Jim, a couple of points:
1. Gendarme said in their response that they were purchasing the securities for a long term investment, hence the Opinion letter and no restricted legend. Now whether this is true or not will come out in the depositions. Well at least we will see what all the companies say they were told.
2. Companies can't just issue shares into the market for purchase through brokerages without registering the shares via a S-1, filed with and approved by the SEC. An S-1 is costly, takes 90 days minimum, and requires full disclosure and accounting by the issuer. Newty tried that route before and withdrew the S-1.
So pinks are left with three ways to issue shares:
1. Paying vendors, consultants etc. with shares (i.e. shares for services).
2. Paying off debt with shares.
3. Selling shares to accredited investors (i.e. 504 financing)
All the above, for non-reporting pinks, require a 12 month restriction.
Now if you were owed money by RCCH, for what ever reason, and they pay you in shares that you can't sell for 12 months, would you accept shares on a 1 to 1 basis. Maybe you would, but the overwhelming number of people who accept pink shares, want a substantial discount. That is what newty was facing.
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