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The GameStop Incident Explained and What It Means for Your Retirement

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gamestop stock

During January 2021, the stock price of video game retailer GameStop rose at an unprecedented pace. GameStop stock closed at just $17.25 per share at the beginning of January and proceeded to shoot up to more than $347 per share by January 27th. While this may seem like a normal market movement at first glance, many investors believed GameStop’s stock price did not actually reflect the true value of the company. Their concerns proved to be well-founded, as a closer look revealed a “pump and dump” scheme conducted by members of a popular message board on Reddit who were targeting hedge funds for taking short positions. While investors who got in early on the scheme were able to realize significant profits, late-comers were left holding the bag, and the hedge funds who had taken a short position on GameStop, and others lost an estimated $70 billion according to Ortex data.

Investors who were not familiar with GameStop or Reddit may not have realized the significance of this incident, but it tells us a lot about stock market investing and whether it is safe for people in or near retirement. If you are wondering how the GameStop incident relates to your retirement investments, keep reading.

What is Short Selling?
You may remember hearing about stocks being shorted during the 2008 financial crisis, and it is also at the core of the GameStop incident. When an investor or hedge fund sells short, it means that they are making a bet that the price of a security will go down. If the price goes down, the short seller makes a profit; if the price of the stock goes up, the investor or hedge fund loses money on their investment.

As online shopping has become more popular, brick-and-mortar retailers like GameStop have seen the volume of their business decrease, and the price of their stocks fall. Hedge funds picked up on this trend and began taking a short position on these companies. GameStop was heavily shorted, with 140% of their public shares being shorted on January 22nd, 2021. While some may debate the ethics of shorting stocks, it is a legal and normal part of the way Wall Street conducts business. If Reddit investors had not targeted hedge funds who were shorting stocks like GameStop, those hedge funds would have made billions.

Reddit and Robinhood
As GameStop and a handful of other companies became heavily shorted, some “retail” investors saw potential to upset the established order. They gathered in an online community on Reddit known as “WallStreetBets” where they discussed a plan to buy up heavily shorted stocks like GameStop, Blackberry, and AMC Theaters, which became known as “meme stocks.” As more and more investors jumped on board, the price of these stocks rose rapidly, surpassing even the most optimistic expectations. This sharp rise attracted attention from the media and from public figures like Elon Musk, whose January 26th tweet about GameStop corresponded with a spike in the company’s stock price. While this was good news for investors who purchased GameStop stock, hedge funds who had shorted the company realized they were poised to lose billions.

Many of GameStop’s new investors were young people who had never owned stock before and were using mobile apps like Robinhood to make their trades. In response to the increased trading volume on their platforms, Charles Schwab, TD Ameritrade, and Robinhood all placed purchase limits on the “meme stocks”, preventing small-scale retail investors from buying any more shares. At the same time however, they allowed institutional investors on Wall Street to close out their short positions before they lost too much money. Many involved saw this as an unfair advantage that would not be extended to small-scale investors who lost money on these trading platforms, or had their accounts cashed out and closed without their authorization.

Thanks in part to Robinhood’s trading restrictions, GameStop’s stock price plunged at the beginning of February, closing below $100 dollars by February 2nd. Investors who closed out their positions early made millions, while those who were late to the game lost significant portions of their investments. Because they could close out their short positions before the crash, many of the hedge funds involved were able to minimize their losses. Executives at companies like GameStop, Blackberry, and AMC also made millions selling stock in their own companies before the crash, prompting accusations of insider trading. Some have also accused Robinhood and Reddit of market manipulation, an accusation that is currently under investigation by the Securities and Exchange Commission (SEC) as well as the United States Congress. Although, this would not be the first time that the trading app Robinhood was scrutinized for not putting the best interest of their consumers first.

The CEO of Robinhood, as well as executives from Reddit, Melvin Capital, and Citadel were brought before Congress to testify about the incident on February 18th. Robinhood CEO Vlad Tenev denied that he colluded with hedge funds to lower the price of GameStop when the trading app was limiting GameStop trades. Although a second hearing has been scheduled, it looks like none of those involved will face any immediate consequences for their actions. Furthermore, while Congress and the SEC continue to investigate the situation, it seems unlikely that any significant changes will occur on Wall Street in the foreseeable future.

