SEC Files Offering Fraud Action Centered on Warrants From Private Firm
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.