Published Oct 26, 2022

Founders of Philadelphia-based Par Funding must pay $219 million in “ill-gotten gains,” fines and interest so the funds can be used to help reimburse 1,200 investors who were duped into buying the risky, unregistered securities used to finance the high-fee loan company, a federal judge has ruled.

Judge Rodolfo Ruiz II ordered Par founders Joseph LaForte and his wife, Lisa McElhone, to pay a court-appointed receiver $163.1 million in “disgorgement” of investors’ money and $12.2 million in interest, plus civil penalties totaling $43.7 million.

“There is no doubt that these violations are egregious,” Ruiz wrote in his order. “At every turn, LaForte and McElhone materially misled investors” and “withheld or lied about critical information” that would have warned investors about the risks of investing in loans to shaky businesses. Lawyers for the couple, in New York and Florida, did not return calls seeking comment on the settlement, or whether the couple has the means to pay it all.

The payout isfar above the $56 million that defense lawyers argued the couple might have to pay after they agreed not to contest the Securities and Exchange Commission’s fraud allegations, but less than the $337 million plus $100 million in fines that the SEC proposed in its case against the pair.

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Ruiz wrote that he found “a portion of Par Funding was a lawful business,” so he followed recent court rulings in deducting Par’s “legitimate business expenses” from the amount its owners should have to pay. He also noted the pair have “admitted some wrongdoing,” in deciding not to levy the SEC’s proposed full fine.

Ruiz ordered LaForte and McElhone to pay the $219 million within 30 days or face civil contempt charges and other legal action. The couple’s homes in Haverford, the Poconos and Florida were seized by the government along with their private jet and other properties when the SEC sued them for fraud in 2020.

In separate orders, Ruiz told another Par executive, Joseph Cole Barleta, to pay $12.4 million in disgorgement, interest and penalties to settle SEC civil fraud charges against him, and he told Florida broker Michael Furman, who sold Par securities, to pay $2.1 million.

That would bring total settlements since the SEC sued the group in July 2020 and won a court order to freeze assets held by the company, its founders and key salespeople to $250 million.

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”I am very happy with the amount — I’m very unhappy about how long it took,” said Larry Cohen, a retired teacher from Connecticut who invested $65,000 in Par Funding.

The receiver is also seeking funds from Par borrowers and from others who may have benefited from its illegal operations.

In February, Montgomery County investment salesman (and partial Par Funding owner) PerryAbbonizio agreed to pay $11.3 million, and Dean Vagnozzi, whose King of Prussia insurance agency sold Par investments as it advertised stock-market alternatives on Philadelphia news and talk radio, agreed to pay $5 million, also to settle civil fraud charges related to their sale of Par Funding investments.

According to a memo Ruiz issued along with his orders, the SEC found that Par raised $550 million from investors — including $56.6 million from members of the Chehebar family, who founded the Rainbow Shops retail clothing chain, plus smaller amounts from hundreds of Vagnozzi, Abbonizio and Furman clients — and paid them back $300 million before the court effectively froze the business. Par still owes them $250 million, not counting interest.

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Investors in Par received annual investment yields of 10% and higher until March 2020, when the company stopped paying and said it could no longer return investors’ principal on demand but would need years of profitable operations to give back their money. The company later made small interest payments to investors who agreed not to sue; such payments ended when the receiver took over that July.

The SEC argued that the investments should have been registered as securities and sold only under federal risk-disclosure requirements; that salespeople and Par owners misrepresented Par’s high loan-default rate and its lack of insurance; and that they failed to adequately disclose Pennsylvania, New Jersey and Texas state regulatory actions against the group, or that LaForte had been twice convicted, on federal grand larceny and money-laundering charges, before he founded Par with McElhone, in 2011, after his term in prison.

In court hearings leading up to his order, Ruiz questioned both defense lawyer claims that Par was a profitable “merchant cash advance” business wrongly seized by the government, as well as SEC’s claims that it had shown that the Par founders had committed one of the worst frauds of its type.

Par has also been the subject of a federal criminal investigation. No criminal charges have been filed, though LaForte was jailed and faces federal weapons charges after federal agents found guns at his homes, which is prohibited because he has a previous felony conviction.

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To repay investors — and cover fees and expenses in running Par, which have totaled about $1 million a month — the receiver, former SEC lawyer Ryan Stumphauzer, has already collected cash and property worth $160 million from Par (also known as Complete Business Solutions Group Inc.) and its owners.

“The current amount of receivership assets has no bearing on the court’s disgorgement analysis,” which instead depended “on the profits defendants received as part of their involvement in the fraudulent scheme,” Ruiz wrote in a memo accompanying his orders.

Stumphauzer’s lawyers are also trying to collect millions from Par’s largest borrowers, including companies controlled by Stephen Odzer, a Long Island- and Las Vegas-based janitorial supplies distributor, whose prior bank fraud convictions were pardoned by President Donald Trump, in hopes of recovering more for investors.

Still to be worked out is how much of the money the receiver has collected and the money the judge has ordered paid will go to individual investors. Lawyers for all parties are set to confer with the judge at a public hearing Nov. 21.

Lawyers for brokers who sold Par securities and for borrowers who contend Par overcharged them have argued that they also deserve payments from Par funds. Separately, Vagnozzi and others are suing his longtime lawyer, John Pauciulo, and Pauciulo’s former law firm, Eckert Seamans, alleging that they gave bad advice in setting up unregistered funds to invest clients’ money in Par. Pauciulo in July agreed to pay the SEC $125,000 for providing wrong information to investors. He and Eckerd have denied wrongdoing in response to Vagnozzi’s complaint.

The judge also wrote that the SEC, or the receiver, may propose a plan to distribute the couple’s money to investors and other claimants, subject to his approval.

Staff writer Craig R. McCoy contributed to this article.

Published Oct. 26, 2022

I write about people and money in our community and beyond.