SEC demands $360 million in Par Funding ‘Ponzi scheme’

Federal financial regulators are demanding that four remaining defendants in the Par Funding scandal pay $360 million to investors who lost money in a plot that the regulators for the first time have flatly labeled a “Ponzi scheme.”

The U.S. Securities and Exchange Commission asked a federal judge on Friday to order that most of that — $337 million in income, interest, and fines — be paid by Joseph LaForte and Lisa McElhone, the husband and wife who founded Par Funding in Philadelphia in 2011 just months after LaForte exited prison after serving time for a pair of financial crimes.

The SEC says the couple pocketed scores of millions of dollars, buying luxury homes on the Main Line, in Florida, and in the Poconos, a private jet, and high-end cars, expensive artwork, and dozens of pricey Philadelphia properties while defrauding 1,200 investors who sunk $550 million into their fund.

» READ MORE: Financial pitchman Dean Vagnozzi has settled SEC fraud complaint for $5 million

LaForte used three aliases to hide his criminal past from investors, and Par Funding lied to its own lawyer to hide his convictions from the SEC and investors, the agency said. He also lied by telling investors he had put as much as $80 million of his own money into the fund, when in fact he invested nothing, the SEC said.

The firm promised generous returns, saying it made money lending cash to smaller merchants at high interest rates — as punishingly high as 400%, the SEC said. Par boasted to investors of its rigorous underwriting standards even as it lent money with reckless abandon, falsely told investors their money was insured, and lied about its supposedly low default rates while suing thousands of borrowers for non-payment, the agency said.

In her filing on Friday, SEC senior trial counsel Amie Riggle Berlin asked U.S. District Judge Rodolfo Ruiz III to find that Par Funding operated as a Ponzi racket, in which money from new investors was used to pay earlier ones. In fact, she said, even while Par Funding paid $300 million back to investors, it made only $6 million in actual profits on all its lending. Ruiz is presiding over the civil lawsuit, brought by the SEC in 2020.

“Par Funding could not have made these payments to investors without the inflow of new investor funds,” Berlin wrote, “This is commonly referred to as a Ponzi scheme.”

A finding by Ruiz deeming the business a Ponzi scheme would bar the defendants from reducing the money they must pay by citing Par Funding’s operating costs. Ruiz’s courtroom is in Fort Lauderdale, where the SEC brought its sweeping lawsuit. Par Funding set up an office in Florida in 2017.

In the past, Par Funding’s lawyers have bridled at any “Ponzi scheme” description. LaForte, McElhone, and two other defendants now have two weeks to file their objections to the SEC demands. Although they can contest how much they owe, they cannot challenge the main allegations that they engaged in fraud and that they must pay back investors. They dropped their objections to the lawsuit late last year days before the civil case was to go on trial.

McElhone’s lawyer, Alan S. Futerfas, declined comment Monday, promising to file a “substantial” rebuttal with the court. David Ferguson, LaForte’s lawyer, could not be reached immediately.

Once Ruiz imposes a final figure, investors would see some money. In total, the investors are now short about $250 million, putting aside what they might have made by investing elsewhere. The receiver in the case, assisted by Philadelphia lawyer Gaetan J. Alfano, has gained control of about $150 million more in cash and real estate related to Par Funding. That leaves a $100 million gap, one that the receiver is still seeking to close.

The SEC civil action aside, the FBI and federal prosecutors are also known to have been conducting a criminal investigation into Par Funding. The scandal has also spawned a series of private lawsuits.

In an interview Monday, Larry Cohen, 75, a retired teacher, said he had invested $65,000 with Par Funding but had received only about $8,000 back. He said he would never have put up any money had he known LaForte had a criminal record for a $14 million mortgage fraud and operating an illegal gambling operation.

“I’m happy that it is coming to a conclusion hopefully, and that the principals will have some kind of punishment,” Cohen said.

Another investor, who asked not to be identified to keep his financial affairs private, said he was troubled by the plight of elderly investors who had lost savings.

“I’m sorry for some of the seniors who didn’t get to enjoy their retirements because of this,” he said. “It is not good.”

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

Along with LaForte and his wife, the SEC asked the judge Friday to order Par’s chief financial officer, Joseph Cole Barletta, to pay nearly $19 million and financial pitchman Michael Furman to pay $3.8 million. Furman, who helped find investors for Par Funding, was the only defendant in the case to take his defense to trial. In December, a jury found him liable on every claim. Their lawyers could not be reached for comment Monday.

While those defendants may still contest the money owed, three others in the case have settled with the SEC. Previously, Montgomery County financial salesmen Dean Vagnozzi and Perry Abbonizio agreed to pay up, with Abbonizio agreeing to pay $11.3 million in cash and property and Vagnozzi $5 million. A Florida financial salesman, John Gissas, has agreed to pay $1.3 million.