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PDFConvicted Swindler Touts Risky Penny Stocks
by Melissa Davis - 10/12/2009 2:37:08 PM
Rich Roon had already served time in prison for swindling investors when he decided to reenter the securities business as a penny stock promoter.
In 2003, just 16 months after his release from jail, Roon quietly established a consulting business that targets obscure microcap companies desperate for publicity. Roon’s firm, known as Oceanic Consulting, aggressively promotes penny stocks on its OTC Reporter website in exchange for shares of the companies being touted. Over the years, Oceanic Consulting has collected – and promptly sold – billions of free shares of penny stocks that have lost money for average investors.
“I wanted to start a web-based advertising and marketing company,” Roon says of his decision to launch OTC Reporter after serving time for committing mail fraud. “I was always interested in the stock market and believed that I could raise awareness for small and microcap companies.”
OTC Reporter has raised – and then dashed – the hopes of ordinary investors in the process. Wooed by frenzied promotional campaigns, investors have piled into risky penny stocks and only later realized that they own shares in failing companies.
In one of its latest publicity campaigns, OTC Reporter joined a slew of other penny stock promoters – including several that hyped Genova (GVBP.OB) before its recent trading halt – in touting a tiny mining outfit known as Rostock Ventures (ROSV.OB). When issuing a bullish trade alert on Rostock last month, OTC Reporter highlighted the company’s expanding hunt for valuable resources and management’s growing excitement about its prospects. But Rostock’s official regulatory filings told a far less promising story.
For starters, Rostock listed just $1,515 in total assets on its latest balance sheet. Moreover, the company spent no money whatsoever on exploration activities during the first half of this year. It has generated no revenue to date and lacks the resources to generate any without raising further capital and, in all likelihood, diluting current shareholders in the process.
Rostock’s professional staff – composed entirely of two part-time executives with no mining experience – fails to inspire much confidence, either. Collin Sinclair, Rostock’s top officer and sole director, is an electrician who spends just 15 hours a week working on company business from his 200-square-foot home office. Dana Kopecka, Rostock’s vice president, is a medical student in the Czech Republic who dedicates a mere two hours a week to company activities.
Nevertheless, Rostock boasted a market value of $21.5 million at the height of last month’s stock-promotion campaign. The company’s market capitalization, while arguably still generous, has fallen by almost two-thirds since that time.
Meanwhile, Roon’s firm has already cashed in and moved on. Together with another New Jersey corporation, which co-owns OTC Reporter, Oceanic Consulting collected $40,000 in cash and 200,000 free shares of Rostock stock – worth more than $100,000 at its peak – for promoting the bleeding exploration company. Within two weeks of launching its Rostock campaign, Oceanic Consulting had dumped every one of its shares.
“Sometimes OTC Reporter begins selling shares shortly after our receipt of the stock, and other times we have held on to some stock for six months or longer,” Roon explains. “What is important is that we always disclose how much stock and/or compensation we received, the source of the stock and/or compensation and whether we are currently selling our position.
“Full disclosure to our subscribers is essential in order to comply with the rules and regulations governing the securities industry.”
StockPromoters.com, a firm that currently monitors the performance of almost 1,000 stock promoters and touts microcap stocks itself, nevertheless blew the whistle on OTC Reporter earlier this year. After fielding dozens of complaints, many of them coming from companies Roon was hired to promote, StockPromoters officially placed OTC Reporter on its dreaded “Promoters to Avoid” list this summer.
In an interview with The Street Sweeper last month, StockPromoters owner Ryan Mattera criticized OTC Reporter’s performance and portrayed its stock promotions as classic “pump-and-dump” campaigns. Nevertheless, StockPromoters suddenly removed OTC Reporter from its special list just ahead of this article.
“We had a dispute with StockPromoters.com but have since resolved it,” Roon explains. “In fact, we are now featured on StockPromoters.com’s front page, we are no longer on its ‘Promoters to Avoid’ list, and we’ve agreed to work together in the future.”
StockPromoters did not respond to messages from The Street Sweeper seeking information about the recent changes.
Track Record
A few years ago, Factiva’s news database shows, StockPromoters held OTC Reporter in fairly high regard. Starting in the summer of 2006, in fact, StockPromoters began to occasionally include promotions by OTC Reporter on its list of effective stock campaigns. By mid-2007, however, StockPromoters had stopped highlighting OTC Reporter’s promotions – which usually boosted a stock’s trading volume far more than its share price – in its news alerts altogether.
Even the campaigns once heralded by StockPromoters, arguably among OTC Reporter’s best, delivered few if any lasting winners for investors in the end. All 10 of the stocks featured in those highlighted campaigns have long since suffered massive dives in volume. Moreover, most of those stocks now fetch less than a nickel apiece – and some fetch less than a penny – if they even trade at all.
Based on its own financial disclosures, which run for seven full pages despite their fine print, OTC Reporter has so far touted nearly 200 different penny stocks. The firm received – and then sold – loads of free trading shares in more than half of those companies. It pocketed cash, sometimes in addition to free stock, for promoting most of the rest.
