With false promises and fancy dinners, Philly-based operation robbed small investors, SEC says

The pitch on KYW radio sold Robert Hawrylak. He liked the promised 10% return and the promise that he could get his capital back in a year.

The part-time, resident teacher at Boothwyn took $ 50,000 from his Fidelity Investments accounts – “half my savings” – and invested it in a financial firm known as Par Funding.

But when Hawrylak, 65, went to recoup his investment this spring, he heard bad news: 10% more return, and he would have to wait years for his money.

Sol Mermelstein, 67, a real estate broker from Upper Dublin, was won over in 2018 during a free dinner at the Capital Grille in King of Prussia.

“They made a very polished presentation,” Mermelstein said. “They said the flaws were minimal. And no investor has ever lost a dime.

The locations were part of a high-profile fraud, according to federal regulators.

In a sweeping new complaint, the Securities and Exchange Commission said the pair that operated Par Funding from Philadelphia, joined by others, raised nearly $ 500 million nationwide from 1,200 investors in selling “unregistered fraudulent securities offers” with lies.

Using undercover agents posing as investors and at least one FBI recording, regulators uncovered a network of pitchmen and women stretching from Philadelphia to Florida, who transformed advances from High interest funds provided to small businesses as an investment vehicle to attract investors. At the center of the multi-state web were Joseph W. LaForte, 50, and his wife, Lisa McElhone, 40, the agency said.

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The SEC said the group misled investors about the safety of their investments and the default rate of their borrowers on loans. He said their victims were kept in the dark about LaForte’s criminal record. He used pseudonyms to hide his beliefs in a $ 14 million Ponzi scheme and illegal offshore gambling operation, he said.

Among those believed to have helped raise millions were two veteran finance businessmen, Perry Abbonizio, 62, and Dean Vagnozzi, 51, both of Montgomery County. The SEC complaint against Vagnozzi was just the latest blow for him; he has already agreed to pay $ 990,000 over the past two years to settle alleged securities violations.

At one point this year, according to the SEC, Vagnozzi said Par Funding had the appeal of “crack cocaine.” He apparently didn’t realize he was talking to an undercover agent – a poseur acting, according to the complaint with little elaboration, under the direction of law enforcement.

LaForte and his wife, who now live in South Florida, where the complaint was filed Friday, offered loans through a business they owned with Abbonizio, By Funding, which has operated for decades. years in a Third Street office in the Old Town.

The full complaint is available below:

Lawyers for LaForte, McElhone and Vagnozzi did not respond to multiple calls for comment, nor did Abbonizio and Par Funding.

Investors still hope to get their money back eventually, even without the higher interest they say they have come to expect. The SEC is asking a federal judge to freeze the assets of LaForte and McElhone, Vagnozzi and Abbonizio, and others, and to appoint a receiver to protect the remaining assets of investors.

In 2006, LaForte was sentenced in New York State for organizing a sum of 14 million dollars real estate ponzi scheme. He was sentenced to at least three years in prison. Three years later he pleaded guilty to federal criminal charges in New Jersey for conspiracy to operate a gambling business abroad.

He left prison in 2011 and quickly founded Par Funding with his wife while on probation. Abbonizio was also the owner.

Their niche was to provide business loans at very high interest rates. Investors funded the loans by investing in funds set up by Vagnozzi and others. But the loans were uninsured, and as more loans defaulted this spring, investors were told that the promised returns would be drastically reduced and that they would not be able to recover their principal until. several years.

The SEC has been tough on their business model. “The McElhone-LaForte duo are in the business of making opportunistic loans – some of which charge more than 400% interest – to small businesses across America,” the SEC complaint read. A sample of loans found that more than half carried interest rates above 95%.

The federal agency also alleges that Par Funding even threatened those who owed money. While the new complaint provided few details, Bloomberg declared in 2018 that a criminal who collected debts for an insinuated harm could come to the family of a debtor. “These are the kinds of things that strongly affect women and children,” said the collector.

Meanwhile, Vagnozzi formed a better financial plan in 2010 in the King of Prussia to offer alternative investments to the stock market, such as annuities. He then recruited investors for Par Funding, raising at least $ 28 million, according to the SEC.

