Par Funding owners say the SEC is demanding too much money in fraud settlement

The founders of Par Funding — the Philadelphia lender called an investment scam by financial regulators — are pushing back against a demand that they pay back hundreds of millions of dollars to investors.

In a new court filing, the husband and wife say they should have to pay no more than $56 million in disgorged proceeds and fines, not the $337 million being sought by the U.S. Securities and Exchange Commission.

The couple late last year dropped their opposition to a sweeping fraud civil suit filed against them by the SEC, and agreed to make payments as part of a settlement. But a federal judge hasn’t yet determined the amount and the two sides are going back and forth before he rules.

In their filing late Friday in federal court in Florida, Joseph LaForte and Lisa McElhone consistently sought to minimize accusations against them. “This is, at worst, a disclosure case; not a theft case,” their filing says.

It accuses the SEC of making a “series of inflammatory statements and overreaching demands that are factually inaccurate and equitably unsupportable.”

The SEC has contended in its civil case, filed in 2020, that LaForte, his wife, other principals, and a group of financial pitchmen raised $540 million from 1,200 investors by hiding — from those investors, regulators and even Par’s own lawyer — that LaForte had twice served time for financial crimes and used aliases to disguise his identity.

The agency also cited a sales pitch from him in which LaForte wrote in a text that he had invested “80 million in the company myself”— when he had put up nothing.

The SEC said Par Funding, which made high-interest cash loans to strapped small businesses, lent money recklessly while boasting falsely about having rigorous underwriting standards.

And although the SEC has stopped short of labeling Par Funding an outright “Ponzi” racket, it says the defendants “operated Par Funding as a fraudulent scheme and also used investor money to pay purported investment returns to individual and agent fund investors.” Par insisted, for its part, that it was a “powerful lawful business” undone by an abusive SEC.

In their pleading Friday, LaForte, 51, and McElhone, 42, say that the SEC had improperly failed to take into account millions of dollars Par spent to operate and that these expenses needed to be subtracted from its alleged ill-gotten profits. Among other expenses listed by the firm was a $5 million fine it paid in 2018 to Pennsylvania regulators for allegedly violating securities law.

After backing out expenses, the couple said they owed investors only $49 million directly, plus several million more as a penalty. After such a payment, according to an accounting the couple included in their legal motion Friday, they would still be left in control of about $100 million in cash and properties. The accounting said their assets included a $6.3 million jet, $2.2 million in artwork, and $1.3 million in other items, including a “small yacht.”

In contrast, the SEC said the pair should pay investors about $237 million in disgorged profits and interest.

And, it said they should pay $100 million more as a penalty. But LaForte and McElhone said they should pay at most about $7 million in penalties for their conduct.

Fining them $100 million, the couple says, would be “so irrational, arbitrary and capricious in this case that to impose such penalties would be unconstitutional.”

The agency is seeking an additional $36 million from five other businessmen who either had an ownership stake in Par or hawked its products to investors. Three of them, including Montgomery County financial salesmen Perry Abbonizio and Dean Vagnozzi, have reached settlements with the SEC, agreeing to pay total of $18 million. The two others are still fighting in court.

U.S. District Court Judge Rodolfo Ruiz III has been hearing the case. He will decide how much all the defendants will pay, perhaps later in the summer. Ruiz’s court is in Fort Lauderdale, Fla. The SEC brought its civil lawsuit in Florida, where Par moved its headquarters in 2017, though Par kept offices in Old City in Philadelphia.

In lawsuits against Par Funding, borrowers have claimed the firm used Renato Gioe, a bodybuilder and reputed associate of the Gambino crime family, to dun them with threats. Friday’s filing included among Par expenses nearly $70,000 paid to Gioe between 2015 and 2017.

As for LaForte, prosecutors say that he, too, threatened people who were late making payments. He denies that.

In the pleading Friday, he said he had used a fake name to protect his family.

“Mr. LaForte used a pseudonym to protect his family because he was involved in that portion of the business which may have incited threats from merchants (not investors) when Par’s lawyers used lawful and available collection techniques...,” the filing said.

LaForte and his wife founded Par in 2011 shortly after his release from prison for convictions for a $14 million mortgage fraud and his role in an illegal offshore gambling operation. In a 2018 interview with Bloomberg News, LaForte was quoted as saying he used an alias to conceal his criminal convictions.

“It’s unfair that this stuff stays around forever,” LaForte said. “Google my name. Look what comes up: mugshots.”

Staff writer Dylan Purcell contributed to this article.