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Replies to post #10046 on Pervasip Corp (PVSP)
08/01/11 3:11 PM
Question: Where the offer and sale of convertible securities or warrants are being registered under the Securities Act, and such securities are convertible or exercisable within one year, must the underlying securities be registered at that time?
Answer: Yes. Because the securities are convertible or exercisable within one year, an offering of both the overlying security and underlying security is deemed to be taking place. If such securities are not convertible or exercisable within one year, the issuer may choose not to register the underlying securities at the time of registering the convertible securities or warrants. However, the underlying securities must be registered no later than the date such securities become convertible or exercisable by their terms, if no exemption for such conversion or exercise is available. Where securities are convertible only at the option of the issuer, the underlying securities must be registered at the time the offer and sale of the convertible securities are registered since the entire investment decision that investors will be making is at the time of purchasing the convertible securities. The security holder, by purchasing a convertible security that is convertible only at the option of the issuer, is in effect also deciding to accept the underlying security. (Aug. 14, 2009)
According to the complaint, the scheme involved a series of transactions between the Stock Distributors and the microcap companies, including Enzyme Environmental (the Issuers), with the same essential characteristics:
-First, a Stock Distributor either purported to lend money to an Issuer or the Issuer identified a "debt" owed to its officer that the Issuer and officer assigned to the Stock Distributor.
-Second, to reduce or eliminate the loan or the assigned debt, the Issuer issued shares of its stock to the Stock Distributor.
-Third, before or after the stock issuances, the Stock Distributor paid the Issuer or an affiliate of the Issuer.
-Finally, the Stock Distributor immediately sold the shares into the public market.
In two years, the Stock Distributors generated approximately $7 million in illegal profits, the complaint alleged.
The SEC alleges that Gendarme repeatedly acquired deeply discounted shares from penny stock issuers under the pretense 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.
(...)
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 $1.6 million from its unregistered stock distributions.
AI
