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

0

The founders of Par Funding – the Philadelphia lender called an investment scam by financial regulators – are pushing back on a demand to refund hundreds of millions of dollars from investors.

In a new court filing, husband and wife Joseph LaForte and Lisa McElone say they shouldn’t have to pay more than $56 million in returned proceeds and fines, not the $337 million sought by the Securities and United States Exchange Commission.

Late last year, the couple dropped their opposition to a sweeping civil fraud lawsuit filed against them by the SEC and agreed to make payments as part of a settlement. But a federal judge has yet to determine the amount and the two sides are back and forth before he rules.

In their filing Friday night, LaForte and McElone consistently sought to downplay the charges against them. “This is, at worst, a case of disclosure; not a matter of theft,” their filing states.

He accuses the SEC of making a “series of inflammatory statements and excessive demands that are factually inaccurate and fairly unsupportable.”

The SEC argued in its civil case filed in 2020 that LaForte, his wife, other directors, and a group of financial pitchmen raised $540 million from 1,200 investors by hiding — from those investors, regulators, and even his own attorney. de Par – that LaForte had twice served time for financial crimes and used pseudonyms to conceal his identity.

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

The SEC said Par Funding, which provided high-interest cash loans to cash-strapped small businesses, was lending money recklessly while falsely boasting that it had high standards. rigorous underwriting.

And while the SEC refrained from calling Par Funding a pure “Ponzi” racket, it says the defendants “operated Par Funding as a fraudulent scheme and also used investors’ money to pay alleged returns on investment to individual fund investors and agents”. Par insisted, for his part, that it was a “powerful legal business” canceled by an abusive SEC.

In their closing arguments Friday, LaForte, 51, and McElone, 42, say the SEC wrongly failed to account for the millions of dollars Par spent to operate and that those expenses were to be subtracted from its alleged ill-gotten profits . Among other expenses the company listed was a $5 million fine it paid in 2018 to Pennsylvania regulators for allegedly violating securities law.

After waiving the expenses, the couple said they only owed investors $49 million directly, plus several million more as penalties. After such a payment, according to an account the couple included in their lawsuit on Friday, they would still have control of approximately $100 million in cash and property. 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 is expected to pay investors around $237 million in returned profits and interest.

And, he said they would have to pay another $100 million as a penalty. But LaForte and McElone said they would have to pay at most around $7 million in penalties for their conduct.

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

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

U.S. District Court Judge Rodolfo Ruiz III heard the case. He will decide how much all defendants will pay, possibly later this summer. Ruiz’s court is in Fort Lauderdale. The SEC filed its civil lawsuit in Florida, where Par moved its headquarters in 2017, although Par retained offices in Old City Philadelphia.

In lawsuits against Par Funding, borrowers claimed the company used Renato Gioe, a bodybuilder and high-profile associate of the Gambino crime family, to threaten them. On Friday, the firm included among the expenses nearly $70,000 paid to Gioe between 2015 and 2017.

As for LaForte, prosecutors say he, too, threatened people with late payments. He denies this.

In closing arguments on Friday, he said he used a false name to protect his family.

“Mr. LaForte used a pseudonym to protect his family because he was involved in that part of the business that could have prompted threats from merchants (not investors) when Par’s lawyers used collection techniques legal and available…,” the filing reads.

LaForte and his wife founded Par in 2011 shortly after he was released from prison for convictions for $14 million mortgage fraud and his role in an illegal overseas gambling operation. In a 2018 interview with Bloomberg News, LaForte reportedly said he used a pseudonym to conceal his criminal convictions.

“It’s unfair that this stuff stays there forever,” LaForte said. “Google my name. Look what happens: ID photos.

Writer Dylan Purcell contributed to this story.

Share.

Comments are closed.