How Philly investors were drawn into what SEC alleges is $500 million fraud

Financial adviser Dean Vagnozzi likes to drive a six-figure Aston Martin sports car. Not one to miss a marketing opportunity, Vagnozzi has a license plate that reads: “GET ABFP” — the initials for his investment firm, known as A Better Financial Plan.

He installed his own nine-hole golf practice green behind his house in Collegeville, a feature recently profiled in a Wall Street Journal story. The article said it cost at least $75,000.

He posted a sales video of himself driving that Aston Martin this year on social media, along with other pitches online, such as a biographic portrait in which he’s behind the wheel of a top-down Porsche. Vagnozzi, 51, has been doing well financially by telling potential investors that, if they follow his advice, they could do well, too.

» READ MORE: Federal judge fires the leaders and employees of Par Funding and A Better Financial Plan

In late July, however, federal regulators named Vagnozzi and several other businesspeople as defendants in a $500 million fraud that lured investors with free dinners, radio ads, mass mailings, internet pitches — and alleged lies. The civil complaint also named felon Joseph W. LaForte, 49, and his wife, Lisa McElhone, 41; and Montgomery County financial adviser Perry Abbonizio, 62, among others.

At least until recently, they have been doing well, too. In May of last year, Abbonizio paid $2.6 million for a house near the beach in Stone Harbor, N.J. In November, McElhone bought a $5.8 million mansion in Jupiter, Fla.

The complaint focuses on Par Funding, a firm founded by LaForte and McElhone, and for which Vagnozzi and others drummed up business, according to the U.S. Securities and Exchange Commission. They and the others deny any wrongdoing.

Par Funding’s lure of high returns drew in income-hungry retirees and middle-class investors, as well as wealthy families and multimillionaires. In the SEC complaint, the agency alleges that Vagnozzi’s King of Prussia business was responsible for pulling in money from about 600 of Par Funding’s 1,200 investors. Although the SEC did not spell out his total compensation, it made public a document stating that his firm was paid almost $2 million for lining up 200 of those clients.

LaForte founded his company in 2011, shortly after he got out of prison for orchestrating a $14 million real estate scam and an illegal offshore gambling operation. And on Friday, federal agents arrested LaForte after they found seven guns in his home in Lower Merion. He had talked about fleeing the country on a private jet, prosecutors said. He had $2.5 million in cash in the house, too, the government said.

Running Par Funding for years out of Philadelphia, LaForte used aliases to hide his criminal record, the SEC alleges. By “scheming and lying,” the SEC said in a filing in federal court in Florida, the defendants hid LaForte’s criminal convictions, misled investors about the risk of their investments, diverted their money elsewhere, and kept them in the dark about hostile state regulatory actions in Pennsylvania, New Jersey, and Texas.

» READ MORE: Guns, cash, a private plane: Feds reveal more on probe of Philly financier at center of alleged $500M fraud

In court, lawyers for the defendants have fought back vigorously. Lawyers for Par Funding say investors have been paid impressive returns. Only the unforeseen coronavirus, they say, forced Par to cut back on payments. The real threat to investors, they say, is the SEC and its freeze on Par Funding operations.

At the SEC’s urging, a federal judge recently froze Par Funding’s bank accounts, as well as A Better Financial Plan’s accounts, and locked the doors on both businesses. On July 28, one day after news broke of the SEC suit, the FBI raided Par Funding offices in Philadelphia and Florida and LaForte’s homes in Lower Merion; Jupiter, Fla; and on Lake Wallenpaupack in the Poconos.

No criminal charges have been brought in the SEC matter.

Lawyers for Par Funding did not return calls. Neither did LaForte, McElhone, or Abbonizio. Brian Miller, a lawyer for Vagnozzi, said he would have no comment

In one court filing bolstering its defense, Par Funding’s lawyers say investors knew what they were getting into. One “very sophisticated investor” put in $60 million, and two brothers invested $40 million. The lawyers didn’t identify the investors, or say who had urged them to put in money.

In another filing, Par did identify one investor family, the Chehebars of New York, owners of the Rainbow Shops chain of clothing stores. This document says they invested at least $22 million.

The Chehebars were sold on the investments by a New Jersey firm headed by a man named Robert Frei, records show. Par Funding has sued to cut financial ties to him, citing Frei’s recent guilty plea to unspecified “financial crimes.” Frei’s legal rebuttal: Yes, he has a record, but so does LaForte. Frei didn’t return a phone call. Details of his criminal case could not be learned.

» READ MORE: With false promises and fancy dinners, Philly-based operation fleeced small investors, SEC charges

Although Par Funding insists it has consistently paid investors over the years, there is no dispute that this changed in 2020, as the pandemic hit.

