Brother of Par Funding owner says he raised millions to pay lawyers in long-running fight with SEC
It is costly to fight a federal government lawsuit.
So it helped that the brother of the man accused of orchestrating the alleged crowdfunding fraud said he had plenty of generous friends willing to fund the defense in a battle with the U.S. Securities and Exchange Commission .
In July, a court-appointed receiver accused Joseph LaForte and his wife, Lisa McElhone, founders of the closed Philadelphia lender, of “embezzling” and “laundering” money that should have gone to their investors. The receiver, who is now in charge of Par Funding’s finances, said the couple used the scheme to hire attorneys to deal with the SEC.
Now, James LaForte Jr., Joseph LaForte’s younger brother, says the catcher got it wrong. The younger LaForte — a hipster bar owner in Brooklyn and a man with a criminal record, like his brother — swore in a court filing that he used a network of business associates and friends from Staten Island to pay a legal aid against the SEC and to keep his big brother out of jail on separate firearms charges.
“I did what I could to help Joe pay his bail,” James LaForte, 45, says in his affidavit. “I did all of this because I love my brother and sister-in-law and want to help them.”
LaForte wrote that he had arranged a series of loans, hoping Par Funding’s legal issues would be quickly resolved and he would “return to being a very profitable business.” He added: ‘Neither Joe nor Lisa were involved in my efforts to borrow and raise money’ for the defense.
His statement was attached to a legal filing by Joseph LaForte and McElhone which also attacked the receiver’s allegation that the couple conspired to get various companies to step in and collect from the crowdfunding debtors in order to pass the money on to them – money that should have gone to the escrow to reimburse investors.
The couple said the receiver’s accusations and related bid to scorn them were based on nothing more than “salacious hearsay and unproven allegations”.
The contest between the SEC and Par Funding is in its final rounds after LaForte, McElone and several other defendants dropped most of their legal opposition to the agency’s accusation that their firm defrauded 1,200 investors while raising $540 million since 2011. The SEC says Par Funding hid Joseph LaForte’s criminal record from investors, even as insiders paid themselves $200 million in commissions, consulting fees, and more.
The company’s business model was to raise funds from investors to provide high-interest loans to cash-strapped traders. The SEC says it made very little profit and had to pay older investors with money from new ones. Crowdfunding challenges this.
A federal judge, Rodolfo Ruiz II, is expected to rule soon in Florida on the amount that the defendants must reimburse to investors. As the case unfolded, the judge-appointed receiver took control of $150 million in assets, including cash, cars, boats, paintings and homes from LaForte and McElhone on the main line and in the Poconos and Florida.
Adding to Joseph LaForte’s woes, the FBI searched his homes days after the SEC filed its lawsuit in 2020 and found seven guns and $250,000 in cash. He was charged with unlawful possession of a firearm by a felon.
In 2006, Joseph LaForte, now 51, and his brother, then residents of Staten Island, pleaded guilty to $14 million mortgage fraud in a conspiracy that also involved their parents and a sister. Both brothers went to jail.
Joseph LaForte also served time for helping to operate an illegal overseas gambling operation. He is now awaiting trial in Philadelphia on firearms charges.
As for James LaForte, after his arrest in the family’s mortgage scam, he had more convictions for gambling, loan forgery and arson against borrowers. In the gambling case, his five co-defendants in Brooklyn were mob members, including an acting mob boss, federal officials said. According to court documents, he sometimes used the names James McElhone and Jimmy Schillaci.
James LaForte, owner of two bars five miles apart in Brooklyn, could not be reached for comment. Lawyers for her brother and sister-in-law did not respond to calls.
In his July filing, the receiver, Florida attorney Ryan Stumphauzer, focused on what happened to the money owed to Par Funding by the hundreds of merchants he gave loans to. Many of those borrowers continued to repay their loans after the SEC filed its lawsuit. The receiver argues that LaForte and McElhone, along with various associates and businesses, have found a way to reach out and redirect some of those payments to themselves, rather than the receiver’s hands.
In James LaForte’s statement, he said his network of friends simply responded positively to his request for help for his brother. For example, he said he lined up two “good friends” and a cousin to set up their homes in Staten Island and the Poconos as collateral for Joseph LaForte’s $2.5 million bail for the charges of ‘fire arms.
One of those who did was Staten Island businessman Vincent Bardong. In the contempt motion, the receiver said Bardong ran a company, Platinum Rapid Funding Group, which collected loan repayments from Par debtors and also disbursed money to another company, Financial Mutual. And, the receiver said, Financial Mutual paid $2 million to defense attorneys fighting the SEC.
However, Bardong, 50, in a separate affidavit in the case, said he met Joseph LaForte once and never met Lisa McElhone. “I am a close friend of James LaForte and have put my house up for his brother Joseph’s bail in favor of James,” he said. He could not be reached or commented.
James LaForte also said he borrowed money to pay the lawyers. He said he was given a $3 million line of credit by Financial Mutual, whose owner, LaForte said, was another “very good friend of mine.” He said the lawyer payments were on the books of Financial Mutual because he ordered the firm to pay the lawyers on his behalf.
He also said he borrowed money to pay $94,000 in property taxes this year on his brother’s $5.8 million home in Jupiter, Florida, another payment questioned by the held captive.
LaForte said the money was lent to him by another Staten Island “friend and business associate”, Joseph Talamini. LaForte said he quickly repaid the loan. In an interview, Talamini, 48, said James LaForte was a solid person he had known for 25 years.
“I know his story,” Talamini said Saturday. “But that doesn’t make him a bad person.”
James LaForte also offers explanations of other financial transactions questioned by the receiver and the receiver’s team, lawyers Timothy Kolaya and Gaetan Alfano. They had noted $1.5 million paid in 2020 and 2021 by Par Funding borrowers to a Florida company called BG Sky Trade. Looping, they said, BG Sky paid nearly $500,000 to attorneys for Joseph LaForte and his wife.
Much of the initial payments were made by Par Funding’s largest borrower, an office supply company called B&T Supplies Inc..
However, the younger LaForte said he worked for BG Sky and the payment was money rightfully owed to him. He said it was paid for because he provided B&T with coronavirus face masks.
As The Inquirer previously reported, B&T owner, businessman Stephen Odzer, claimed through lawyers that these masks were “worthless” trash and that James LaForte had “effectively stolen” payments.
Last year, receiver Stumphauzer claimed in a court filing that Odzer, while borrowing $93 million from Par Funding, paid $9 million in cash “bribes or commissions” to Joseph The strong. Odzer’s attorney said he was victimized by Joseph LaForte. Lawyers for Joseph LaForte said the payments were correct. (Last year, President Donald Trump pardoned Odzer for his 2004 conviction in a $16 million bank fraud.)
In sum, the brothers argued, this was not a misappropriation of money, but simply a brother coming to get a brother and sister-in-law in crisis.
Attorneys for the receiver are expected to file a rebuttal on Tuesday. After that, Judge Ruiz will decide whether to despise Joseph LaForte and McElhone and rule on how much the couple will have to pay back to investors.