Cash-Advance Tycoon Loses Control of Firm Amid Fraud Allegation

(Bloomberg) -- Joseph W. LaForte, a convicted scammer who went on to start a Philadelphia lending company that raised almost half a billion dollars from investors, lost control of the business last week after federal regulators accused him of securities fraud.

It's the latest blow to the merchant cash-advance industry, a mostly unregulated form of lending to small businesses that is drawing scrutiny from state and federal authorities. The Federal Trade Commission sued another major cash-advance company on Monday, accusing it of deceiving customers, and the New York attorney general filed a similar suit against another lender in June.

LaForte's company is Complete Business Solutions Group Inc., which does business as Par Funding. A receiver took over the lender last week, changing the locks on office doors and barring about 100 employees, the receiver and lawyers for Par said in court filings on Tuesday. A federal judge in Florida appointed the receiver at the request of the U.S. Securities & Exchange Commission.

Last week, the Federal Bureau of Investigation executed search warrants at several locations connected to Par, a spokeswoman for the bureau in Philadelphia confirmed. Undercover agents posing as potential investors had been monitoring the company in recent months, the SEC disclosed in court filings. The Philadelphia Inquirer reported on the closure and searches earlier.

A lawyer for Par and LaForte did not reply to calls and emails this week seeking further comment.

Lending-Law Exempt

Cash advances are designed to be exempt from most lending laws, making the industry a magnet for predatory practices. LaForte's company was the subject of a 2018 report in Bloomberg News that described how he dispatched a muscular convicted felon to pay surprise in-person visits to delinquent borrowers and seek immediate payment.

The SEC's suit focuses not on Par's lending practices, but on how it raised money to fund its activities. Since 2015, Par has gathered $492 million from about 1,200 investors, the agency said in court filings last week. Much of the money was raised through unregistered securities offerings in which Par deceived investors about the nature of the business and LaForte's connection to it, the SEC said.

Par said in a court filing on Tuesday that it used several well-respected law firms to craft fund-raising documents, and that it never missed a payment to investors prior to a coronavirus-related downturn this year. It's the SEC action and the receiver's shutdown of business operations that “are going to unilaterally lead to massive investor defaults,” Par said.

Owed $413 Million

At the time the receiver took over last week, Par had more than 100 employees and was owed about $413 million by cash-advance customers, it said in the filing. That would make Par one of the largest cash-advance firms in the country. The filing also mentions related businesses in solar-panel construction, physical therapy and property management.

LaForte started Par almost a decade ago after prison stints for a real-estate scam and an illegal gambling operation. Although his wife, Lisa McElhone, is listed on documents as the chief executive officer of Par, the SEC said that LaForte acts as the “de facto” CEO. Two lawyers representing McElhone did not reply to calls and emails seeking comment.

The case is Securities And Exchange Commission v. Complete Business Solutions Group Inc., 20-cv-81205, U.S. District Court, Southern District of Florida (West Palm Beach).

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