What Does the GameStop Incident Mean for Your Retirement?
A story this complex and convoluted seems like something Hollywood might dream up. So how does it relate to your retirement savings? In short, the GameStop incident is strong evidence that investing in the stock market or any securities-based investment is a tremendous risk for anyone in or near retirement. While the young investors and hedge funds who lost money during this saga have the time and resources to recoup their losses, seniors preparing for, or living in retirement do not. The restrictions placed on retail investors by Robinhood and other trading platforms also show that the stock market is not as free or as fair as you might think. While small-scale investors lost millions, hedge funds were afforded the opportunity to mitigate their losses, and executives who made profitable trades based on information gathered on Reddit are unlikely to face any criminal charges. It is not entirely clear who the winners and losers were in this scenario, but one thing is certain: the stock market can be easily manipulated, making investing in the stock market a risky proposition, especially for people approaching retirement age.

What Are Required Minimum Distributions?

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What are Required Minimum Distributions

When preparing for retirement it is essential that investors transitioning into the retirement phase of their lives have a financial plan in place to ensure that their assets are protected and are not outlived. One of these preparations includes the process of taking required minimum distributions from a traditional IRA or 401(k) after reaching age 72. In essence, a required minimum distribution is defined as a yearly withdrawal that must be taken from retirement accounts — such as a traditional IRA — as mandated by the Internal Revenue Service (IRS). Not following these distribution rules would result in significant fines or penalties that are associated with the value of the assets in the eligible account or accounts.

Traditional IRA and 401(k) retirement accounts are required to have a portion of the funds withdrawn on a yearly basis because they are funded with income that has not been taxed. Although the money invested in these accounts grows tax-deferred, when the owner reaches age 72, they must begin taking their required minimum distributions. Depending on what the IRA or 401(k) is invested in, or if the account owner has eligible funds to continue contributing to their accounts, an IRA or 401(k) may continue to grow while taking withdrawals each year. Roth accounts are not required to take these distributions because taxes were already paid on the income that funded the accounts — thus Roth accounts grow tax-deferred with after-tax money.

Prior to the SECURE Act going into effect in 2020, the required minimum distribution age was 70 ½ years old; however, the legislation raised the age for new retirees to 72. Individuals who were already taking distributions from their eligible retirement accounts were not impacted by the age increase. Furthermore, individuals who invested in a Roth IRA or Roth 401(k) account were also not impacted by the changes set forth in the SECURE Act, since required minimum distributions are not mandated for those types of retirement accounts. Effective January 1, 2022, the distribution factors used to calculate required minimum distributions for traditional IRA and 401(k) accounts will be updated and impact all eligible account owners.

Required minimum distributions are calculated using one of three life expectancy tables, depending on the status of the individual receiving the distributions. First, there is the Single Life Expectancy Table which is used by designated beneficiaries who inherited an IRA or 401(k) before 2020 and are stretching the inherited account using their own life expectancy. The SECURE Act put an end to the “Stretch IRA” which allowed an inheritor to take distributions over the course of their lifetime and instead replaced that with a 10-year rule mandating that all funds be withdrawn from the account while also paying taxes on the inherited money. Most IRA owners will use the Uniform Lifetime Table unless the sole beneficiary of the account is a spouse who is more than 10 years younger than the account owner — in which case the Joint Life Expectancy Table would be implemented.

In 2018, former President Trump issued an executive order instructing the IRS to update the life expectancy tables to reflect longer lifespans among Americans living in retirement. As of November 2020, the IRS released their official updates to the life expectancy tables which are set to go into effect starting in January of 2022. This means that all required minimum distributions after December 2021 must be calculated using the new tables and as a result, yearly distributions will be moderately reduced across the board. The following are examples of the changes being made to the life expectancy tables and how that will impact IRA owners and beneficiaries.

A designated beneficiary who inherited an IRA prior to 2020 would have the option to stretch the account over the course of their lifetime using the Single Life Expectancy Table; beneficiaries who inherit an IRA after 2020 must withdraw all the funds from the account within 10 years following the year of death of the account owner. In the case of stretching the IRA, however, if a designated beneficiary received an account at age 53 in 2019, they would start taking their yearly withdrawals in 2020 — one year after the death of the owner.

RMD = IRA Balance ➗Distribution Factor (Life Expectancy)

In table 1 below, the beneficiary would be 54 years old and under the current Single Life Expectancy Table, they would calculate their distribution using a factor of 30.5 years. In 2020, and in each of the following years, that factor would be reduced by 1 until the funds were depleted or the beneficiary passed; therefore, the distribution factor for 2020 would be 29.5 years for this designated beneficiary.

