Sec. & Exch. Comm'n v. Complete Bus. Solutions Grp., Inc.

• Citation: 538 F.Supp.3d 1309
• Decision Date: 11 May 2021
• Docket Number: Case No. 20-CIV-81205-RAR
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. COMPLETE BUSINESS SOLUTIONS GROUP, INC. d/b/a Par Funding, et al., Defendants.
• Court: U.S. District Court — Southern District of Florida

538 F.Supp.3d 1309

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.COMPLETE BUSINESS SOLUTIONS GROUP, INC. d/b/a Par Funding, et al., Defendants.

Case No. 20-CIV-81205-RAR

United States District Court, S.D. Florida.

Signed May 11, 2021

Amie Riggle Berlin, United States Securities and Exchange Commission, Miami, FL, for Plaintiff.

Brett A. Berman, Pro Hac Vice, Fox Rothschild, LLP, Philadelphia, PA, Alex Louis Braunstein, Fox Rothschild LLP, West Palm Beach, FL, Joseph A. DeMaria, Robert F. Elgidely, Fox Rothschild LLP, Miami, FL, for Defendants Complete Business Solutions Group, Inc., Full Spectrum Processing, Inc.

Allison Beth Kernisky, Daniel I. Small, Holland & Knight LLP, Miami, FL, Chad M. Vanderhoef, Holland, Knight LLP, Tampa, FL, for Defendants Retirement Evolution Group, LLC, Retirement Evolution Income Fund LLC, RE Income Fund 2, LLC, John Gissas.

Brett A. Berman, Pro Hac Vice, Fox Rothschild, LLP, Philadelphia, PA, Michael F. Bachner, Pro Hac Vice, Bachner & Herskovits, Alan S. Futerfas, Pro Hac Vice, New York, NY, Alejandro Oscar Soto, Fridman Fels & Soto, PLLC, Coral Gables, FL, Alex Louis Braunstein, Fox Rothschild LLP, West Palm Beach, FL, Daniel Scott Fridman, Fridman Fels & Soto, PLLC, Coral Gabes, FL, Joel Hirschhorn, GrayRobinson, Joseph A. DeMaria, Robert F. Elgidely, Fox Rothschild LLP, Miami, FL, for Defendant Lisa Mcelhone.

Brett A. Berman, Pro Hac Vice, Fox Rothschild, LLP, Philadelphia, PA, Alejandro Oscar Soto, Fridman Fels & Soto, PLLC, Coral Gables, FL, Alex Louis Braunstein, Fox Rothschild LLP, West Palm Beach, FL, Andre G. Raikhelson, Law Offices of Andre G. Raikhelson, LLC, Boca Raton, FL, Bettina Schein, Pro Hac Vice, Law Offices of Bettina Schein, New York, NY, Daniel Scott Fridman, Fridman Fels & Soto, PLLC, Coral Gabes, FL, Joel Hirschhorn, GrayRobinson, Joseph A. DeMaria, Robert F. Elgidely, Fox Rothschild LLP, Miami, FL, for Defendant Joseph Cole Barleta.

Brett A. Berman, Pro Hac Vice, Fox Rothschild, LLP, Philadelphia, PA, Daniel Scott Fridman, Fridman Fels & Soto, PLLC, Coral Gabes, FL, Alejandro Oscar Soto, Fridman Fels & Soto, PLLC, Coral Gables, FL, Alex Louis Braunstein, Fox Rothschild LLP, West Palm Beach, FL, David Lawrence Ferguson, The Kopelowitz & Ostrow Firm PA, Joshua Robert Levine, Seth David Haimovitch, Kopelowitz Ostrow Ferguson Weiselberg Gilbert, Fort Lauderdale, FL, James R. Froccaro, Pro Hac Vice, Port Washington, NY, Joel Hirschhorn, GrayRobinson, Joseph A. DeMaria, Robert F. Elgidely, Fox Rothschild LLP, Miami, FL, for Defendant Joseph W. LaForte.

Daniel Lawrence Rashbaum, Jeffrey David Marcus, Jason Mays, Brandon Scott Floch, Marcus Neiman Rashbaum & Pineiro LLP, Miami, FL, Alejandro Oscar Soto, Fridman Fels & Soto, PLLC, Coral Gables, FL, for Defendant Perry S. Abbonizio.

Brian Paul Miller, Akerman LLP, Alejandro Paz, Miami, FL, for Defendant Dean J. Vagnozzi.

Jeffrey L. Cox, James D. Sallah, Joshua Arnold Katz, Sallah Astarita & Cox, LLC, Boca Raton, FL, for Defendant Michael C. Furman.

Alejandro Oscar Soto, Fridman Fels & Soto, PLLC, Coral Gables, FL, Alex Louis Braunstein, Fox Rothschild LLP, West Palm Beach, FL, Brett A. Berman, Pro Hac Vice, Fox Rothschild, LLP, Philadelphia, PA, Daniel Scott Fridman, Fridman Fels & Soto, PLLC, Coral Gabes, FL, Joel Hirschhorn, GrayRobinson, Joseph A. DeMaria, Robert F. Elgidely, Fox Rothschild LLP, Miami, FL, for Defendant L.M.E. 2017 Family Trust.

Alejandro Oscar Soto, Fridman Fels & Soto, PLLC, Coral Gables, FL, Daniel Scott Fridman, Fridman Fels & Soto, PLLC, Coral Gabes, FL, Joel Hirschhorn, GrayRobinson, Miami, FL, for Defendant The LME 2017 Family Trust.

Damian George Waldman, Law Offices of Damian G. Waldman, P.A., Clearwater, FL, for Defendant Wilmington Savings Fund Society, FSB, not in its individual capacity but solely as Trustee for Invictus Residential Pooler Trust 3A c/o The Law Offices of Damian G. Waldman, PA 10333 Seminole Blvd. Units 1 & 2 Seminole, FL 33778 United Sta 844-899-4162.