His career recently touched turbulent waters. Over the past two years, Vagnozzi has agreed to pay hefty fines to resolve regulatory complaints. In 2019 he paid Pennsylvania $ 490,000 to settle a complaint that he had not registered with the state to sell securities. Two weeks ago he agreed to pay $ 500,000 to settle a federal complaint that he was selling unregistered securities. He did not admit any wrongdoing in either case.

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As regulatory oversight increased, Vagnozzi changed tack, the SEC said. He urged others to create their own pools to invest in au pair funding, while taking a quarter of their profits, according to the lawsuit. The lawsuit suggests that this was an end to Pennsylvania securities regulation. As recently as April, Vagnozzi organized a Zoom appeal in which he recruited people to raise funds for Par Funding, according to the complaint. During the call, Vagnozzi said he wanted to teach people to be “scouts” so that they would “have no problems” as unregistered brokers.

Vagnozzi recruited up to 40 agents, as he and Abbonizio trained people to raise funds for Par Funding, according to the SEC.

(In 2015, Abbonizio was $ 10,000 fine by industry regulators and briefly suspended for violating financial rules.)

Vagnozzi and Abbonizio also organized large meetings, such as the one on November 21, 2019, cited at length in the complaint. Featuring more than 300 people, Vagnozzi solicited people to invest in Par Funding, according to the SEC filing.

Participants received a one-page leaflet describing investment opportunities and promoting the type of investments Par Funding is making. He said they only had a 2% default rate on their merchant loans and offered 10-14% returns, with the principal paid off in just a year.

Vagnozzi told attendees that he had “alternative stock market investments that are safe”, that an investment in Par Funding does not have “too many risks” and that it “puts it out of the park”, according to the SEC complaint.

Next was Abbonizio. He told the public that Par Funding has a default rate of 1%, even lower than the number stated in the leaflet.

The next speaker, LaForte, called Par Funding “arguably the most profitable cash advance company in the United States and possibly the world,” the SEC said. The agency said LaForte claimed to have invested $ 80 million or $ 500,000 in the company himself, but did not actually invest a dollar.

As for the default rate, the SEC said the claims were “false and misleading.” In fact, he said Par Funding filed 2,000 debt collection lawsuits against borrowers for default, half of which were filed in Philadelphia. The complaint says half of the company’s $ 600 million in loans were in default and the true default rate was well over 1% or 2%.

Par Funding blamed the coronavirus-induced shutdown of businesses for what happened next.

In March, according to documents obtained by The Inquirer, Vagnozzi emailed investors a message regarding the COVID-19 hit. He said, “Per Funding has defaulted on a note with the fund you’ve each invested in, and they will continue to default for the next several months.”

Payments to investors ceased in April and May. In the same email, Vagnozzi wrote that it would not be productive to sue Par Funding and said he was working with Par to restructure payments.

This restructuring has come at a cost to investors like Hawrylak, the Delaware County teacher.

In early 2019, Hawrylak, after hearing about the program on the radio, attended a Vagnozzi seminar in the King of Prussia. Hawrylak said he particularly liked Vagnozzi’s assurance that the investment was insured.

There was no such assurance, according to the SEC.

When he invested his $ 50,000 last year, Hawrylak said, he expected to earn at least 10% a year. He also said he appreciates that the plan gives him the right to recoup his initial investment after a year.

After stopping his monthly payments in April, Vagnozzi offered a replacement paying just 4%. Hawrylak could get his $ 50,000 back – over seven years. Reluctantly, he agreed.

For his part, investor Mermelstein said he and his accountant attended the 2018 free dinner at the Capital Grille by visiting Abbonizio and meeting him at Par Funding’s office in the Old Town. Mermelstein handed over a check for $ 110,000.

Mermelstein said he expected to get his principal back in 2020.

But he, too, learned from Vagnozzi that the conditions had changed – Par Funding could not repay its money or pay the promised 10% interest. He too accepted the new reduced yield of 4%, and the same delay in repaying his principal.

Late, he did a little more research – and found that Par Funding and Vagnozzi had agreed to pay to settle regulatory complaints about previous plans.

“If I had known that this was how their operations went,” said Mermelstein, “I would not have invested.”

This story has been updated to reflect the following:

Dean Vagnozzi, among those named in an SEC complaint alleging securities violations, on July 14 settled SEC allegations that he sold unregistered securities backed by life insurance settlements. This article originally listed an additional investment category that was not addressed in these claims.

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