When two beefy men cornered Dwayne Stewart in a Wawa parking lot in Pennsauken, N.J. last year, he was worried. But he never dreamed it could be related to his business loan.
In 2019, he and his partner had borrowed roughly $50,000 from a Philadelphia cash-advance lender, Par Funding, to keep their small transportation business afloat.
When the lender said they fell behind in payment, the firm declared them in default and unexpectedly froze $29,000 in his partner’s business bank account. Sums of $200 to $300 a day began disappearing from Stewart’s own accounts, withdrawn by Par Funding without his knowledge.
And then, the unusual debt collectors showed up.
“They demanded $10,000 in cash,” he said. “And when I refused, they started making threats that they’d hurt me and their family.” Stewart, who is Black, said they also threw out racial slurs.
Stewart, 49, is just one of hundreds of small-business owners now alleging they faced questionable legal tactics and Mafia-style threats of violence after borrowing from Par Funding — a national name in a growing but increasingly controversial industry of merchant cash-advance lenders, offering quick cash at high interest rates to help companies ride out money crunches.
Despite the firm’s sheen of professionalism at its Old City offices, borrowers say they were bombarded with aggressive collection efforts including public shaming campaigns, sudden withdrawals from their personal and business accounts, and visits from muscled goons and a purported mob soldier bearing death threats if they didn’t pay.
Dozens of lawsuits and criminal filings reviewed by The Inquirer portray lending and collections practices that amount to little more than a successful, old-school mob loan-sharking operation dressed up in a business suit.
The company and its founder, Lower Merion, Pa., resident Joseph LaForte, have dismissed such complaints as “absurd and patently false stories” from “disgruntled ex-customers” hoping to stop paying their debts.
Nonetheless, a persistent drumbeat of allegations against Par Funding has sparked two parallel federal investigations.
In July, the U.S. Securities and Exchange Commission filed suit against LaForte, his wife, Lisa McElhone, Par Funding, and a network of associated businesses and financial advisers. The SEC alleges that Par Funding, LaForte, 49, McElhone, 41, and others defrauded investors while raising nearly $600 million to cover loans it doled out and downplayed its massive number of borrower defaults.
The agency said investors weren’t told about LaForte’s criminal past that includes two prisons terms for creating a fake law firm that engaged in a $14 million mortgage fraud and running an illegal offshore betting operation.
A federal judge in Florida has frozen the company’s assets and appointed a receiver to manage its operations.
Meanwhile, the FBI and IRS have been probing the long trail of extortion and loan-sharking complaints from Par Funding’s borrowers and recently cited alleged threats made to business owners like Stewart in a bid to keep LaForte in custody after his arrest in August on firearms charges. The FBI found seven weapons in one of his three homes; it’s illegal for someone convicted of a felony to own guns.
One borrower told agents earlier this year that LaForte threatened to “blow his house up.” Another said she was asked by LaForte if she’d ever heard of “cement shoes” and that LaForte warned if she didn’t pay soon, one day she might start her car and “go poof.”
LaForte’s attorneys declined to comment, but in a court filing last week they maintained all of those allegations had been investigated by police, who opted not to file charges.
“Over the course of the past decade, Mr. LaForte and his company provided hundreds of millions of dollars in financing to thousands of merchants,” attorneys Brian McMonagle, Michael Engle, and James R. Froccaro Jr. wrote. “The vast majority of those transactions were successful and mutually beneficial.”
That LaForte was even able to build his fledgling business into a multimillion-dollar empire is a testament to the “anything-goes” nature of the regulation vacuum surrounding the merchant-cash advance industry.
He founded Par Funding with his wife after being released from federal prison in 2011 and quickly grew the company over the last decade into one of the leading lenders in the field.
By exploiting loopholes in state usury and lending laws, in much the same way payday lenders did before a federal crackdown in the 2010s, the merchant-cash advance industry has grown into a multibillion juggernaut, swelling Par Funding’s and LaForte’s fortunes.