Michael C. Furman, West Palm Beach, FL, Pro Se.

ORDER DENYING MOTION TO DISMISS

RODOLFO A. RUIZ II, UNITED STATES DISTRICT JUDGE

This case is an enforcement action brought by the Securities and Exchange Commission ("SEC") alleging that Defendants issued, marketed, and sold unregistered, fraudulent securities to fund short-term loans to small businesses—known as "merchant cash advances." Before the Court is a Motion to Dismiss the Amended Complaint [ECF No. 363 ] ("Motion") filed by Defendants Complete Business Solutions Group, Inc. d/b/a Par Funding, Lisa McElhone, Joseph W. LaForte, Joseph Cole Barleta, Perry S. Abbonizio, Dean J. Vagnozzi, Michael C. Furman (collectively, "Defendants") and Relief Defendant The LME 2017 Family Trust. Having reviewed the Motion, the SEC's Response [ECF No. 416 ], Defendants’ Reply [ECF No. 455 ], the record, applicable law, and being otherwise fully advised, it is hereby

ORDERED AND ADJUDGED that the Motion [ECF No. 363 ] is DENIED for the reasons discussed herein.

BACKGROUND

I. Factual Background

The Court begins by setting forth the facts as described in the SEC's Amended Complaint, many of which Defendants vehemently dispute. Par Funding—a company founded in 2011 by husband-wife duo McElhone and LaForte—was engaged in the business of making "opportunistic loans" to small businesses across the country. See Am. Compl. ¶ 1. From approximately August 2012 through mid-2020, to fuel these merchant cash advances (MCAs), Defendants raised nearly half a billion dollars through unregistered securities sold to over a thousand investors nationwide. Id. The SEC describes the alleged scheme as consisting of two primary phases. During the first phase, from August 2012 until around December 2017, Par Funding primarily issued promissory notes and offered them to the investing public directly and through a network of sales agents ("Phase I"). Id. ¶ 2.

Then, in early January 2018—after learning it was under investigation by the Pennsylvania Department of Banking and Securities for violating state securities laws through the use of unregistered agents—Par Funding implemented a new way to raise funds for the MCAs ("Phase II"). Id. ¶¶ 3-4. Par Funding began relying on "Agent Funds" that were "created for the purpose of issuing their own promissory notes, selling the notes to the investing public through unregistered security offerings, and funneling investor funds to Par Funding." Id. ¶ 4. Par Funding would compensate the Agent Funds by offering them promissory notes that had higher rates of return than the notes the Agent Funds sold to investors. Id. ¶ 4.

The Amended Complaint states that McElhone and LaForte "orchestrate[d] the scheme" through Par Funding and McElhone's company, Full Spectrum Processing, Inc., whose employees operated Par Funding. LaForte, Cole (Full Spectrum's CFO), and Abbonizio (Par Funding's investment director and partial owner) solicited investors to invest in the securities. Am. Compl. ¶ 5. Vagnozzi, through his company ABetterFinancialPlan.com d/b/a A Better Financial Plan ("ABFP"), recruited individuals to create the Agent Funds and provided them training and other materials to assist them with the creation and operation of the funds. Id. ¶ 6. Vagnozzi, Furman, and Gissas each operated Agent Funds that raised money for Par Funding through unregistered securities offerings. Id. ¶ 7.

The SEC avers that in addition to violating the federal securities laws by selling unregistered securities, Defendants also made false or misleading statements and omissions concerning the Par Funding offering in violation of the antifraud provisions of the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act"). Id. at 29-50. The misrepresentations alleged by the SEC can be grouped into seven categories:

First , the Amended Complaint alleges that Defendants made misrepresentations regarding Par Funding's underwriting process. It describes a recorded conversation between Abbonizio and an individual posing undercover as an investor where Abbonizio touted Par Funding's underwriting practices. Am. Compl. ¶¶ 156-57. It is also cites a brochure that Furman, Abbonizio, and Vagnozzi distributed to investors emphasizing Par Funding's "Exceptional Underwriting Rigor"; marketing materials where Par Funding claimed that it conducted on-site merchant inspections prior to loan approval; and a solicitation event where Abbonizio told investors that Par Funding does on-site inspections 100% of the time before approving any loan. Id. ¶¶ 158-164. The SEC alleges that contrary to these representations, Par Funding did not always conduct on-site inspections before approving an MCA. Id. ¶¶ 167-82. It also contends that Par Funding funded loans "without obtaining information about the merchant's profit margins, expenses, or debts," id. ¶ 183, and did not "always assign a liaison to small businesses or have a liaison who communicates with the small businesses" as it claimed. Id. ¶ 184.

Second , the Amended Complaint alleges that Defendants made misrepresentations regarding Par Funding's loan default rate.

LaForte, Abbonizio, and Vagnozzi represented to prospective investors that Par Funding's loan default rate was around 1%, id. ¶¶ 185-190, when in reality, "Par Funding has filed more than 2,000 collections lawsuits against small borrowers for defaulting on the [l]oans Par Funding made to them." Id. ¶ 193. The Amended Complaint asserts that Par Funding claims to have funded more than $600 million in loans and the lawsuits seek to recover over $300 million that the small businesses have allegedly failed to repay. Id. ¶ 194. According to the SEC, "[a]n analysis of these lawsuits reveals that Par Funding's loan default rate is as high as 10%." Id. The SEC also alleges that Par Funding excluded from its default rate "any [l]oan where the borrower is making even a partial payment or is speaking with Par Funding about the loan." Id. ¶ 202.

Third , the Amended Complaint alleges that Defendants made...