A Securities and Exchange Commission ("SEC") Complaint filed on January 6, 2011, in federal district court in Sacramento, California charges Gendarme Capital Corporation ("Gendarme"), its Chief Executive Officer Ezat Rahimi, and its Vice President Ian Lamphere with engaging in an illegal stock distribution scheme in which Gendarme purportedly sold in excess of 15 billion shares of at least twelve companies for a net profit of no less than $1.6 million. Securities And Exchange Commission, Plaintiff, Vs. Gendarme Capital Corporation, Ian Lamphere, Ezat Rahimi, And Cassandra Armento, Defendants. (E.D.Ca/Sacramento, 11-Cv-00053fcd -Kjn)
A Baker's Dozen Discount?
The Complaint alleges that from early 2008 to at least May 2010, Gendarme bought stock from many Pink Sheets companies at a 30-50% discount to the market price. The issuers set forth in the Complaint are:
The Old In-And-Out
Some agreements entered into by Gendarme with the subject companies resulted in Gendarme obtaining warrants for up to one year in which Gendarme could elect to purchase the company's stock; other agreements provided for outright purchases of issuer stock. The Complaint charges that Gendarme falsely represented to the issuers that the discounted purchases were undertaken for "investment purposes only." However, Gendarme is charged with intending to sell the purchased shares within a year. Moreover, the Complaint alleges that Gendarme flipped most of the shares within days or weeks following purchase.As a consequence, the SEC concluded that Gendarme acted as an underwriter and not an investor. This nuance is a significant difference because an underwriter would not be entitled to a valid exemption from registration for the transactions.
In addition to allegations against Gendarme and its two named executives, the Complaint charges that Cassandra Armento, the company's outside counsel, violated federal securities laws by issuing more than 50 purportedly false legal opinions in support of Gendarme's activities. The Complaint alleges that Armento repeatedly informed stock transfer agents that Gendarme was not an "underwriter" and, thus, had no intent to sell the stock - a set of circumstances that would permit Gendarme to obtain so-called freely tradeable, non-restrictive shares. The Complaint alleges that Armento made no inquiry into whether Gendarme intended to resell the stock, and, worse, was likely aware that Gendarme was dumping the stock into the market.
The Complaint charges Gendarme, Rahimi, Lamphere and Armento with violating the registration provisions of the federal securities laws.
As to Defendants Gendarme, Rahimi, and Lamphere, the SEC seeks injunctive relief, disgorgement of ill-gotten gains, monetary penalties, and an order barring them from participating in an offering of penny stock.
As to Defendant Armento, the SEC seeks injunctive relief and monetary penalties against Armento.