Par Funding: A Fabulous Fraud Founded in Philly

Edward J. Schoen

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Par Funding: A Fabulous Fraud Founded in Philly

Edward J. Schoen

Rohrer College of Business, USA

Volume 12: 2023 pp. 227-240: ABSTRACT

This case describes a recent iteration of the Ponzi scheme originated in 1920 by Charles Ponzi: creating a plausible investment, attracting investors, using the money from more recent investors to pay off earlier investors, and earning a substantial profit, estimated to be $15 million (worth $220 million today). While not as big as Bernie Madoff’s Ponzi scheme, as a result of which he was sentenced to 150 years in prison and ordered to pay restitution of $170 billion to his victims, the Federal district court in Miami was asked to order Par Funding’s cofounders, Joseph W. LaForte and his wife, Lisa McElhone, to pay $337 million to Par Funding investors and to declare they engaged in a Ponzi scheme in defrauding those investors. Ultimately the Federal district court in Miami ordered Par cofounders to pay “$219 million in ‘ill-gotten gains,’ fines and interest so the funds can be used to help reimburse 1,200 investors who were duped into buying the risky, unregistered securities used to finance the high-fee loan company.” How LaForte and McElhone executed their scheme is an intriguing story which provides helpful insight into ethical and U.S. securities law principles.

Keywords: financial pitchman, merchant cash advances, outside receiver, ponzi scheme, promissory notes, Securities Exchange Commission, state securities regulators, unregistered securities offerings, views of corporate social responsibility: narrow, moderate, and broad.