Industry Noize: Sillerman Sued Over SFX Shares

Paolo Moreno, a manager with Disco Donnie Presents, his brother Gabriel Moreno, and DJ manager Lawrence Vavra claim Sillerman and his associates breached contracts and engaged in fraud, according to court documents obtained by the Wall Street Journal.

The suit says the men met with Sillerman in January 2012 and proposed a plan to “identify, acquire, consolidate, and operate assets” in the EDM space. Sillerman allegedly agreed to partner with them and offered 2.5 million “founders’ shares” of SFX, stock options, cash and operational control, as well as financial backing for the acquisitions of Disco Donnie Presents, Tomorrowland promoter IDT and the Beatport electronic download store.

After things got rolling with the acquisitions, the men say Sillerman avoided their requests to finalize the deal and sent them employment agreements with less favorable terms and no mention of the founders’ shares he’d promised.

In May of that year, Sillerman wrote in an email to Moreno that a reverse stock split had left “substantially fewer shares outstanding,” but that the men would “still own the same percentage of SFX.”

Instead, the company “covertly” issued 36 million founders’ shares, the suit says, which reduced the men’s stake to less than 7 percent of the company.

“Sillerman made this misrepresentation in an effort to conceal his deceptive scheme to dilute Plaintiffs’ ownership stakes in SFX and thereby induce them to continue working on SFX’s behalf,” the men claim.

The Morenos and Vavra say they continued working for SFX through 2013 but never received the compensation they’d been promised, and spent $50,000 of their own money.

“After doing all the leg work to create the company, we brought on Sillerman as a strategic partner,” they noted in a statement to the WSJ. “Once on board, he squeezed us out of SFX, using our business strategy for his financial benefit and defrauded us out of millions.”

A spokesman for SFX said the company “will vigorously defend this baseless lawsuit.”

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