In addition to his Havertown, Pa., home, he and his wife own multimillion-dollar properties in the Poconos and on the Florida coast. When federal agents raided the houses and Par Funding’s offices last month, they seized his private plane, a $10 million bank account, and $2.5 million in cash, stored in bundles throughout his residential holdings.
Meanwhile, the SEC says the “opportunistic” company doled out loan after loan to struggling small-business owners, approving most in less than 48 hours, with little consideration for their borrowers’ ability to pay back the debts and charging interest rates averaging 50% — more than eight times Pennsylvania’s 6% cap on consumer loans. At times, the rate was even more punishing — 400%, and even 875%.
The industry has been able to sidestep interest rate caps by arguing that firms aren’t making loans but instead are offering “advances” on their borrowers’ future sales — a legal theory that, so far, has stood up to challenges in court.
Par further stacks the decks against its borrowers, by requiring them to sign what are known as “confessions of judgment” — legal documents that compel the debtor to agree upfront to forfeit their right to defend themselves in court in any dispute that arises over repayment of the loans.
With those weapons in its arsenal, critics say that Par Funding’s loans are designed to fail, allowing the company to profit more from defaulting clients than those who pay their loans on time.
Since 2013, it has flooded courts in Philadelphia and New York with no fewer than 2,500 lawsuits seeking to seize more than $220 million from its customers, according to an Inquirer analysis of court records. In recent court filings, the SEC cited a default rate of more than 50% for the $600 million it has loaned out since its founding. The company is seeking amounts from single creditors ranging from $27 million to under $20.
While Par Funding has in court blamed the arrival of the coronavirus on a recent surge in defaults, court records tell a different story: Par Funding filed nearly 1,500 collection lawsuits last year, before the virus surfaced.
New York and New Jersey banned “confessions of judgment” last year, after a Bloomberg investigation highlighted abuses of the practice by companies including Par Funding.
But they remain legal in Pennsylvania, where the company filed some 1,500 suits in Philadelphia Common Pleas Court last year alone.
Benjamin Picker, a Philadelphia lawyer who testified before Congress in 2019 about the predatory practices of merchant cash-advance lenders, said industry leaders like Par Funding have perfected the use of the state’s laws as a weapon against their customers.
“And there’s no one so far looking to change the legislation,” he said.
“The problem is that the effective interest rate is sometimes so high that the struggling small business often has great difficulty digging itself out of debt,” said Picker.
But even with those legal advantages on its side, Par Funding’s borrowers described the company as even more aggressive than most merchant cash-advance lenders in its efforts to collect.
Julie Katz, 60, who owns a wholesale travel agency in Massachusetts, borrowed $150,000 at high interest from Par Funding in February and was making payments of about $10,000 weekly on the loan until the coronavirus pandemic struck.
As the U.S. closed its borders to international travel in March — Katz’s bread and butter — she called the company and asked for flexibility in her repayment schedule. She says Par Funding agreed to accept as little as $100 a week — a bill she said she was managing to pay.
But weeks later, the company filed a lawsuit against her saying she’d defaulted on the loan. Then, she says, the harassment began.
“They began emailing letters and sending text messages to all my clients, my vendors telling them I had defaulted — which I hadn’t — and they should send any money owed to my business to them instead,” Katz said. “It was embarrassing.”
On top of that, Par Funding legally obtained a court order allowing it to garnish her bank accounts without her authorization. That was legal due to the “confession of judgment” she signed when she first took out the loan.
She countersued — despite having earlier signed away her right to do so — and last month won in arbitration finding that the “confession of judgment” she signed was not issued in good faith. The judge ruled she hadn’t defaulted and undid the liens Par Funding had put on her accounts. As for her interest rate, the arbitrator put it at 257% annually.
Read the arbitration decision from Julie Katz’s case:
Michael Foti, owner of Sunrooms America in Williamstown, N.J., says he also found himself at the center of a campaign from Par Funding to freeze his accounts and harass his personal contacts with hundreds of emails after missing one payment on $870,000 in loans he took out in 2019. His average interest rate totaled more than 100%.
The company sued him and obtained court orders allowing it to garnish more than $81,000 a day from the 47-year-old and his wife, a fourth-grade teacher.
