Rooney, Pace Charged With Manipulation Scheme : SEC Sues Brokerage Over Stock Trading

Federal securities regulators Wednesday charged the brokerage firm of Rooney, Pace and its chief executive, Randolph Pace, with joining a multimillion-dollar stock manipulation scheme in 1982 and 1983.

Randolph Pace made $240,000 in illicit profits and one of the firm’s brokers made $800,000 in illegal commissions, the Securities and Exchange Commission charged in a lawsuit filed in federal court here.

Pace was not available for comment, but the firm’s general counsel, Arnold Weinberg, said the charges were false. “We intend to contest it vigorously,” he said, speaking for Pace, the firm and one of its salesman, Joseph Lugo.

Rooney, Pace has already fully disclosed the SEC investigation in public filings, Weinberg said.

Also named in the SEC’s complaint were Capt. Crab, the North Miami, Fla., fast-food company whose stock was at the core of the commission’s charges; Edward R. Sharps, its chairman and chief executive, who allegedly made $3.8 million from illegal stock sales; Lewis Leeds, a Miami broker who made a market in the stock and allegedly turned an illegal $700,000 profit, and Martin Rothman, another Miami broker. Capt. Crab, but not Sharps, settled the SEC case by agreeing to an injunction against future fraud without admitting or denying the charges. Leeds’ employer, First Affiliated Securities, settled an SEC administrative charge of failing to supervise Leeds by agreeing to hire a consultant to improve its practices.

Optimistic Statements

The SEC charged that after Capt. Crab began selling stock to the public on the over-the-counter market in 1982, Sharps, Leeds and Rothman consistently distributed fraudulently optimistic statements about the company’s business and prospects to other brokers and to restaurant trade magazines. When reality fell short of their projections, the company allegedly failed to update the formal disclosure documents sent to investors.

Sharps also had Capt. Crab place a secondary offering of its stock on the market; by not publicizing the offering, the SEC said, he was able to sell stock at a price that did not reflect the depressing effect of doubling the number of available shares.

At Rooney, Pace, the SEC said, Lugo traded Capt. Crab stock furiously. Although his total authorization for long or short positions in all stocks was $500,000, at one point in 1983 he was short Capt. Crab alone to the tune of $3.9 million. That means he had sold that much stock to other brokers and customers without having owned it himself. The value of this position, the SEC contends, was nearly double Rooney, Pace’s entire net worth of $2 million. Pace approved the position, the SEC said.

Capt. Crab says it operates six restaurants in Georgia and Florida and has franchised two others in Illinois and Puerto Rico.

Rooney, Pace, which was founded in 1978, ranked 81st in capital among major security firms at the beginning of 1985. The firm has been the focus of several SEC probes in recent years, including a 1985 administrative action barring it from underwriting stock issues for 60 days; Pace himself was barred for 90 days.

That sanction grew out of the commission’s charges that the firm violated the law in a 1981 underwriting of stock of Sequential Information Systems by making unfounded predictions of stock price increases and through other maneuvers.