Hundreds of investors hoping to recover $375 million from Philadelphia-based Par Funding should lower expectations that they will get back all of their investment, let alone make any money, a federal judge warned Tuesday.
U.S. District Judge Rodolfo Ruiz, presiding over a fraud civil suit against Par Funding and others, raised troubling questions about the lender’s business model. Par Funding took in money from investors, paying them returns of up to 14%, and then lent out cash advances to businesses, charging punishing average interest rates of 50%.
The judge reacted after an expert for the case’s receiver operating Par Funding reported that just 10 of its several thousand borrowers owe a total of $228 million — more than half of the sum owed. The expert also disclosed that the “top 10” includes a firm run by a convicted bank fraud artist, another led by a man accused of health-care fraud, two companies that are bankrupt, and at least one firm that Par has so far sued fruitlessly in court.
Ruiz, sitting in a federal courtroom in Florida, said Par Funding’s owners and those who shopped it to investors had been unduly optimistic about its prospects. “They had painted a rosy picture of this Par Funding operation that I think the numbers, as they trickle out, don’t support,” he said.
He added that some of the “top tier” borrowers had filed for bankruptcy, or “simply do not look like they are viable going concerns.”
Among the 150 people listening during the conference call for the case’s lawyers were numerous Par investors engaged in a running and critical commentary over Zoom chat . The investors have sustained blow after blow since the U.S. Securities and Exchange Commission filed a sweeping civil suit in July against Par Funding, its owners, and several financial salespeople, accusing them of hiding the risk of the investment and the fact that Par Funding’s cofounder, Joseph W. LaForte, was himself a twice-convicted felon.
“It is unusual for a financial enterprise to have such a heavy concentration of its portfolio in a handful of accounts,” the receiver’s lawyer, Gaetan Alfano, told the judge, citing a new report from consultant Bradley D. Sharp, a Los Angeles-based financial expert whom the receiver brought in to examine Par Funding’s lending.
The report identified B&T Supply Inc., a Long Island building-supplies company, as Par Funding’s biggest borrower. The firm owes Par $91 million.
It is run by Stephen Odzer, who pleaded guilty to felony charges in 2005 of defrauding three New York banks of more than $16 million.
While waiting for his sentencing, he became an FBI cooperating witness and ensnared another New York businessman in a murder-for-hire plot. Afterward, Odzer was sentenced to 18 months in federal prison on his bank fraud charges.
After his release, Odzer resumed his business career, at some point opening an affiliate in Nevada, records show. Recently, Odzer sought to boost his corporate profile. He announced last winter that a B&T partnership had paid for the naming rights for the arena of the farm hockey team in Henderson, Nev., of the Vegas Golden Nights.
According to Alfano, the counsel to receiver Ryan K. Stumphauzer, a $400,000 loan repayment by B&T to Par bounced in July, a week before Par was put under the court-ordered receivership. Moreover, Par cofounder LaForte was recorded on a federal wiretap telling Odzer he didn’t care about the loan. “These facts are of concern,” Alfano told the judge.
Odzer, 52, didn’t return calls and an email seeking comment Tuesday.
“B&T Supply doesn’t necessarily intend on returning any of that,” Ruiz warned, after reviewing the receiver’s report.
Next on the debtors’ list was National Brokers of America, an insurance brokerage in Reading that sought to sell health insurance under Obamacare. It owes Par Funding $35 million.
National Brokers has since been sanctioned by insurance regulators in Pennsylvania, Oregon, Utah, and Washington. Last year, it filed for bankruptcy protection, saying it had $10 million to $50 million in debts and only up to $50,000 in assets.
Next was Denver developer Colorado Homes. It owes Par $25.5 million — money Par Funding is seeking to collect from the company in an ongoing lawsuit filed in Philadelphia Common Pleas Court in March.
In a recent pitch to potential investors, owner Ranko Mocevic sought to raise $92 million for a suburban Colorado condo development and a nearly two-square-mile hemp farm, among other projects.
Earlier this year, Par Funding sued the company’s hemp affiliate, Colorado Farms, in federal court in Denver over $3 million in cash that Par said Mocevic owed from an unpaid cash advance.
The fourth-largest borrower was Big Red Express, a trucking line based in Largo, Fla. It owes Par Funding $19 million.
Par sued the company last year in Philadelphia Common Pleas Court for $21 million, invoking a clause in the original loan papers that permitted it to seize property from the company and its owners. A year later, Big Red still owes $19 million, court filings show. Big Red officials didn’t respond to calls.
Another top 10 borrower, Health Acquisition Co. of Miami, which owes $6.1 million, is in bankruptcy liquidation, according to the receiver.
Its principal, Jorge Perez, was one of several people indicted in June on fraud and money laundering charges as part of what federal prosecutors called “a massive, multi-state scheme” to take over rural hospitals in Florida, Georgia, and Missouri and use them “as a hub for millions of dollars in fraudulent billings of private insurers.” The federal government says the defendants collected $400 million through the scheme.
Should Par be unable to pay investors, SEC officials have said, they may go after owners LaForte and his wife, Lisa McElhone, and others the agency says took more than $100 million from Par in consulting fees and other payments and used the money to buy luxury properties in Pennsylvania, Florida, and other states.
Lawyers for the couple and other insiders say the money was properly due and that the company was profitable when payments were made.
Alfano said there was “considerable work to do” before any money might be returned to financial adviser Dean Vagnozzi’s clients and others.
Judge Ruiz said he had become skeptical of Par’s claim that it was a profitable company before the coronavirus shutdown slammed small businesses, cutting their sales and their ability to make loan payments. “COVID may have accelerated an undergoing problem,” he said.