Par Funding plan would pay victims half their money, for now

Investors in Par Funding, a Philadelphia loan company that collected hundreds of millions of dollars selling unregistered securities to more than 1,700 mostly Philadelphia-area investors before it defaulted on payments in 2020, will collect an average of 49 cents for every dollar they are owed, under a plan filed last week in federal court in Florida.

The proposal would pay a total of $110 million as an “initial distribution” to partly repay long-suffering investors, many of them elderly, on approved claims totaling $225.7 million. The plan was submitted by court-appointed receiver Ryan Stumphauzer to U.S. District Judge Rodolfo Ruiz on Aug. 23.

Lawyers familiar with the case expect Ruiz will set a deadline for objections before he signs off on the plan.

The receiver held back $57 million it has collected from Par founders Joseph LaForte, his wife, Lisa McElhone, and people who worked with them, as reserves while other litigation over former Par assets grinds on. Stumphauzer also hopes to raise tens of millions more from former lawyers and others, but those plans also face delays.

Ruiz appointed the receiver in July 2020 after the Securities and Exchange Commission charged LaForte, McElhone, and others with civil fraud for lying about the risks before the investments defaulted and with selling unregistered securities.

The couple and their codefendants agreed not to dispute the SEC charges; the receiver has collected cash and sold properties they owned to raise money to repay investors. The SEC declared the case a Ponzi scheme, in which Par used new investors’ money to pay old investors, covered up bad loans that couldn’t be repaid, and grabbed so much cash for themselves that the company was left vulnerable to default.

Federal prosecutors in Philadelphia later filed criminal charges against LaForte and his brother James, who prosecutors say is a member of New York’s Gambino crime organization, and other Par leaders and employees. The brothers are in federal jail in Philadelphia awaiting scheduled December trials.

Under the “initial distribution” plan revealed by the court last week, some investors would get more, some less.

For example, more than 300 investors who are trying to get back a total of $49 million they put into seven funds set up by A Better Financial Plan, a King of Prussia insurance and investments firm formerly run by Dean Vagnozzi, would get back as much as 63 cents from every dollar invested in a fund called ABFP Multi Strategy II, or as little as 24 cents on the dollar for money invested in ABFP Multi Strategy I. That variance depends on the value of life-insurance policies and other investments those funds mixed with Par loans in each fund.

While proposing partial payments to investors, the receiver declined to offer payments to others who said they were owed Par money, including company insiders, such as former Par chief financial officer Joseph Cole Barleta, who also faces criminal charges, but claimed that he, too, was owed money by Par. Others who were declined include the State of Florida, which says the company failed to pay their bills; small business borrowers who repaid their Par loans and then demanded some of their money back; and former Par employees.

The receiver set aside another $36 million it had collected to pay Par victims as a special reserve while it continues to fight a larger set of claims by members of New York’s Sherebar family (also spelled Cherebar by some members), who own the Rainbow Stores urban clothing retail chain. The Sherebars say they deserve a large share of Par’s former assets because, as major financiers of Par operations, they negotiated priority repayment from Par.

Stumphauzer maintains that the Sherebars, too, were insiders and don’t deserve repayment. A lawyer for the Sherebars didn’t respond to requests for comment.

Another $20 million in receiver funds has been set aside as a general reserve.

The receiver also hopes to collect a proposed $45 million settlement from insurers for the Eckert Seamans law firm. Former Eckert partner John Pauciulo, longtime lawyer for investment salesman Vagnozzi, set up many of the unregistered funds investors used to bet on Par. Vagnozzi later sued Pauciulo and his firm, blaming them for giving him bad advice.

That proposed settlement from Eckert has been held up by lawyers for Vagnozzi, former Par employees, and Par borrowers, who all say their clients are entitled to some of that money. The judge has yet to rule on whether other claims would be allowed beyond the proposed settlement.

The receiver is also trying to collect additional funds for investors by selling remaining properties seized from Par or its owners, with estimated value totaling over $10 million, and as much as $10 million in federal tax refunds for taxes Stumphauzer says were paid on phony profits that tricked investors into believing the company was profitable.

Any money freed up by settling those remaining claims and disputes would go to investors in future distributions after paying the receiver and other contractors who have collected and managed Par assets since the 2020 takeover.

The investors aren’t identified by full names in court papers. Many are included only as a group, under the name of the funds in which they invested. But hundreds of individual investors, and the amount the receiver wants to pay them, are listed by their initials, and the value of their approved claims, in an exhibit attached to the proposed initial distribution. The case is U.S. District Court, Southern Florida: 2020-civil-81205; the exhibit is 2014-27.