The Securities and Exchange Commission (SEC) has begun 2011 with several litigation filings around the country. Among these are a case involving two executives alleged to have been involved in an illegal stock distribution scheme and another involving an investment adviser and his company that are alleged to have fraudulently raised and diverted investment funds.
In the first matter, filed in Sacramento, California, Gendarme Capital Corporation (Gendarme) is alleged to have "repeatedly acquired deeply discounted shares from penny stock issuers under the pretense of a long-term investment." These shares were then allegedly "dumped" into the market, which impacted public stock distributions. The allegations are that Gendarme failed to comply with disclosure requirements of the federal securities laws which resulted in illicit profits of over $1.6 million for the company's principals.
The complaint filed by the SEC chronicles a scheme in which Gendarme allegedly created deals with penny stock issuers that gave the company rights to purchase stocks at significant discounts off the market price. Allegedly, false representations were then made to issuers that the shares were being secured for "investment purposes only" and were not registered or disclosed under the securities laws.
Gendarme is then alleged to have sold these unregistered stock distributions in public markets, reaping significant profits. The company's outside counsel is also alleged to have issued false legal opinion letters to support these activities.
Across the country in Georgia, the SEC secured temporary injunctive relief and filed civil injunctive relief against a registered investment adviser and his investment firm related to allegedly defrauding investors in two hedge funds managed by the firm in violation of federal securities laws.
According to the complaint, the firm raised $65 million for two hedge funds. Investors were allegedly told their investments would be invested in "unaffiliated" underlying funds and that the firm would take a low percentage management fee and percentage of profits.
The SEC's complaint alleges that undisclosed funds were created from which millions of dollars were diverted for the personal use of the principal and his firm in violation of federal securities laws.
The law firm of Gusrae Kaplan Nusbaum PLLC has defended individuals, issuers underwriters, investment banks, broker/dealers, hedge funds, officers and directors in connection with a wide range of regulatory or enforcement matters. For more information, please contact our firm to speak with one of our lawyers.
