Montgomery County financial adviser Dean Vagnozzi says a federal lawsuit criticizing lender Par Funding and Vagnozzi’s ties to the firm could end up hurting investors in his unrelated funds, but the court-appointed receiver in the case says Vagnozzi’s recent actions make him hard to trust.
On Friday, Vagnozzi warned that a federal judge’s freeze on his bank accounts — ordered in response to the U.S. Securities and Exchange Commission’s lawsuit — threatens to halt the payment of premiums for life-settlement policies packaged as investments for hundreds of his customers.
He asked U.S. District Judge Rodolfo Ruiz to unfreeze money to pay those premiums so the policies bought by investors don’t expire starting as soon as Wednesday.
Brian P. Miller, a lawyer for Vagnozzi, expressed impatience with the SEC’s criticism in a court filing Friday.
“Mr. Vagnozzi is sick and tired of being falsely accused of being uncooperative,” Miller wrote. “And this has zero to do with whether life insurance premiums should be paid.”
But in his court response Monday, Gaetan Alfano, the lawyer for the court-appointed receiver who has taken control of Par and Vagnozzi’s businesses, questioned whether it was clear which were the right funds to pay the premiums.
Alfano also sharply criticized Vagnozzi’s $550,000 payment to a disgruntled investor in August — a payment made after his money was supposedly frozen in response to the SEC lawsuit. According to Alfano, Vagnozzi:
“Chose not to disclose” the payment to receiver Ryan K. Stumphauzer, let alone ask permission. The money went to a Chester County investor in Par Funding who wanted his cash back.
Paid the money in August, but relied on a “backdated” document to later argue that he had actually made the payment in July before the freeze.
Made a “false” claim that he had told receiver Stumphauzer about the payout. But Alfano said the receiver learned of the payment only when the investor, David Jancarski of Blue Bell, disclosed in a public filing in a separate case in a county court that he had settled a suit with Vagnozzi.
Alfano has called on Jancarski to return the money. Jancarski and the lawyer, Gerald Berkowitz, did not respond to requests for comment.
In its sweeping complaint against Par Funding, Vagnozzi, and others, the SEC says the defendants raised almost $600 million from 1,200 investors by falsely claiming that Par’s business was insured against investors’ losses.
They also say that the investors weren’t told about the criminal past of a Par founder, a twice-convicted scammer now in prison awaiting trial on a firearms charge.
The defendants have argued that investors knew what they were getting into, and they blame the coronavirus shutdown of businesses for Par’s struggle to keep up payments to investors.
Vagnozzi has argued that the receivership has been unnecessary — and that, if Par Funding has done anything wrong, he, too, is a victim. While not disputing a need for the SEC to probe Par, Vagnozzi says he doesn’t want investors in his other funds to suffer.
The receiver and the SEC cited the Jancarski payout in challenging Vagnozzi’s motion, filed last week, that premiums be paid for life insurance policies. Those policies are backing his Pillar Life Settlement and ABFP Multi-Strategy investment funds, which have raised more than $50 million from investors. The second fund’s name uses the initials of Vagnozzi’s King of Prussia company, A Better Financial Plan.
The Pillar and Multi-Strategy funds are each at least partly funded by life insurance policies bought at a discount from elderly sellers who wanted cash upfront instead of letting their heirs collect when they died. Such investments are also called viaticals.
Besides life settlements, the Multi-Strategy funds also invested in Par Funding. And at least one of the Pillar funds was partly invested in non-insurance assets, records show. Par Funding raised money from investors that it then lent at high interest to merchants short of cash.
The receiver says he wants to make sure Vagnozzi hasn’t improperly co-mingled investor money in his various funds. He wants to be sure any money paid for premiums doesn’t come from an incorrect source, and thus harm investors in other funds.
Miller, Vagnozzi’s lawyer, told the court that his client has “completed his accounting” to the government.
Not so, said Alfano. In his Monday response, the lawyer wrote that “the receiver does not believe that any” of Vagnozzi’s funds “have submitted any accounting to the SEC.”
In an order late Monday, Judge Ruiz called on Vagnozzi to detail any financial and legal connections between the Pillar and Multi-Strategy funds and other companies by 10 a.m. Tuesday.
Sorting out the Pillar and Multi-Strategy funds isn’t the only challenge facing the receiver.
Stumphauzer has also pushed Par Funding’s longtime law firm, Fox Rothschild LLP of Philadelphia, to produce extensive legal records, including documents that lay out the firm’s lending process, and paperwork from the 2,500 default lawsuits that Par Funding has brought against its borrowers.
Fox Rothschild complained Monday to the judge that it had provided many records, but should not be expected to produce the tens of thousands of documents sought by Stumphauzer unless Fox receives a detailed subpoena and the receiver pays costs.