When the new tables go into effect in January of 2022, the beneficiary will have to find the original age that they began receiving distributions. In this example, at 54 years old the new Single Life Expectancy Table would have been calculated using a distribution factor of 32.5 years. Since the beneficiary would be 56 in 2022, they would subtract 1 for each year that they have taken a withdrawal until they reach their current age, which would result in a distribution factor of 30.5 years to calculate their 2022 distribution.

The Uniform Lifetime Table is for IRA owners taking distributions after reaching age 72, or IRA owners who were taking distributions prior to the 2020 age increase. An IRA owner who was 73 in 2019 and already taking distributions would have calculated their withdrawal using a factor of 24.7 years (Table 2). At 74 in 2020, that distribution factor would have reduced to 23.8 years and again to 22.9 years in 2021 at age 75.

When this owner turns 76 in 2022, their calculations will switch to the new Uniform Lifetime Table and use a distribution factor of 23.7 years (instead of 22.0 years) indicating a reduction in their overall required minimum distribution for the year. Compared to the previous table their withdrawal would be increased by a factor of 1.7 years, which would indicate a reduction in the total cash distribution when switching to the new table.

The third and final distribution table used by IRA owners is the Joint and Last Survivor Expectancy Table and is used only if their spouse beneficiary is more than 10 years younger than the IRA owner. If the owner of an IRA were 73 years old in 2019 and their spouse was 60 years old (Table 3) they would use a joint distribution factor of 26.8 years. In 2020 that factor would be reduced to 25.9 years when the IRA owner turned 74 and their spouse 61. The following year in 2021, when the IRA owner turns 75 and their spouse 62, they would use a distribution factor of 25 years.

Just like the other life expectancy tables, when the calendar changes to 2022 the new tables will go into effect, and a new joint distribution factor will be used to calculate their required withdrawals. When this IRA owner turns 76 and their spouse 63, the distribution will be 25.9 years according to updates made by the IRS. As a result, their required withdrawal for the year would be reduced by a factor of 1.8 years compared to what would have been their distribution if they had used the previous life expectancy table.

Although these changes are set to go into effect in 2022, it is imperative to prepare for these changes by meeting with a licensed retirement phase expert to ensure that you are taking the correct amount of money for your yearly required minimum distributions. By taking more than the required amount from a traditional IRA or 401(k) you could be on the hook to pay more in taxes. To avoid this, a licensed retirement phase expert can assist you in staying up-to-date with the newest regulation in the continually changing IRA investing environment and help you maintain peace of mind throughout retirement.

Truth Tracker: Mad Money Manipulation

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Journalists, regulators, politicians and more have joined the discussion of market manipulation since the popular trading application Robinhood temporarily barred Reddit investors from trading shares of GameStop stock after driving up the price in spite of hedge funds that had taken short positions. Short selling is the process of borrowing shares of a particular stock that is anticipated to decrease in value and selling them to available buyers with the intention of purchasing the stock at a lower price to make a profit before returning the borrowed shares. Taking a short position is common among hedge funds, but the strategy has recently been scrutinized for actions deemed as allegedly manipulating the stock market. Personalities like Jim Cramer, host of the CNBC show Mad Money, have frequently weighed in on the Reddit investments, and despite his support of individual investors, an interview from 2006 resurfaced and put his ethics in question as he discussed ways to manipulate the stock market during his time as a hedge fund manager.

Before Cramer became the host of Mad Money on CNBC, he started and managed the hedge fund Cramer, Berkowitz & Company. While managing the hedge fund, Cramer was also a writer for multiple financial news sources like Worth and Slate and appeared on TheStreet.com — where the unscrupulous 2006 interview took place. During the interview, Cramer revealed anecdotal examples of how hedge funds manipulate the stock market should they need a stock to rise or fall. While discussing the volatility of the stock market futures, Cramer stated that certain actions would be necessary in order to get the future price of a stock to fall. “A lot of times when I was short at my hedge fund and I was positioned short, meaning I needed it down, I would create a level of activity beforehand that would drive the futures — it doesn’t take much money,” Cramer expressed. Cramer described these actions as a game that is fun and lucrative if the hedge fund knows what it is doing.