When that still didn’t cover what the company said he owed, Foti alleged in a recent federal lawsuit, Par Funding targeted him with “Mafioso-style tactics.”
LaForte personally threatened to “blow the doors off him” and his lawyer, and said he “hoped he got hit by a car,” Foti said.
He cursed out Foti in a telephone call and threatened to find a competitor to drive him out of business, according to allegations made in Foti’s suit. As yet, LaForte has not responded to those allegations in court.
Read Michael Foti’s suit:
As federal prosecutors have pushed to keep LaForte behind bars until his trial in the firearms case, they lodged even more claims that he and Par Funding had using threats and other intimidation tactics to collect on debts.
LaForte has a temper. In a deposition in a lawsuit filed against him by borrowers, an opposing lawyer accused LaForte of insulting him. “I double down. You are a punk,” LaForte replied.
Prosecutors cited an interview officials had with one merchant, one they did not name in court, in which the businessman said LaForte threatened to seize all his assets if he didn’t pay.
“Try to f— stop me,” he allegedly told the man. “I’ll have your son killed.”
Other Par Funding borrowers cited by prosecutors described “a large muscular man” showing up at their businesses and threatening them with physical harm.
Since then, prosecutors in Newark, N.J., have charged another man, Renato “Gino” Gioe, a 52-year-old bodybuilder and purported member of the Gambino crime family that has worked as muscle for LaForte and his companies in the past.
The charges were tied to Gioe’s efforts to collect on a personal loan, not one issued by Par Funding. But court filings in several civil cases brought against Par Funding, detailed in a 2018 Bloomberg report, connect him to a string of shakedowns on the company’s behalf.
During an attempt to collect at the Los Angeles offices of one Par Funding borrower, a company that rents cameras to Hollywood filmmakers, he casually mentioned, according to one suit, that a borrower had been mangled in a car crash after defaulting on a loan, adding: “These are the kinds of things which strongly affect wives and children.”
His lawyer, Jonathan Savella, did not respond last week to requests for comment. Gioe had denied making threats to Bloomberg.
For his part, LaForte maintains that he, too, has never threatened anyone. His lawyers have argued in court filings as recently as last week that any claims to the contrary are lies made up by one Philadelphia lawyer who represents several borrowers now suing his company.
Those arguments have failed to sway a judge and LaForte remains imprisoned at the Federal Detention Center in Philadelphia, just four blocks from Par Funding offices in Old City — an industrial, macho space with framed photos and uniforms of baseballs stars, a vintage Pac-Man console, and a cigar humidor. As a result of the SEC complaint, the locks have been changed and a receiver now oversees the operation.
Akil Bowler thought he knew what he was getting into.
He’d dealt with merchant cash-advance companies before and successfully paid back loans to other companies. He was aware of the risks — the high interest rates, the confessions of judgment — when he took out a $29,000 loan with Par Funding in February.
But the pandemic economic slowdown has hit hard for his construction business, Akadelphia Creative Contracting, which built many of the food stalls in the Bourse Food Hall, the King of Prussia Mall, and Reading Terminal Market. Construction was halted by state mandate.
Other lenders, he said, have agreed to renegotiate the terms of his loans.
“Par Funding, on the contrary, refused to recognize any hardships and continued to charge my account well into the negative,” he said. As in other cases, the company sent letters to his vendors — even some he says he never actually worked with before.
Earlier this month — even as LaForte sat in prison and Par Funding was fighting for its life in court against the SEC — the company abruptly began garnishing Bowers’ personal bank account and one belonging to his wife, siphoning more than $34,000 in nine days and triggering 18 overdraft fees.
In the last week, though, he got some unexpectedly good news. It turns out that the receiver who has taken over oversight of Par Funding is looking out for its thousands of borrowers as well as its 1,200 investors. The receiver took legal steps to unfreeze the Bowler family’s bank accounts.
The 46-year-old father of four remains bitter.
“They look for any reason to default you,” he said, to “get your money and buy another jet.”
(Staff writers Chris Williams and Joseph DiStefano contributed to this article.)
©2020 The Philadelphia Inquirer