Allegations of conspiring to commit multi-million dollar securities fraud has landed three directors of Bermuda companies behind bars, after a two year undercover operation - code named Bermuda Short - by US and Canadian authorities.

The men - Paul Lemmon, Andrew Proctor and Mark Valentine - if convicted, could face, at a maximum, statutory terms of imprisonment of five years for conspiracy to commit securities fraud, wire fraud and mail fraud respectively and ten years for securities fraud.

Although the undercover investigation did not actually result in actual loss to any investor, the combined attempted fraudulent securities sales exposed by the operation totalled more than $200 million and has resulted in indictments against 58 individuals.

Three of those indictments are against the Bermuda directors with allegations that the men agreed to participate in illegal kickback schemes centred around a fictitious fund.

The arrests were made after a two year undercover sting operation by the US Federal Bureau of Investigations (FBI) and the Royal Canadian Mounted Police (RCMP). Although the case involves the directors of Bermuda companies, The Royal Gazette understands that the Bermuda Police were not involved in the investigation.

The first indictment names Mr. Lemmon, the founder and managing director of Bermuda based investment company Voyager Group Ltd. and a former employee of the Bank of Butterfield, and Mr. Valentine, the former head of now bankrupt Toronto brokerage Thomson Kernaghan and Co., and the director of a number of Bermuda based companies including VC Advantage (Bermuda) Fund Ltd. and the Hammock Group Ltd.

Mr. Valentine was allegedly the majority shareholder of three companies C-ME-Run, SoftQuad Software and JagNotes.com that were traded on an over-the-counter market.

The Indictment charged that Mr. Lemmon and Mr. Valentine conspired to sell stock in the companies to the fictitious fund for a total of $29.4 million in return for a kickback payment of $7.8 million.

The other two indictments are against Mr. Lemmon and Mr. Proctor, also a director of the Voyager Group, with allegations that the men had conspired to participate in other illegal kickback schemes through the same fictitious fund.

Mr. Valentine, who is also under investigation by the Ontario Securities Commission on separate charges that also names Mr. Lemmon, was arrested last week in Frankfurt and Canadian news reports indicated that he may be extradited to the United States.

It was not clear whether Mr. Lemmon and Mr. Proctor had been arrested in the US or Canada. The indictments were made by the US District Court for the Southern District of Florida.

The fate of the Voyager Group of Companies, now that its directors have been arrested, may be up in the air with one person close to the matter telling The Royal Gazette Finance Minister Eugene Cox may intervene and put the company under local investigation or even shut the company down.

But a visit to the Voyager Group's penthouse office at 129 Front Street by The Royal Gazette on Friday found that the office was at least for the time being open for business. Business development manager Sue Elliott said Voyager Financial Services and Voyager Management continued to operate as local exempt companies, despite Mr. Lemmon's arrest.

When asked if the company's offices in the British Virgin Islands remained open, Ms Elliott declined to comment and also declined to name Mr. Lemmon's legal counsel.

The company's lease expires at the end of September but landlord Harry Soares said he had had a conversation with Mr. Lemmon about four months ago with the verbal agreement that Mr. Lemmon wished to renew the lease.

The Registrar of Companies indicated on Friday that Voyager Management and Voyager Financial Services had up to date registrations as Bermuda companies. Voyager Securities however was listed but about to be struck off the register.