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SEC: Fraudulent PA operation raised nearly $500M from investors

| Aug 11, 2020 | Federal Securities Law |

A smart investment can be a good way to shore up retirement savings or provide some extra financial security. Considering the sums of money often involved, this requires real trust. You must believe the money will be used for the stated purpose, and that the risks involved in the investment match their portrayal.

Unfortunately, this trust is often broken. A recent Securities and Exchange Commission (SEC) complaint involving a Pennsylvania-based financial operation shows the lengths some individuals will go to deceive.

$500 million from 1,200 investors

The SEC’s complaint involves a Philadelphia financial operation known as Par Funding, which provided loans – at a shockingly high interest rate – to small businesses across the U.S. To fund these loans, Par Funding recruited investors and, according to the complaint, hid the exact nature of the business.

A report from the Philadelphia Inquirer details how the alleged masterminds used ear-catching ads, polished presentations and promises of a reliable return to lure hopeful individuals into their web. In total, they brought in nearly $500 million from about 1,200 investors across the country.

According to the report, the leaders and complicit associates of Par Funding made claims such as:

  • The investments were insured
  • Investors would see a return of 10-14%, and get back their principal investment within a year
  • The default rate on their loans to merchants was 1-2%
  • Investing in Par Funding did not carry “too much risk” as they were “knocking it out of the park”

All of these were false, the SEC alleges, as Par Funding was actually putting forward “unregistered, fraudulent securities offerings.” In addition, the agency claims Par Funding’s operators did not divulge past criminal and regulatory cases against them.

Due diligence and recovery

The allegations in this case underscore two vital pieces of knowledge a potential investor should keep in mind.

First, do your due diligence. Individuals hawking fraudulent investment opportunities often rely on some tried-and-true methods that should serve as a red flag. This could be an opportunity that sounds too good to be true, for example, or an operation that plays to your emotions while hiding factual information.

Second, anyone who believes their investment wound up with an illicit, dishonest firm should know there are avenues to potentially recover misused funds. This often involves taking on the firm and proving their improper behavior.

You were wronged. It happens to the best of us. You still have the opportunity to hold them accountable and make things right.