For two months this past spring, investors in Vagnozzi’s funds linked to Par Funding suddenly stopped receiving payments. When checks resumed, the interest paid investors was cut to 4%, down from 10%, according to investors. Payments were halted again this month, with Vagnozzi citing the SEC complaint.

It all sent many investors into a panic, even before the SEC action.

Not all were upset at Par Funding. In court, the firm quotes one unidentified investor whose anger is directed at the SEC. This investor fears that its suit could kill Par Funding.

“The commission has not spoken to me, or anyone at my fund, regarding their current actions, despite their claims of trying to protect us,” this investor said. “I am entirely against liquidation or closure of Par as it will not only hurt myself, but also hundreds of investors. In fact, if liquidation were to occur, it is highly likely that many of my investors who are senior citizens would lose much of their life savings and homes.”

In contrast, Jim Wollyung, 64, a former dockworker retired on disability, says he’s almost resigned to losing the $401,000 he invested in the Merchant Cash Advance fund, linked to Par Funding.

In an interview, Wollyung said he followed Vagnozzi’s investment advice because of the adviser’s argument that “alternative” investments were less risky than those of the stock market. Vagnozzi steers investors to several lines of business. They include one based on buying life insurance policies from the elderly, called viaticals; and another that bets on lawsuits, a “litigation settlement” fund.

Par Funding’s business model: raising money from investors that it lends at high interest rates to smaller merchants as cash advances against future sales. In its lawsuit, the SEC criticized the strategy, saying Par Funding had made “opportunistic loans,” charging some merchants interest of more than 400%.

After a salesman from A Better Financial Plan visited Wollyung at his home in Olney, Wollyung in January 2019 invested his $401,000 into the Par Funding operation.

A Better Financial Plan promised a bigger return the more invested. For example, Wollyung said, an investment between $201,000 and $400,00 was to generate a 12% return. He bought in at the next tier.

“The returns were higher, around 14%, because I invested more,” Wollyung said.

Wollyung knew nothing of LaForte’s criminal past. “Had I known about LaForte,” he said, “I probably would have been dissuaded from investing as much.”

Still, the checks arrived regularly. But in March of this year, the money stopped, for two months.

“Suddenly,” Wollyung said, “all the investors started getting emails from Dean, saying we would have to roll over into a new fund with lower returns.”

The reason: According to Vagnozzi’s letter, sent by email, “Par Funding appears to be insolvent.”

In messages to investors and in court, Par Funding and Vagnozzi blame the crisis on the coronavirus, saying that some shuttered merchants had had trouble making payments on their loans.

However, critics say that the cash-advance business often sets borrowers up for failure.

“The problem is that the effective interest rate is sometimes so high that the struggling small business often has great difficulty digging itself out of debt,” said Benjamin Picker, a Chester County lawyer who condemned such loans last year in congressional testimony.

“The allegations in the SEC complaint [against Par Funding], if proven, shed necessary light on this problematic industry,” Picker added.

Last week, Vagnozzi was hit with another lawsuit. Joseph Caputo, 86, and his wife, Joan, 81, from Warminster in Bucks County, filed a federal suit against Vagnozzi, his firm, and his lawyer, John Pauciulo of the Eckert Seamans firm in Center City. The couple invested more than $100,000, their lawyer says.

The suit, a proposed class action, notes that after the checks were halted, Pauciulo appeared in late April in a public video alongside Vagnozzi urging investors not to sue over the issue. Investors who sued likely would get back only a “fraction” of their money, Pauciulo said.

Instead, the Caputos’ lawsuit says, the two men gave investors just days to roll their money into a new fund with the lower interest rate — the 4%, down from the promised 10%. Also, they would get their principal back only over several years. The previous deal said investors could reclaim their money after a year.

In an interview, the Caputos’ lawyer, Eric Lechtzin, said that “based on his [Pauciulo’s] recommendation as a lawyer,” investors “believed that they had no choice, and many opted to accept new investments that offered less interest.”

Lechtzin added: “His lawyer gave investors legal advice about the futility of bringing a lawsuit to recover their losses. He was deeply conflicted in offering that advice.”

In the lawsuit, the Caputos say that in the April video, Vagnozzi and Pauciulo never mentioned one aspect of the new arrangement: that it limited investors’ right to sue Vagnozzi and others.

Pauciulo did not respond to requests for comment.

As recently as late July, Vagnozzi continued to raise money for new funds.

According to an email he sent on July 23 titled “Windsor Opportunity Ending Soon!,” Vagnozzi offered clients a venture called Windsor Corporate Park Investment Fund. This investment was backed by real estate.

The investment promotion: a 10% return and principal returned in three years.

The next day, the SEC filed its sweeping lawsuit naming Vagnozzi, A Better Financial Plan, LaForte, McElhone, Abbonizio, Par Funding, and the others.