Securities: 15,000 million shares in penny stock companies in market abuse
Count the zeros: 15,000,000,000 - that's how many shares Gendarme Capital Corporation and two executives, Ezat Rahimi and Ian Lamphere are accused of buying at deep discounts and then dumped, bypassing federal disclosure laws, says the SEC. But despite the vast numbers of shares, the profits they made were surprisingly small.
The SEC alleges that Gendarme repeatedly acquired deeply discounted shares from penny stock issuers under the pretence of a long-term investment and then dumped the shares into the market, essentially effecting public stock distributions without complying with the disclosure requirements of the federal securities laws.
Through its two principals — CEO Ezat Rahimi of Elk Grove, California and vice president Ian Lamphere of Lawrenceville, Vermont. — Gendarme sold more than 15,000 illion shares of at least a dozen companies, netting illicit profits of more than USD1.6 million.
According to the SEC's complaint, filed last week in federal district court in Sacramento, Gendarme began entering into agreements with penny stock issuers in early 2008. The agreements gave Gendarme the right to purchase stock at 30 to 50 percent discounts to the market price. The SEC alleges that, in an effort to avoid the registration and disclosure obligations of the federal securities laws, Gendarme falsely represented to issuers that it was purchasing shares for "investment purposes only." Contrary to those representations, Gendarme quickly dumped most of these shares on the public markets, profiting by more than USD1.6 million from its unregistered stock distributions.
The SEC also alleges that Gendarme's outside attorney — Cassandra Armento of Greenwich, New York — breached the securities laws by issuing more than 50 false legal opinion letters in support of Gendarme's activities. Armento repeatedly informed stock transfer agents that Gendarme was not an "underwriter" and thus had no intent to sell the stock. Thus, shares could be obtained by Gendarme without trading restrictions. However, the SEC alleges Armento made no inquiry into whether Gendarme intended to resell the stock and was aware of information showing that it was likely that Gendarme was dumping the stock into the market.
The SEC's complaint charges Gendarme, Rahimi, Lamphere and Armento with breaching the registration provisions of the federal securities laws. Against Gendarme, Rahimi, and Lamphere, the SEC seeks injunctive relief, surrender of ill-gotten gains, monetary penalties and an order barring them from participating in an offering of penny stock. The SEC seeks injunctive relief and monetary penalties against Armento.
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