by T. GormanPosted on Posted in SECActions

The SEC filed another offering fraud action, a current staple of the agency. This scheme centered on two former executives of a privately held software manufacturer and a marketer who sold investors interests in various private entities they controlled which supposedly held warrants to acquire shares of the privately held software company. Over 5 years about $6 million was raised from over 100 investors. SEC v. Trolice, (D. N.J. Filed May 4, 2016).

The complaint names three individuals as defendants: James Trolice, Lee Vaccaro and Patrick MacKaronis. Mr. Trolice served as President and Chief Marketing Officer of eAgency, Inc. from May 2006 through early 2007 after which he continued as a consultant and finder for the firm. He also created Trolice Consulting, a limited liability company. Mr. Vaccaro served as Chief Marketing Officer and V.P. of Investor Relations for eAgency from July 2009 through October 2013 and, thereafter, as a consultant and finder. He also created three limited liability companies –Vaccaro Consultant, Vacaro Consultants, and Vaccaro Consultants. Mr. Mackaronis was previously a registered representative.

eAgency is a privately held firm that developed and was marketing software applications for business and personal use on mobile devices. During the period Messrs. Trolice and Vaccaro worked for the firm each received warrants for its stock. At various points in time, beginning in 2009 and continuing into 2014, the two men used the LLCs they created to solicit investors, claiming the entities held eAgency warrants. For example, after creating Vaccaro Consultant in early 2010, Messrs. Vaccaro and Trolice solicited several investors and raised about $247,5000. Similarly, after creating Vacaro Consultants later the same year, the two men solicited 13 investors, raising an additional $287,500. Additional investors were solicited using the other LLCs.

The key elements of the schemes were similar. In each instance Messrs. Trolice and Vaccaro told potential investors about the eAgency warrants. Those warrants could be used to purchase shares of the technology start-up company. There were only a limited number of warrants available. Since eAgency was about to have a significant liquidity event such as being acquired, the share price would jump to a high multiple shortly. The only way to take advantage of this opportunity, according to the sales pitch, was to purchase an interest in the LLC.

Not only was the pitch not true, some of the warrants had expired while others could not be transferred. Investors were attracted by the prospects of a quick profits as well as the apparent wealth of Mr. Tolice, his claim to have “skin in the game” and the assertion of a successful investment track record. Mr. Tolice diverted investor funds to his personal use.

Mr. Mackaronis, was central to the effort. He solicited his family members, friends and customers for investments in Trolice Consulting. Overall he earned $85,000 in commissions after having invested $9,000 himself in the firm. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and 15(a) and Advisers Act Sections 206(1) and (2).

Mr. Mackaronis agreed to settle with the Commission. He will pay disgorgement of $85,000, prejudgment interest and a $50,000 penalty. In addition, he agreed to the entry of an order baring him from the securities industry for three years. The U.S. Attorney’s Office for the District of New Jersey broguth a parallel criminal case against Mr. Vaccaro. The New Jersey Bureau of Securities also filed civil charges against Messrs. Trolice, Vaccaro and Mackaronis.

Tagged with: , ,

by T. GormanPosted on Posted in SECActions

The SEC prevailed at trial against the former CEO of a biopharmaceutical company on claims that he made false and misleading statements regarding the regulatory approval status of the firm’s only drug. Following a two week trial the jury returned a verdict finding the former executive liable for violating Exchange Act Section 10(b). The jury also concluded that the executive was not liable for aiding and abetting the firm’s failure to file annual, quarterly and current reports that were accurate and not materially misleading under Exchange Act Section 20. SEC v. Ferrone, Civil Case No. 1:11-cv-05223 (N.D. Ill. Filed Aug. 1, 2011).

The case centers on the regulatory status of drug SF-1019, the only drug of Immunosyn Corporation. The California based company, whose shares are registered with the Commission and quoted on the OTCBB, was formed to market, distribute and sell the drug. SF-1019 is derived from goat blood. It had the potential to treat a variety of ailments, including HIV and diabetic neuropathy. The company was named as defendants Argyll Biotechnologies, LLC, its major shareholder, two other shareholder entities, CEO Stephen Ferrone, CFO Douglas McClain Jr., Chief Scientific Officer Douglas McClain, Sr. and Argyll’s CEO James Miceli. Immunosyn stated in public filings over a four year period beginning in 2006 that Argyll, which controls SF-1019, planned to commence the regulatory approval process for human clinical trials in the U.S. Yet the FDA had twice halted any efforts to initiate those trials. The FDA actions, however, were not disclosed until April 2010. During this period Messrs. Ferrone and McClain, Jr. signed and certified public filings by the company which contained the false statements.

Additional misstatements were made by other executives., according to the SEC. For example, during a presentation at a clinic Mr. McClain Sr. represented that SF-1019 had been used to treat patients under a compassionate waiver granted by the FDA. This statement was false. He also claimed in the presentation that the Department of Defense had purchased 600,000 vials of the drug. This claim was false.

Finally, during the period Immunosyn was making misrepresentations about SF-1019, Messrs. Miceli, MClain Jr. and McClain, Sr. sold shares in the company, raising about $20 million. At the time the three men did not disclose the fact that the FDA had repeatedly refused to permit the trials to go forward. The complaint alleged violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 16(a) and 20(a). See Lit. Rel. No. 23528 (May 3, 2016); The court previously granted summary judgment in favor of the Commission and against defendants Douglas McClain Jr. and Sr. on insider trading charges and against Mr. McClain Sr. for making false statements and failing to deliver certain securities to purchasers. See Lit. Rel. No. 23116 (Oct. 15, 2014).

Tagged with: ,