Over the past two decades, the Cayman Islands have not been a particularly hospitable environment for onshore regulators seeking the assistance of the Cayman Courts in obtaining evidence to be used in regulatory proceedings. However, times are changing.
U.S. Securities and Exchange Commission v Samuel Wyly, the Estate of Charles Wyly and Others
In 2012 and 2016, the U.S. District Court Southern District of New York (the U.S. Court) issued letters of request to the Cayman Courts with a view to assisting the U.S. Securities and Exchange Commission (the SEC) in obtaining evidence for use in proceedings brought by it against Samuel Wyly, the estate of Charles Wyly and other related parties. In well-publicized U.S. proceedings, the SEC alleged that Samuel and Charles Wyly had breached various sections of the Securities Act 1933 and the Securities Exchange Act of 1934 (collectively the Securities Acts). The SEC alleged that the Wyly Brothers engaged in a fraudulent scheme whereby they secretly held and traded tens of millions of securities in public companies over a 13 year period, while directors of those public companies, through a network of sham trusts and subsidiary companies in the Isle of Man and the Cayman Islands. The SEC claimed that as a result, the Wyly brothers had benefited illegally to the tune of hundreds of millions of dollars.
In order to prove the allegations against the Wyly Brothers and (subsequent allegations of unjust enrichment against certain relief defendants), the SEC wished to obtain the testimony of a key individual, an accountant; and also to obtain certain documents within her possession or the possession of her former employers. This key individual was resident in the Cayman Islands and her former employers subject to the jurisdiction of the Cayman Courts.
On 24 May 2012, the U.S. Court issued the first letter of request, which formed the basis for an application by the SEC in the Cayman Courts pursuant to the Evidence (Proceedings in Other Jurisdictions) Order 1978. Mr Justice Henderson heard the application and granted the assistance sought by order dated 2 August 2012 with the key individual giving evidence later that year and the documents in question provided in the manner directed. Unfortunately, Mr Justice Henderson did not deliver a written judgment so there are no written reasons as to why he granted the US Court’s first request.
The U.S. Court issued a second letter of request on 14 March 2016 with the SEC making a second application on 15 April 2016 seeking further testimony from the key individual and additional documents relating to the Offshore System. On this occasion, the application was heard by Mr Justice Quin with assistance, once again, being granted to the SEC in obtaining evidence for proceedings before the U.S. Court. This time, however, a written judgment was delivered (Securities and Exchange Commission v Samuel Wyly and Others, Unreported, 29 August 2016, Quin J.)
Given previous Cayman authority to the effect that the Securities Acts are penal in nature (see Stutts v Premier Benefit Capital Trust [1992-93 CILR 605 at 610]), it would have been helpful if the judgment had acknowledged this prior authority and distinguished the case before the Court based on Lord Goff’s approach in Re State of Norway’s Applications (Nos 1 and 2)  1 All ER 745, namely that assisting a foreign court in obtaining evidence for use in foreign proceedings does not constitute direct or indirect enforcement of foreign revenue or penal laws. Unfortunately, the Court did not explore this point, instead relying on the fact that Mr Justice Henderson had granted the first request in respect of the same U.S. proceedings.
While applications of this nature are not novel, the Judgment is a welcome reminder that the Cayman Courts have both the jurisdiction and willingness to assist foreign regulators who seek to obtain testimony and/or evidence in the Cayman Islands.