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A New Jersey man struck a deal in New Jersey federal court on Friday to settle the U.S. Securities and Exchange Commission’s claims that he participated in an alleged scheme to pocket more than $6 million investor dollars raised for stock in a technology startup.

SEC Settles With Fraudster Over $6M Startup Stock Scheme

By Jon Hill of Law360.com

A New Jersey man struck a deal in New Jersey federal court on Friday to settle the U.S. Securities and Exchange Commission’s claims that he participated in an alleged scheme to pocket more than $6 million investor dollars raised for stock in a technology startup.

James R. Trolice, who pled guilty in April to securities fraud and money laundering charges in a related criminal case, agreed to pay disgorgement of ill-gotten gains, interest and a civil monetary penalty in amounts to be determined at a later date, according to the settlement agreement filed by the SEC. Trolice also consented to be permanently barred from violating federal securities laws.

The settlement follows a similar deal that the SEC reached with Trolice’s former colleague Lee P. Vaccaro, who was sentenced in February to 78 months in prison after pleading guilty to related criminal charges in connection with the alleged scheme.

The SEC sued Trolice and Vaccaro in May 2016 over allegations they duped investors into buying interests in four limited liability companies that the two men controlled, which supposedly held a slew of warrants to buy stock in eAgency, a California company developing mobile security products.

Trolice and Vaccaro, who worked as “finders” for eAgency and introduced investors to the startup, raised about $6 million from more than 100 investors for their companies between 2010 and 2013 by creating “a false sense of urgency and exclusivity around the offering, claiming that only a limited amount of warrants were available and that they eventually could be exercised at a very profitable price,” the SEC said.

But Trolice, Vaccaro and their companies did not hold as many warrants as they claimed, and many of the warrants that they did hold either were expired or could not be transferred, according to the New Jersey Attorney General’s Office.

Instead of retaining the funds necessary to exercise the warrants they claimed to hold, Vaccaro and Trolice spent hundreds of thousands of investor dollars on personal expenses, including trips to Hawaii and California; mortgage payments on Trolice’s Alpine, New Jersey, mansion; payments for luxury cars; and shopping at high-end retailers like Neiman Marcus, Saks Fifth Avenue, Bloomingdale’s, Nordstrom and Montblanc, the New Jersey office said.

Trolice and Vaccaro concealed their money-raising activities until eAgency uncovered Vaccaro’s conduct and terminated him in October 2013, according to the attorney general’s charge filing.

A third conspirator, former stockbroker Patrick G. Mackaronis — who received commissions for bringing prospective investors to Vaccaro and Trolice — reached a settlement with the SEC that requires him to pay $85,000 in disgorgement, $8,486.91 in prejudgment interest and a $50,000 penalty.

Trolice is scheduled to be sentenced in his related criminal case in July. As part of his plea agreement in that case, he also consented to a forfeiture judgment of more than $5 million.

The SEC did not immediately return a request for comment on Friday.

Contact information for Trolice was not immediately available.

The SEC is represented by Kristin M. Pauley.

Counsel information for Trolice was also unavailable.

The case is Securities and Exchange Commission v. James R. Trolice, et al., case number 2:16-cv-02513, in the U.S. District Court for the District of New Jersey.

Source: Law360.com

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The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.

SEC Settles With Fraudster Over $6M Startup Stock Scheme