A US regulator investigating LOM and its principal officers for alleged securities fraud is trying to secure taped interviews between the Bermuda Monetary Authority and employees at LOM Holdings, including two senior officers Scott Lines and his brother Brian.

The BMA recorded the interviews in 2003 as part of its investigation into the trading of the American security of Sedona Software Solutions Inc., however the tapes are now in the hands of LOM or its agents.

The US Securities and Exchange Commission wants the tapes in connection with its own investigations into alleged securities fraud involving shares issued by Sedona Software Solutions Inc. and SHEP Technologies Inc., both of Vancouver, Canada, and HiEnergy Technologies Inc., of Irvine, California. Evidence from its investigations has led its enforcement officers to LOM and Scott Lines as “potential key actors in the schemes”, according to documents filed with a US court.

LOM and Lines deny any wrongdoing.

While the SEC does not normally speak about ongoing investigations, hundreds of pages of details surrounding these probes have been entered into the public domain because the SEC has sought court help to obtain information from LOM concerning its “extensive trading” in the three securities.

The SEC maintains that while LOM/Lines initially professed a desire to cooperate with their investigations: “They have refused to provide the SEC with the essential information that would identify the persons (other than the Lines brothers) who directed the suspected fraudulent trades in question. LOM and Lines have withheld documents that would reveal who authorised the trades, who executed the trades, who controlled the accounts and who directed the distribution of the resulting ill-gotten gains. By refusing to testify, Lines has withheld from the SEC important information concerning the extent of his knowledge and participation in these fraudulent schemes,” the SEC said in documents.

LOM and Lines claim that they have fully cooperated with the SEC through their own regulators, however, in some cases they have said they would be breaching confidentiality laws in Bermuda, the Bahamas and the Cayman Islands if they turned over client records.

The SEC has entered testimony from the Bermuda Monetary Authority that this is not the case.

Earlier this year, the dispute over compliance with the subpoenas landed before Magistrate Judge Alan Kay of the US District Court in the District of Columbia.

After a hearing, he ordered LOM and Mr. Lines to comply with the subpoenas and appear in Washington to give testimony to the SEC.

Lawyers for the Bermuda parties have objected to his recommendation for compliance. They argue that the court lacks jurisdiction over the Bermuda-based Mr. Lines and LOM. They say that there is a limit to the federal courts' power “to compel production by foreign parties that lack substantial contacts with the judicial forum and are subject to regulations in their own countries forbidding the very disclosure sought by the subpoenas.”

The LOM group also argue that the judge's legal errors were compounded by his refusal to conduct an evidentiary hearing as requested by LOM and that he summarily accepted the SEC's version of the facts despite sworn affidavits to the contrary submitted by Lines Overseas Management.

Last week the SEC responded to their objections and also accused LOM/Lines of filing 100-pages of argument in a bid to “hide the fact that [they have purposefully participated in the US securities markets in a manner that appears to have violated the federal securities laws,” according to court documents.

Beyond seeking the taped interviews and other information pertaining to trading of the three securities, the SEC has only recently asked the BMA to ask LOM for information described in 2003 financial statements in which it outlined a practice to permit customers to sell stock short against restricted securities positions in their accounts. The SEC said this appears to violate section 5 of the Securities Act 1933. The SEC also wants information concerning LOM customer accounts that sold more than two million SHEP shares into the US market between February-June 2003. It has also asked for information concerning Todd Peever and James Curtis who the SEC staff believes were the beneficial owners of these accounts.