Wallace Groves, 86, a Wall Street broker whose career was shattered when he was imprisoned for using the mails to defraud his clients but who went on to develop the city of Freeport in the Bahamas into a major resort and gambling center. After serving two years in a federal prison he became interested in the Grand Bahama Islands and in the late 1940s bought 114,000 acres of the island group for $2.80 an acre. In 1955 with the cooperation of the Bahamian government--which granted him several tax concessions--he began development of the land into hotels, casinos, hospitals, schools and roads. He sold his interest in the Grand Bahama Port Authority--often criticized for the authoritarian way in which it managed Freeport--in 1968. In Miami on Saturday.