Receiver asks judge to scorn Par Funding founders, saying they embezzled millions for their own use

On Friday, the court-appointed receiver in Par’s fundraising fraud case asked a judge to hold Par’s founders in contempt of court, saying they secretly embezzled millions of dollars from the company to pay their defense attorneys, cover the property taxes on their Florida mansion, and enrich relatives and friends.

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

READ MORE: With false promises and fancy dinners, Philadelphia-based operation robbed small investors, SEC accuses

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

U.S. District Judge Rodolfo Ruiz III appointed Stumphauzer to wrest control of Par’s assets immediately after the SEC filed suit in July 2020. He is expected to rule soon on an SEC request asking LaForte, his wife and Par’s other directors to repay investors $378 million to resolve the civil case. The defendants dropped their opposition to the merits of the SEC’s suit but want to pay a fifth.

READ MORE: Par Funding owners say SEC is demanding too much money for fraud settlement

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

The pair set up Par Funding in Philadelphia in 2011, months after LaForte was released from prison after serving time for a $14 million mortgage fraud and helping run an illegal offshore gambling operation. While continuing to maintain an office in Old Town, they moved the nominal address from Par to Florida in 2017 for tax reasons. The SEC filed his lawsuit in Florida, where Ruiz has his courtroom.

Stumphauzer has spent the past two years taking over assets from LaForte, McElhone and others, including valuable real estate the couple owns in Philadelphia.

He also sought to collect payments from merchants on loan from Par. In Friday’s filing, attorneys for the receiver noted that Par’s directors had “loudly and persistently” criticized it for not collecting enough money quickly from borrowing merchants.

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

They said $3 million of that money was then used to pay defense attorneys and accountants to mount Par’s defense. The filing indicates that the lawyers and experts did not realize how the costs were covered.

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

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

“This complex web of payments redirected through companies controlled by nominees or shell companies was, by careful and deliberate design, intended to obscure the money trail,” Kolaya and Alfano wrote. “As a result, it took months for the receiver to subpoena traders, subpoena and analyze bank account statements, interview witnesses and research the myriad shell companies and their named owners.”

READ MORE: Par Funding co-founder Joseph LaForte released on $2.5m bail, placed under house arrest

Many of the payments detailed in the filing included $330,000 paid to James LaForte, Joseph LaForte’s younger brother. Young LaForte was convicted along with his brother and other family members in mortgage fraud and also had 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 company 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 filed the complaint, the FBI searched LaForte’s Lower Merion home and found seven firearms. He is now awaiting trial on October 3 for unlawful possession of firearms by a felon. According to Friday’s filing, three of those who built houses to secure his bail in the case had roles in companies involved in the embezzlement.

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