At the time of the interview, the financial industry was nearing the end of a financial quarter, which prompted Cramer to suggest that it is imperative that hedge funds — whether they are positioned long or short — control the market in order to hit their marks. To do this, Cramer proposed fomenting the market, which is creating a sentiment or instigating a course of action to achieve a desired result by feeding fake news to brokerages and reporters to try and control the direction of a stock. In the case of short selling the market, Cramer encouraged creating an impression that a stock is down. “You can’t create — yourself — an impression that a stock’s down, but you do it anyway because the SEC doesn’t understand it.” According to their website, the U.S. Securities and Exchange Commission (SEC) is an independent federal government regulatory agency responsible for protecting investors, maintaining fair and orderly functioning of the securities markets, and facilitating capital formation. Despite Cramer acknowledging that fomenting is a questionable activity that is not allowed, Cramer forged ahead with this endorsement of the action. “This is actually just blatantly illegal, but when you have six days and your company may be in doubt because you’re down, I think it’s really important to foment.” Hedge funds that weren’t willing to manipulate the market using this strategy, he said, should not be in the business of short selling stocks.

Furthermore, given the example of Apple preparing to release their first phone, Cramer explained that the stock was in a perfect position to short and gave a detailed explanation of how he would do it at his hedge fund. By spreading rumors to brokerage contacts that the major phone carriers — Verizon and AT&T — are not interested in picking up the Apple phone. He argued that this is an effective strategy to short the stock and push the price down. Cramer continued to describe that, to keep the stock down, his strategy would also include purchasing puts — a contract to sell a stock at a specified price — to create a sentiment that there might be activity on the horizon for a company’s stock which would benefit the hedge funds positioning by creating anxiety in the market. “These are all what’s really going on under the market that you don’t see,” Cramer stated. The most striking quote from the Cramer interview however came after describing how to manipulate the market. “What’s important when you’re in that hedge fund mode is to not do anything remotely truthful, because the truth is so against your view that it’s important to create a new truth, to develop a fiction and the fiction is developed by almost anybody who’s down.” This interview has recently been removed from TheStreet’s YouTube channel in light of Reddit investors short squeezing hedge funds that were trying to short sell stocks of GameStop and American Multi-Cinema (AMC).

“No One else in the world would ever admit that, but I could care…I’m not going to say it on TV.”

Jim Cramer, Circa 2006 via thestreet.com

In the wake of the 2008 financial crisis, Comedy Central commentator Jon Stewart lambasted Cramer for the 2006 interview, claiming in large part that the ethically questionable tactics that were anecdotally described by Cramer were related to the hidden side bets being made on Wall Street that cost millions of Americans their retirement savings. Stewart highlighted that Wall Street was viewed as having two separate markets — one that is for long-term investors and one that is behind closed doors that has a much larger impact on the financial stability of the markets. While frequently referring to the 2006 interview, Stewart contended that Cramer and CNBC knew about the market manipulation that was taking place behind the scenes and argued that the network did nothing to expose the issues until it was too late and investors lost billions.

Click play below to watch.


Stewart raised the concern that Cramer and the media at large, but specifically CNBC, were protecting companies like AIG, Bear Stearns, and more, and not making a bigger issue about the manipulative activities that were taking place which ultimately played a role in the stock market crash. Years later in 2021, market manipulation continued to be on full display with certain brokerages restricting trades of certain stocks because individual investors were short squeezing hedge funds. Robinhood, a popular trading app that has expanded access to the market to individual investors, was at the center of the manipulation as they restricted users from trading shares of GameStop and AMC after the stock skyrocketed in January of 2021. Cramer commented on the situation by sticking up for the individual investors in another interview appearing on TheStreet.com stating that individual investors must be protected from being restricted in their investment decisions.

Robinhood had already been in the spotlight of regulatory investigations after settling with the SEC to pay a fine for not providing investors with the best stock prices and not disclosing important information to traders. Similarly to his calls for investigations into companies like AIG in 2009 when speaking with Jon Stewart, Cramer’s calls for investigations into the manipulations of Robinhood were overshadowed by his willful actions to manipulate the market with his hedge funds and encouraging other investment groups to do the same. This kind of activity fetters investors’ confidence in the stock market and despite Cramer’s role as a financial journalist, the fundamentals of financial reporting have been replaced with glamour and entertainment — a concern that Stewart expressed during their 2009 interview.

Whether it is the securities industry, regulators, the federal government, media personalities, or brokers themselves, market manipulation has run rampant for decades. Large hidden transactional forces control sectors of the market for short-term profit, oftentimes at the expense of the individual investor and this was made apparent in the way Jim Cramer flippantly discussed strategies to manipulate the stock market to advantage his and others hedge funds. Arguably, Cramer is first and foremost a cheerleader for the securities industry, rather than a watchdog for the average investor in an industry riddled with fraud and deceit.

