Gendarme Investment Hooks Millions in Illegal Stock Distribution Scheme

Jack Humphrey, Regulatory journalist
January 06, 2011 /

Gendarme Capital Corporation had been enjoying large discounts of shares it bought from penny stock issuers who were made to believe the investment was long-term, eventually earning the investment firm and its two executives $1.6 million in ill-gotten profit. This was the allegation by the US Securities and Exchange Commission in a lawsuit filed today at Sacramento’s federal district court.

According to SEC’s lawsuit, Gendarme used to dump the penny stocks to public markets while failing to comply with the federal securities laws which compel stock distributors to disclose details of the company to investors so as to protect their interest. Gendarme’s CEO, Ezat Rahimi, and vice president, Ian Lamphere, successfully sold more than 15 billion shares from at least 12 companies and earned more than $1.6 million.

Marc Fagel, Director of the SEC’s San Francisco Regional Office, said the stock distribution scheme created by Gendarme and its two principals was something “novel”, but illegal nevertheless, making “an end-run” over federal securities laws disclosure requirements.

Gendarme started the illegal stock distribution scheme in 2008 which gave the investment firm 30 to 50 percent discounts to the market price, SEC said. Penny stock issuers were then given false representations that the purchase was intended for “investment purposes only” to avoid the disclosure requirements of the federal securities laws.

SEC’s lawsuit also implicated Gendarme’s outside legal counsel Cassandra Armento for giving more than 50 false legal opinions to stock transfer agents, telling them that the investment firm was not an “underwriter,” thus hiding Gendarme’s illegal selling of stocks.

Gendarme, Rahimi, Lamphere and Armento will be relieved from selling stocks before the SEC in addition to monetary penalties sought against them.

 

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