Despite a court order locking doors and forbidding access to documents, employees of Par Funding — the Philadelphia firm facing civil charges of investment fraud brought by federal regulators — remotely downloaded more than 100,000 company records in recent days and altered some, officials allege.
After hearing of this in an emergency plea from a court-appointed receiver, a federal judge over the weekend issued a new order to make certain electronic access was cut off, and ordered Par Funding staff to disclose and destroy any downloaded documents.
U.S. District Judge Rodolfo Ruiz in Florida on Sunday gave the receiver he has named, lawyer Ryan Stumphauzer, the green light to suspend Par Funding staff’s Google email and document access.
The legal skirmishing has been frenetic since the U.S. Securities and Exchange Commission late last month filed a sweeping civil fraud complaint against Par Funding and financial advisers in Montgomery County and Florida, among others, saying that they had violated securities laws, hid the risks facing investors, and kept secret the criminal past of a Par Funding founder. Par investors saw their payments suspended for two months earlier this year before they were resumed at lower interest rates. They were suspended again this month; advisers blamed the SEC action.
Par and the other defendants say in court papers that the investments were legitimate. They say it is the SEC that is endangering investors’ future returns by taking over the business and expelling more than 70 employees along with outside lawyers and other professionals who serve the business. Investors put up nearly $500 million in a business model based on giving cash-advance loans to merchants.
Gaetan Alfano, the lawyer for receiver Stumphauzer, said at a scheduling hearing Monday that his office is interviewing Par veterans and may bring some of them back to work.
On Monday, Judge Ruiz said in a public conference call with lawyers that he hoped Par could be “saved” and “avoid liquidation” and that at least part of investors’ principal be returned to them. He said he’s been “inundated” by calls from investors. The receiver has set up a website for investors, employees, and others following the case at parfundingreceivership.com/faqs.
He added: “Merchant cash advance seems like the Wild, Wild West when it comes to investor funds.”
Amie Riggle Berlin, the SEC senior trial counsel in the case, said in the SEC complaint that Joseph W. LaForte used aliases to hide his convictions for a $14 million real estate scam and the operation of an illegal gambling operation. He is behind bars awaiting trial on federal charges of illegal possession of guns by a felon. The seven guns — and $2.5 million in cash — were seized by the FBI after it raided his homes recently in Lower Merion, the Poconos, and Florida.
The FBI also searched Par Funding offices in two locations in Old City and related facilities in Florida. The firm was founded in 2011 by LaForte and his wife, Lisa McElhone, shortly after he got out of prison. It operated solely out of Philadelphia until 2017, when it opened another office in Florida. The SEC brought its case in federal court in West Palm Beach.
The fight over records broke out after the receiver’s Philadelphia-based lawyer, Alfano, told the judge that Par Funding employees had “downloaded over 100,000 files from the company’s G Suite cloud-based account” and information from the firm’s Quickbook accounting software. Alfano said documents were transferred as recently as Friday — two weeks after the judge’s order cutting off access.
Alfano said about 10 employees had accessed data, including workers from the collections, accounting, and information technology units. One employee, he added, not only downloaded documents but also edited and changed information, including a spreadsheet titled “Leads/Consolidated Data Sheet.”
In his order Sunday, Ruiz gave the receiver more authority to shut off Par employees’ remote access “for as long as required … to ensure that the electronic data … is being properly preserved.”
In a separate filing, the SEC complained to the judge that a private investigator hired by Par Funding, Margaret Clemons, owner of a New York City detective agency, had been writing to Par Funding investors urging them to support the firm by sending letters to the court.
The federal agency said the detective has urged people to join in an attempt to enter the case by Par Funding investor Alan Candell, of Villanova. Candell had filed papers with the court to intervene in the legal brawl, saying he was concerned that the receivership would damage his investment.
The SEC’s Berlin said in court papers that Candell had neglected to note he is a lawyer and had done legal work for Par and for one of the financial advisers named in the SEC complaint.
On Friday, Ruiz denied Candell’s petition to intervene in the case.