More than 1,600 victims of the Par Funding scheme will get nearly all their money back, despite repeated warnings from the U.S. Securities and Exchange Commission (SEC) that full reimbursement would be highly unlikely.
The news comes 5½ years after a federal court-appointed receiver seized the Philadelphia loan company amid investigations that have sent its top officers to federal prison.
“Sounds like Christmas to me!” said investor Joe Brock, a management consultant who invested $200,000 with Par.
Starting in 2011, Par raised $550 million, telling investors it was lending to merchants at high interest rates for big profits. But Par insiders diverted over $200 million to themselves, and many of its clients couldn’t repay the loans. In March 2020, Par stopped paying investors back.
In July 2020, the SEC filed a sweeping fraud lawsuit against the firm, its owners and pitchmen. Criminal charges followed in 2023. Eight people involved with the company have pleaded guilty and been sentenced to prison and fines.
How much will investors get?
The investors were repaid $111 million, just over half their missing $220 million, under an initial “distribution” of Par assets approved last December.
Another $97 million will be on the way, pending approval by Florida-based federal Judge Rodolfo Ruiz, who has overseen the case since FBI agents raided Par’s Old City offices and detained founder Joseph LaForte on gun charges in 2020. The judge has declared Par a Ponzi scheme, designed to defraud, by using old investors’ money to fool new investors into falsely believing Par was profitable.
A third, smaller payout may be arranged in the future, which could bring the recovery above the loss total, according to the new proposal.
The plan was filed Friday to the judge.
In July 2020, the FBI raided Par offices and founder LaForte’s Haverford home, and the SEC asked Ruiz to put the company into receivership to protect what was left of investors’ money and to investigate whether LaForte and his allies had stolen money from the company.
The SEC also filed civil charges against founder LaForte, his wife, Lisa McElhone, chief financial officer Joseph Barleta, and four investment salespeople, accusing them of selling unregistered securities and failing to disclose LaForte’s prior federal fraud convictions.
Federal criminal fraud charges followed against the three top Par officials, plus debt collectors James LaForte and Renato Gioe; an investment salesman, Perry Abbonizio, and two Colorado accountants who did Par’s taxes.
The investors are getting their investments back, but not the promised interest. And the paybacks will be uneven.
Under the terms of the proposal, investors in Par funds set up through Dean Vagnozzi, a former King of Prussia insurance agent who was Par’s most successful salesperson, are on track to receive as much as 98% of their total investment, or as little as 46%, depending on when they invested and how much was in Par.
Some of the funds set up for Vagnozzi’s A Better Financial Plan invested partly in Par and partly in life-settlement contracts, insurance policies purchased from their owners at a discount so investors collect the proceeds when they die. Investors in those funds still hope to collect additional funds as the policyholders die.
Where the recovered money is coming from
The $110 million in the first distribution from the receiver was funded largely by money seized from Par and from founder Joseph LaForte, McElhone, and other Par officials.
The $97 million in the second distribution included $36.5 million in Par funds that had been held in escrow while the receiver negotiated how much was owed to investors in the Chehebar family (some members spell it Shehebar), who own Rainbow Stores.
Lawyers for the Chehebars argued that they had negotiated senior payment rights and should have gotten repaid before other investors. But the receiver said the Chehebars were actually “insiders” who worked closely with the LaFortes and didn’t deserve special treatment.
The Chehebars agreed to settle for $3.1 million — or more if the receiver is able to pay all approved investor claims.
Another $31 million for the payback has been collected from a settlement of lawsuits against John Pauciulo, salesman Vagnozzi’s longtime lawyer, whom Vagnozzi and others blamed for failing to warn that the Par funds ought to be registered with the SEC and to warn investors about LaForte’s criminal past.
Insurers for Pauciulo’s former law firm, Eckert Seamans, agreed to pay $47 million, but part of that total was consumed in payments to lawyers and others with claims against Pauciulo.
In hearings this fall, investigators for the Pennsylvania Disciplinary Board, an arm of the state Supreme Court, have argued that Pauciulo failed to properly advise his clients about the danger from investing in Par. A ruling is pending.
Helping fund the planned second round of payments to Par investors was $10 million from the sale of LaForte’s former vacation home in Jupiter, Fla., one of the last of 25 properties seized by the receiver as proceeds of the Par founder’s fraud.
The rest is funded by millions taken from Par and its investors and not paid out earlier.
For a potential third distribution, the receiver and its consultants have identified several additional funding sources:
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$11 million in still-uncommitted cash from the funds the receiver took from Par and its owners;
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$10.5 million in a requested IRS refund of taxes Par paid on phony profits the company reported when it was trying to get more people to invest;
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$1 million from the sale of three remaining properties at 20-22 N. Third St. in Philadelphia, the last of 20 city properties the receiver has used to raise cash for victims;
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Up to $4 million that might still be collected from Par’s last borrowers, half of it from Kingdom Logistics, a Texas-based mining company.
Investors also should receive some proceeds from the liquidation of the former Par Funding corporate jet, worth an estimated $6 million when it was seized by the FBI in 2020, and a Charles Schwab investment account, worth more than $13 million at that time. The government has a separate process for deciding how to pay back that money to investors.
Expenses for the receiver’s lawyers and other professional services have cost around $100,000 a month, according to the receiver’s most recent quarterly reports.
All the Par officials charged with crimes were sentenced, most of them earlier this year, after pleading guilty to criminal fraud and, in some cases, other charges.
Besides fines, restitution and probationary periods, these are the prison terms for people involved:
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Par founder Joseph LaForte, 15½ years
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Par collections head James LaForte, 11½ years
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Par chief financial officer Joseph Cole Barleta, 5½ years
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Tax accountant Rodney Ermel, 2½ years
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Debt collector Renato Gioe, 1½ years
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Investment manager Perry Abbonizio, who identified himself to investors as a Par co-owner, six months
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Tax accountant Kenneth Bacon, six months
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Nominal owner Lisa McElhone, Joseph LaForte’s wife, one day