In essence, the topical conversation surrounding market manipulation is not new, but attempts to control the market one way or another are becoming increasingly apparent. Despite his fame and knowledge of the intricacies of the stock market, the ethically enigmatic decision-making of Jim Cramer while working as a manager of a hedge fund illuminates just one part of the dishonesty and corruption of the securities industry. Whether hyperbolic or anecdotal, Cramer encouraged that when a broker is in the hedge fund business, it’s important to never do anything remotely truthful or ethical. In order to achieve success while short selling, he indicated that a fiction must be created and spread in order to reach a desired outcome with the stock that is being hedged.

These actions may have made Cramer a billionaire, but for many average investors, market manipulation has jeopardized or put into question millions of retirement futures. Today, Cramer is a media personality — a financial journalist — who recommends strategies and stocks to buy and sell while investors continue to get fleeced by market manipulations that are out of their control and similar to the actions taken by Cramer’s hedge fund and from thousands of other brokers and investment groups.

Decades of Suspicious Banking Exposed

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For a period of 18 years, some of the largest United States and global banks allegedly moved trillions of dollars despite flagging transactions that were suspicious or potentially criminal. This came to light due to leaked documents according to the International Consortium of Investigative Journalists (ICIJ), Buzzfeed News, and others contributing to the FinCEN Files. The leak of confidential documents from the United States Treasury shows thousands of Suspicious Activity Reports (SARs) that were filed by major U.S. Banks. While SARs do not indicate wrongdoing, nor are they evidence of a crime, SARs are sent to federal authorities when potential illicit activity is witnessed.

Banks have 60 days (30 days with the ability to extend another 30 days) to file a SARs report to the United States Treasury Department Intelligence Unit: The Financial Crimes Enforcement Network, also known as FinCEN. At which time FinCEN would look into the suspicious activity as their mission is to protect the United States financial system from money laundering, terrorism, and other forms of illegal conduct dealing with finances. The nature of SARs are so confidential that banks can not legally discuss publicly any report, and regulators and law enforcement rarely comment on their existence. Curated by Buzzfeed News and the ICIJ, thousands of SARs documents were leaked, many of which detailed that SARs reports were filed years after witnessing alarming transactions — and not within the required 60 days.

The documents revealed that more than $2 trillion dollars from 1999 – 2017 were allegedly funneled through United States banks from suspicious individuals and corporations in more than 150 countries, with Deutsche Bank moving more than $1.2 trillion of those dollars. JPMorgan Chase moved more than $500 billion. Other major banks include HSBC, Standard Chartered Bank, Bank of New York Mellon, Barclays, Wells Fargo, Western Union, and more. So far, the leaked FinCEN files have exposed several high-profile figures worldwide, including Paul Manafort who was the former head of President Trump’s campaign during the Summer of 2016. According to the documents from 2003 – 2017, Manafort made over 600 transactions for more than $100 million dollars while being cited in 33 separate suspicious activity reports.

Despite many of these banks receiving fines and other types of regulatory actions against them by U.S. regulators for their failures to root out corruption and dirty money, the FinCEN documents show that the banks continued to overlook, or turn the other way as illicit funds were passed through their channels. Reportedly, banks like JPMorgan helped move the funds of corrupt companies and individuals including $1 billion for a fugitive caught up in a political scandal in Malaysia. In some cases, the banks were not even aware of who was effectuating a transaction, but would approve and move funds, sometimes into offshore accounts without hesitance.

JPMorgan was also linked to maneuvering funds, which ultimately assisted North Korea in evading many of the sanctions placed on their country by the Obama and Trump administrations from 2008 to 2017. Nearly $175 million dollars in laundered money passed through banks like JPMorgan and Bank of New York Mellon using shell companies in China, Cambodia, the United States and Singapore and was documented through suspicious activity reports. One of the perpetrators, Dandong Hongxiang Industrial Development Corp, run by Ma Xiohong was indicted in 2016 and again in 2019 for their role in laundering money through these shell companies, using U.S. banks in order to abet North Korea’s efforts to skirt U.S. sanctions.

