Par Funding is branded ‘a Ponzi scheme’; ‘insiders’ seek millions as investors wait

Par Funding operated from 2012 to 2019 “as a Ponzi scheme,” diverting new investors’ money to fool old investors and wrongly enriching its owners, the court-appointed receiver for the defunct Philadelphia cash-advance lender said in a court filing Monday. The motion is designed to speed partial payments to around 1,700 investors who are owed a total of $228 million.

During the four years of civil proceedings in the fraud case, the U.S. Securities & Exchange Commission had mostly avoided the Ponzi label, which refers to a type of investment fraud that offers high returns to early investors from proceeds from later investors.

By recognizing Par as a Ponzi scheme, receiver Ryan Stumphauzer said in a motion before U.S. District Court Judge Rodolfo Ruiz, precedent would allow the court to distribute Par assets to investors, minus payments they received when Par was yielding early investors more than 10% in yearly interest. Under this proposal, a few investors wouldn’t be paid anything because they got more out of Par than they put in.

Ruiz has said investors have waited a long time for their money. Stumphauzer’s latest motion offers a road map for paying investors and some others, while denying other claims on what’s left of Par’s assets. If the judge approves, the receiver will follow up with a plan to send investors an “initial distribution” of what they are owed.

The U.S. Securities & Exchange Commission filed fraud charges in 2020 against Par founders Joseph LaForte; his wife, Lisa McElhone (who on Monday agreed to plead guilty to tax fraud); and other insiders after Par defaulted on payments to investors. That’s when Ruiz agreed to put Par into receivership.

Since then, the SEC had mostly avoided calling Par a Ponzi scheme in court papers as it litigated to recover investors’ money and fine Par leaders for lying about investment risk and failing to register with the SEC or comply with its rules.

The SEC had proposed repaying investors based on what they were owed when the company was put in receivership, whether or not they’d collected interest in previous years.

The receiver warned in Monday’s motion that the money so far collected for investors — more than $150 million in cash, settlements with former Par salespeople, and the seizure and sale of Par owners’ real estate and other properties financed with Par cash — is not enough to pay back the entire $250 million-plus it says investors and other creditors are owed, let alone any interest they had hoped to collect.

The receiver still hopes to collect “tens of millions” more from insurers for Philadelphia law firm Eckert Seamans. Former partner John Pauciulo helped Par raise money through the sale of unregistered securities the SEC says were unlawful, from federal taxes Par paid on phony income, from additional brokers that sold Par investments, and from a few large Par borrowers whose repayments are still in litigation.

Additional property taken from Par’s owners, including the former corporate jet, were seized by federal authorities, who are pursuing separate criminal cases against Par officials. The receiver has no control over this property.

Also seeking a share of Par’s assets are former financial backers including cash-advance lender Anthony Zingarelli (described in the motion as LaForte’s “right hand”); Par borrowers who say they were overcharged; and former Par salespeople including Dean Vagnozzi, whose KYW and talk radio ads attracted hundreds of Par investors. Vagnozzi earlier paid $5 million to settle SEC charges related to Par.

The receiver wrote that the judge should deny most of those claims and put investors first.

However, the receiver is also recommending partial approval of claims by two of Par’s leading financial backers. That includes $18 million in payments to members of New York’s Chehebar family, which owns Rainbow Shops stores, and $8 million to Capital Source 2000, a company set up by Par’s chief financial officer, Joseph Cole Barleta, and his business partner, former Philadelphia-area banker William Bromley. The receiver said he could still challenge final payments in those cases.

With Ruiz’s approval of his recommendations, Stumphauzer added that he would be able “to begin distributing funds” to investors — some directly and some through the fund managers they dealt with when they first invested in Par.

Lawyers for Par at first insisted the company was a profitable business, even paying federal income taxes, which the SEC disrupted with its lawsuit and the receivership.

But in 2022, the defendants agreed to stop challenging the SEC’s claims about their illegal acts and have since been arguing about how much money they personally should have to pay investors.

According to the motion filed Monday, Par Funding (also known as Complete Business Solutions Group, or CBSG) listed hundreds of millions’ worth of “uncollectible” small business loans as if they were income-producing assets — so the company could pretend to be profitable and keep attracting new investors, even though it was losing money — “the hallmark of any Ponzi scheme.”

The Ponzi scheme label, named for 1920s Boston fraudster Charles Ponzi, who preyed mostly on fellow Italian immigrants, has been applied to multibillion-dollar swindler Bernie Madoff and others criminally convicted of lying to investors to create the false appearance that their enterprises were legitimate and profitable.

LaForte and his brother, head Par loan collector James LaForte, who federal prosecutors in New York say is a member of New York’s Gambino criminal organization, are in federal prison awaiting a scheduled December trial on criminal conspiracy charges.

Prosecutors also have accused the LaFortes — who were previously convicted on federal criminal charges and imprisoned in New York before Joseph LaForte moved to Philadelphia and started Par in 2012 — of using threats and violence to intimidate borrowers and witnesses. James LaForte is accused of a 2023 daylight assault of Gaetan Alfano, a lawyer for Stumphauzer.

Former Montgomery County investment salesman Perry Abbonizio and debt collector Renato Gioe pleaded guilty earlier to criminal charges in relation to their work for Par.