Receiver asks judge to hold Par Funding founders in contempt, saying they diverted millions of dollars for their own use

The court-appointed receiver in the Par Funding fraud case on Friday asked a judge to hold Par’s founders in contempt of court, saying they had secretly diverted millions of dollars from the business to pay their defense lawyers, cover property taxes on their Florida mansion, and enrich relatives and friends.

In a court filing in the sweeping civil case, the receiver said founders Joseph LaForte and his wife, Lisa McElhone, had done this behind his back, “laundering” the money even though the court had put the receiver in charge of Par’s assets. Receiver Ryan K. Stumphauzer also asked the federal judge for approval to sue 11 other people, including four relatives of the couple, and nine businesses to try to recover some of money.

» READ MORE: With false promises and fancy dinners, Philly-based operation fleeced small investors, SEC charges

The legal action was filed at a critical time in a lawsuit brought by the U.S. Securities and Exchange Commission against Par Funding, a lender based for many years in Philadelphia that the agency said defrauded 1,200 investors while raising $540 million. The SEC says that Par hid from investors LaForte’s criminal record for financial wrongdoing and misled them about Par’s reckless lending. The firm used the investor money to make high-interest loans to cash-strapped merchants.

U.S. District Judge Rodolfo Ruiz III appointed Stumphauzer to wrest control of Par assets immediately after the SEC brought its lawsuit in July 2020. He is expected to rule soon on a SEC request that LaForte, his wife, and other Par principals pay back $378 million to investors to resolve the civil case. The defendants have dropped their opposition to the substance of the SEC complaint but want to pay a fifth of that.

» READ MORE: Par Funding owners say the SEC is demanding too much money in fraud settlement

Lawyers for LaForte and McElhone did not return calls seeking comment Friday.

The couple set up Par Funding in Philadelphia in 2011, a few months after LaForte left prison after serving sentences for a $14 million mortgage fraud and helping run an illegal offshore gambling operation. While continuing to keep an office in Old City, they moved the nominal address of Par to Florida in 2017 for tax reasons. The SEC brought its lawsuit in Florida, where Ruiz has his courtroom.

Stumphauzer has spent the last two years seizing control of assets of LaForte, McElhone, and others, including valuable real estate the couple owns across Philadelphia.

He has also sought to collect payments from the merchants lent money by Par. In the filing Friday, lawyers for the receiver noted that the Par principals had “loudly and persistently” criticized him for supposedly failing to collect enough money speedily from the merchant borrowers.

However, the lawyers said, they had now learned that “ironically” LaForte, 51, and his wife, 42, had secretly “orchestrated a complex scheme” to step in and capture some of the payments from dozens of borrowers for themselves. “They did so without the receiver’s knowledge or permission,” the lawyers wrote.

They said $3 million of this money was then used to pay defense lawyers and accountants to mount Par’s defense. The filing said the lawyers and experts hadn’t realized how the fees were being covered.

Another $1.9 million was steered to relatives of the couple and “check-cashers,” the filing said.

It was signed by Florida lawyer Timothy A. Kolaya and Philadelphia lawyer Gaetan J. Alfano.

“This complex web of rerouted payments through nominee-controlled or shell corporations was, by careful and deliberate design, intended to obfuscate the money trail,” Kolaya and Alfano wrote. “Consequently, it took the receiver months to subpoena merchants, subpoena and analyze bank account records, interview witnesses, and research the myriad shell companies and their nominee owners.”

» READ MORE: Par Funding cofounder Joseph LaForte released on $2.5 million bond, placed under house arrest

Numerous payments detailed in the filing included $330,000 paid to James LaForte, Joseph LaForte’s younger brother. The younger LaForte was convicted with his brother and other family members in the mortgage fraud and also has convictions for loan-sharking, gambling, and arson.

McElhone bought a $5.8 million home in Jupiter, Fla., in 2019, in addition to homes she and LaForte already owned in Lower Merion and the Poconos. The receiver’s filing said a firm used in the diversion scheme had as recently as May paid the $94,000 in property taxes on the Florida home.

Shortly after the SEC brought its suit, the FBI searched LaForte’s home in Lower Merion and found seven guns. He is now awaiting an Oct. 3 trial on charges of illegal possession of firearms by a felon. According to Friday’s filing, three of those who put up homes to secure his bail in that case had roles in businesses involved in the money diversion.