By George Pita
On September 30, 2014, The Securities and Exchange Commission (“SEC”) filed a civil injunctive action against Positron Corporation (“Positron), a microcap company based in Illinois, Patrick G. Rooney, the company’s then-CEO, and John R. Rooney of Jupiter, Florida. The SEC charged the three with masterminding a manipulation scheme involving the company’s stock.
Positron is a self-described nuclear medicine company, which reported $1.6 million dollars in revenue in 2013, but lost $7.1 million. Positron’s shares are currently trading at less than a penny.
The SEC alleged that through several meetings that took place in Palm Beach, the Rooney brothers hired stock promoters to inflate shares of the lightly traded company by purchasing them on the open market. Fortunately for the public, and unfortunately for the Rooney brothers, these stock promoters were cooperating with the FBI. According to the complaint, John Rooney ordered the stock promoters to purchase 20,000 shares of Positron on the open market in exchange for a cash payment of $4,000. He also gave them advance copies of Positron press releases so they could coordinate their purchases to look like the market reacted positively to them.
In August 2012, the FBI, through its cooperating stock promoters, purchased shares of Positron after receiving instructions from Patrick Rooney. Mr. Rooney paid the stock promoters only $1,000 of the agreed-upon $4,000 bribe. The SEC asked that the court penalize the Rooney brothers with civil fines, a bar against participating in penny stock offerings, and a bar against Patrick Rooney serving as an officer or director of a public company.
The Rooney Brothers are notorious to the SEC. In July of this year, the United States District Court for the Northern District of Illinois entered a judgment imposing $715,700 in disgorgement, plus prejudgment interest of $166,476 against Patrick Rooney. In Securities and Exchange Commission v. Patrick G. Rooney and Solaris Management, LLC, the SEC alleged that Rooney and Solaris radically changed the investment strategy of the Solaris Opportunity Fund LP (“Solaris Fund”), contrary to Solaris Fund’s offering documents and marketing materials, by becoming wholly invested in Positron, the company whose stock Mr. Rooney allegedly attempted to manipulate.
The SEC further alleged that Patrick Rooney, who had been chairman of Positron since 2004 and received salary and stock options from Positron since September 2005, misused the Solaris Fund’s money by investing more than $3.6 million in Positron through private transactions and market purchases. Many of these private transactions were undocumented while other investments were interest-free loans to Positron. Rooney and his compatriots hid the Positron investments and Rooney’s relationship with the company from the Solaris fund’s investors for over four years. Although Rooney finally told investors about the Positron investments in a March 2009 newsletter, the SEC’s complaint alleges he falsely told them he became chairman to safeguard Solaris Fund’s investments, while in reality these investments benefited Positron and Rooney while providing Solaris Fund with a concentrated, undiversified, and illiquid position in a cash-poor company with a lengthy track record of losses.
The actions of the Rooney brothers illustrate the need for investors to be cautious in investing in highly risky stock. While the SEC and law enforcement are working diligently to prevent stock manipulation schemes from taking place, the first line of defense against them is diligence and caution. It is important that you perform your own investigation into any stocks that a broker recommends, and it is important to review your broker’s reputation before entering into business with them.