MIAMI (Legal Newsline) - A large regional law firm has been sued for allegedly facilitating a multimillion-dollar fraud by Par Funding, a company that extended high-interest loans to retail businesses but failed amid claims its principals squandered money and hid a founder’s criminal past.
The lawsuit filed in federal court in Florida this week seeks class action status on behalf of all investors who lost money to Par Funding and its related funds. It was filed about a month after a similar lawsuit in federal court in Delaware.
Both accuse the law firm Eckert Seamans and a Philadelphia member, John Pauciulo, of constructing financial vehicles to evade regulations and failing to disclose to investors potential risks including the criminal history of Par Funding’s founder, Joseph W. LaForte.
The Securities and Exchange Commission obtained an emergency asset freeze against Par Funding on July 31, citing the sale of some $450 million in unregistered securities. In that filing, the SEC accused LaForte and his wife Lisa McElhone of making “opportunistic loans” to small businesses with interest rates sometimes exceeding 400%.
LaForte allegedly has operated under a number of names including Joe Mack and Joe McElhone and started Par Funding soon after being released from prison on charges of grand larceny, money laundering and operating an illegal gambling business. He was arrested again in August on charges of illegal weapons possession. In its request to detain LaForte, the FBI alleged he had made death threats to Par Funding customers.
Key to the scheme, according to the investor lawsuits, was the assistance of Eckert Seamans and Pauciulo. In the Florida case, lawyers say Par Funding started by selling promissory notes directly to investors but switched its strategy in 2018 after Pennsylvania regulators launched an investigation into the sale of the notes.
With the assistance of Eckert Seamans, the lawsuit claims, Par Funding set up a series of intermediary funds that raised money from investors and then forwarded the cash to Par Funding.
In radio ads and seminars, LaForte allegedly reassured investors by talking up the involvement of his lawyers in the funds. The Florida lawsuit accuses Pauciulo and Eckert Seamans of continuing to structure funds even after the SEC issued a subpoena to the firm in July 2017 and a cease and desist order in June 2020. In November 2018, Pennsylvania banking regulators fined Par Funding $499,000 for its use of unregulated “finders” to raise money. Eckert Seamans represented intermediary fund operator AFPB in that action.
Pauciulo didn’t immediately return an e-mailed request for comment. The Florida lawsuit also names Michael C. Furman, John Gissas and Dean Vagnozzi, who allegedly recruited investors in Florida.
It is unlikely the Florida lawsuit will remain active for long. The Delaware case was stayed Sept. 9 at the request of the receiver for the AFPB funds, citing a nationwide stay of litigation ordered by a federal court in Florida.