to act on behalf of customers. Mr. Marshall argued before the Court of Appeals that Brian Lines, as stockbroker, developed a confidential relationship with those clients in the same way that an attorney had a duty to protect a confidential relationship with a client.

Employment contracts require employees to keep the affairs of their employers and customers confidential, Mr Marshall said.

?If an employee has a duty of confidence to maintain, why can?t that employee have a corresponding duty if he so chooses to protect confidence when he sees an ex-employer release information??

As in the Supreme Court, the effect of Section 61 of the Telecommunications Act also came under scrutiny during the appeal.

Throughout the period relevant to the SEC subpoenas, LOM operated a system whereby all telephone calls including those on the extensions of Brian and Scott Lines were recorded.

Mr. Marshall said the idea of recording phone conversations to resolve trading disputes at LOM had been Scott Lines? idea and while Brian Lines knew the company was recording calls made at the trading desk, he was not aware that calls were being recorded on his own lines.

Brian Lines? evidence that he was not aware and had never authorised the recording of telephone conversations from his office telephone runs contrary to an affidavit in which Scott Lines stated that while no consent had been given, he and Brian Lines and other staff of LOM were aware that recordings were being made.

Mr. Marshall argued that Section 61 of the Telecommunications Act should be interpreted to mean that an employer cannot record or cause the recording of telephone conversations without the consent of the employee. As such unauthorised recordings could not be presented to the SEC.

Throughout the proceeding the Court of Appeals noted little evidence had been presented to explain the nature of the SEC?s inquiry into the three companies.

LOM lawyer Paul Smith responded that the SEC was investigating whether violations of security fraud took place although no allegations of criminal conduct had been laid.

?The subpoenas are assisting the SEC to discover whether to bring a regulatory charge,? he said.

The Court of Appeals then questioned why, if the SEC thought there was possible fraud involved, they had not stated this to be the case.

Justice Zacca pondered whether the SEC had suspicions and was simply going no a ?fishing expedition?.

The Crown represented by Solicitor General Wilhelm Bourne, which has also taken the view that disclosure is in the public interest of Bermuda, said he would give the benefit of the doubt to a ?responsible regulatory authority such as the SEC which is in business for many years and would not necessarily assume a fishing expedition?.