Pull the Other One, SEC Tells Texan
HOUSTON (CN) - A Texan made $4.5 million in a pump-and-dump scheme in unregistered shares of his shell company, Chimera Energy, touting a fictitious "environmentally friendly oil & gas extraction procedure," the SEC claims in court.
The SEC sued Chimera Energy Corp.; the alleged mastermind of the scam, Andrew Farmer, 36; Chimera's former CEO Charles E. Grob Jr., 34, both of Houston; its current CEO Baldemar P. Rios, 53, of Mexico City; and 59-year-old Carolyn Austin of Houston and Lake Charles, La., on Thursday in Federal Court.
Although Farmer never disclosed his control over Chimera Energy in filings with the SEC, he ran the company, the SEC says in the complaint.
"To implement his scheme, Farmer installed defendant Charles E. Grob Jr. as Chimera's putative Chief Executive Officer ('CEO'). Farmer then directed an initial public offering of Chimera stock (the 'IPO') that resulted in Farmer obtaining control, at nominal cost, of all five million shares of Chimera stock issued in the IPO," the minutely detailed 57-page complaint states.
Farmer then unveiled phase two of his scam: an "aggressive promotional campaign" in which Chimera Energy issued 33 press releases in less than 90 days, heralding its "entirely fictitious" license of a Chinese company's "environmentally friendly oil & gas extraction procedure for shale to replace hydraulic fracturing," according to the complaint.
To bolster its façade of legitimacy, the SEC claims, Farmer then had Chimera issue a press release claiming it had partnered with a large foreign oil company to use its extraction method throughout Latin America.
The press release was complete fiction because the unknown oil company, referred to as "E&P Company A," had "no business relationship ... whatsoever" with Chimera, the SEC says.
Farmer spent more than $300,000 on online advertising to raise Chimera's profile with investors, the SEC says.
"Chimera's false press release barrage and the advertising campaign that drew attention to it produced Farmer's desired effect- to raise the price and trading volume of Chimera stock," the complaint states.
Before the media blitz, the SEC says, the typical daily trading volume of Chimera's stock was 15,577 shares; afterward, the trades soared to an average of 948,066 shares a day.
The SEC says Farmer "sold at least 6.1 million shares of Chimera stock to the public in unregistered transactions, generating proceeds to Farmer of at least $4.58 million."
It claims Grob and Rios were complicit in the scam because the phony press releases and regulatory filings were disseminated in their names.
Austin "helped Farmer reap his ill-gotten gains by selling Chimera stock to the public for her and Farmer's benefit," the complaint states.
The SEC seeks disgorgement, penalties and wants the defendants permanently barred from serving as officers of any company that files reports with the SEC and from involvement in any penny stock offering.
A chimera is "something that exists only in the imagination and is not possible in reality," according to Merriam-Webster's dictionary.