While touted by the OTC Reporter, most of those stocks do not actually trade on the OTC Bulletin Board at all. They tend to trade on the Pink Sheets -- where financial statements are optional -- instead. Many of them provide limited, if any, financial information to investors. Some carry dire warnings – and no price quotes – because they fail to meet even the Pink Sheets’ lenient listing standards.
“Investors should never buy stock in companies that don’t have published financial statements,” cautions Hartley Bernstein, a New York-based securities attorney whose StockPatrol website gained widespread attention for exposing CMKM Diamonds – a notorious pump-and-dump scheme – while hunting for penny stock fraud. “And there are tons of those companies out there.”
From the start, OTC Reporter has touted companies that carry plenty of risks for investors. In its first-ever stock alert issued over the newswires, according to Factiva’s database, OTC Reporter hyped the future prospects – and the recent stock performance – of a bleeding Internet telecommunications outfit known as VoIP. At the time of that news release, published in early 2006, VoIP was riding high on grandiose plans to compete with the likes of Vonage for customers seeking Internet-based telephone services.
The penny stock rallied hard for a while, the trade publication FierceVoIP noted, with the shares soaring past $8 before ultimately collapsing and leaving long-term investors empty-handed in the end. By the time the Securities and Exchange Commission belatedly stepped in this year, revoking VoIP’s trading privileges and accusing the company of overstating its already modest revenue, VoIP had long since ceased the majority of its operations. Meanwhile, OTC Reporter had moved on with enthusiastic campaigns for dozens of other – sometimes equally risky – penny stocks.
OTC Reporter did adopt one telling change, however. Back when it originally touted VoIP in that first-ever press release, OTC Reporter openly named Roon as its principal officer and primary contact. Based on a review of Factiva’s comprehensive news database, however, OTC Reporter never once mentioned Roon’s name again.
Years earlier, Roon had made news in other ways. In late 2000, USA Today exposed Roon’s checkered background in a detailed article that appeared on the cover of its “Money” section. At the time, USA Today reported, Roon had just been sentenced to a year in prison for spending nearly $2 million that investors had placed in his money-losing hedge fund. Even back then, the newspaper revealed, Roon was keeping secrets about his past.
“There were issues Roon had avoided mentioning,” USA Today wrote. For example, “He started his investment career at First Jersey Securities – the once notorious and now defunct company that pushed investments in penny stocks.”
Government officials cracked down on First Jersey for hyping worthless penny stocks decades ago and ultimately sent its founder, Robert Brennan, off to jail. According to the website operated by the Federal Bureau of Prisons, Brennan remains behind bars to this day.
Alarm Bells
Meanwhile, eight years after his own release from prison, Roon has rebuilt his securities career.
For a professional stock promoter, however, Roon looks oddly publicity-shy. Neither Oceanic Consulting nor OTC Reporter mentions Roon’s name – let alone his track record – on their respective websites. Investors must search hard, seeking out obscure information such as domain name registrations, in order to make that connection. They must go a step further – and actually pay a fee – to find out that one of Roon’s firms, Oceanic Consulting, lost its corporate status last fall after failing to file its annual report for two years in a row.
Even so, Roon claims that he has nothing to hide.
“If any contact or client asks about my past, I am more than open and honest,” he says. “I explain that, over 10 years ago, I pleaded guilty to two counts of mail fraud and served my sentence. I accepted full responsibility for my actions and have committed to never breaking the law again.”
Still, some of Roon’s clients have clearly felt shortchanged. When StockPromoters first placed OTC Reporter on its “Promoters to Avoid” list, in fact, several of Roon’s clients posted scathing reviews of his performance.
The first of those reviews, dated on June 6 of this year, concluded with this stark warning: “I would urge any public company CEO/CFO/COO, third-party shareholder – or ANYONE – interested in doing business with Rich Roon, Oceanic Consulting, OTCReporter.com or Todd Costello (who’s identified as Roon’s former second-in-command) to thoroughly reconsider.”
Less than a week after StockPromoters published those complaints, Factiva records show, OTC Reporter issued its final stock alert over the newswires. It touted the performance of OneFi Technology (ONFI.PK), its headline shouting that the stock had just posted a gain of more than 1,500% on strong trading volume. The stock, which began the day trading for just over a penny a share, had managed to hit an intraday high approaching a whopping 17 cents. The stock has since tumbled below its original price.
Roon’s firm received 9 million free trading shares for that particular promotion, and it has already sold every one.
Four months later, OTC Reporter continues to celebrate OneFi’s fleeting 1,500% stock gain on its web site. It still touts the temporary spikes of other penny stocks that it has already sold as well.
Meanwhile, ordinary investors – eager to score a quick buck – have paid the price.
“Investors should start with the premise that most penny stocks are, one way or another, just scams,” Bernstein says. “Regulators know this, but they’re underfinanced and undermanned.
“They had enough information 10 years ago to put Bernie Madoff away, and they ignored it,” he adds. “So at the end of the day, investors have to look out for themselves.”
Note: The Street Sweeper hired an independent fact checker to verify the accuracy of this story. Whenever possible, it has also included links within the story to supporting documents used for its research. To contact Melissa Davis, the author of this story, please send an email to editor@thestreetsweeper.org.
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