In many of these cases, federal regulators were aware of the activity that was taking place in these banks through previous SARs, and have fined certain banks in the past for their role in failing to protect their financial institution from corruptors, mobsters, and gangs. In 2015, Deutsche Bank was fined $258 million dollars because they maintained working operations with countries that the United States was sanctioning, including Iran, Syria, Libya and several others. This however did not stop the bank from continuing those working relations as documents show persistent transactions following the regulatory fine. Similarly, HSBC reportedly continued their movement of billions of dollars that were tied to a ponzi scheme despite paying record fines for working with murderers and cartels in the early 2010s. Despite these egregious decisions made by major banks to continue working with shady figures, authorities that are responsible for prosecuting this type of activity rarely ever take up the goliath task of bringing criminal charges to these banks — opting instead to threaten criminal prosecution should the illicit activity persist.

What the FinCEN documents show is that despite these threats of prosecution and levied fines, monies linked to ponzi schemes, fraud, drugs, and other forms of corruption have passed through these banks without much enforcement. FinCEN has stated that this flow of illegal funds is harmful to ordinary citizens of countries around the world as it fuels drug cartels, corrupt oligarchs, and other criminal enterprises which in return diminishes the trust consumers have in these financial institutions; as well as, the transparency these banks have with federal and financial regulators. This decline was highlighted when the FinCEN Files became public in late September of 2020 and the Dow lost 800 points, along with bank stocks dropping significantly. Deutsche Bank, who was labeled as the largest offender of the major banks for processing illicit funds saw their stock drop 8% on the day, followed by 5.5% at HSBC. Bank of New York Mellon lost 4.1% in trading and JPMorgan fell 3.1%.

It is unclear what will result from the FinCEN Files leak as the spotlight shines on thousands of suspicious activity reports that barely scratch the surface according to the ICIJ. How federal regulators and law enforcement will respond to the relevant information presented in these leaks may also indicate if any action will be taken to address this problem. What is clear however, is that the trillions of dollars that are funneled through well-known financial institutions worldwide and in the United States are connected to criminal organizations, corrupt government regimes, drug cartels, and more.

Truth Tracker: Dean Vagnozzi Under Receivership

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Dean Vagnozzi Under Receivership
Dean Vagnozzi's assets are frozen while the SEC continues its investigation into A Better Financial Plan and Par Funding.

Dean Vagnozzi, founder of A Better Financial Plan, LLC. is under Receivership, which begs the question, who is the better financial plan for, his consumers or himself?

On July 24, 2020 the Securities and Exchange Commission (SEC) filed a lawsuit in United States District Court of the Southern District of Florida against defendants Par Funding, A Better Financial Plan and owner Dean Vagnozzi, along with several other individuals and entities. In the official complaint filed by the SEC, the defendants raised nearly half a billion dollars through alleged fraudulent practices — including lying and misinterpreting information to investors about the security of Merchant Cash Advance investments. Of the 8 cases of fraud outlined against the defendants, 7 of them included Vagnozzi and a Better Financial Plan. 

Homeowners like Dean Vagnozzi Sharpen Their Short Game With Backyard Putting Greens

As of July 27, the SEC put in place a receiver, Ryan M. Stumphauzer who is currently running Par Funding and A Better Financial Plan. A receiver’s purpose is to, “administer and manage their [companies under receivership] business affairs, funds, assets, causes of action and any other property of the Companies; marshal and safeguard all of the Companies’ assets; and take whatever actions are necessary for the protection of investors,” according to Document 4, filed on July 24, 2020 in the United States District Court of the Southern District of Florida. Ultimately, a receiver is appointed to take over a company when the suspicion of fraud has occured in an attempt to find and preserve information, assets, documents, and other materials pertaining to the case and company for the “protection of investors” as outlined in Document 4. 

As Stumphauzer took over receivership of both Par Funding and A Better Financial Plan, the Federal Bureau of Investigations (FBI) raided Par Funding’s headquarters along with multiple properties belonging to Joseph Laforte, the co-owner of Par Funding. By August 7, 2020, Laforte was arrested by authorities on illegal firearm possession in his Haverford, Pennsylvania home. Laforte, a convicted felon, was indicted on illegal gambling charges in 2009 and therefore was not allowed to own or possess firearms. 

After being put under receivership, the federal judge overseeing the case ceased electronic access to Par Funding’s company records on August 15, 2020. Stumphauzer blocked Par employees from their emails, as they had accessed and downloaded more than 100,000 documents pertaining to company information more than two weeks after the judge had ordered their access be taken away. Judge Rodolfo A. Ruiz II overseeing the case gave authority to Stumphauzer to remove Par Funding employees’ access while also ordering that any copies that were made by Par Funding staffers be sent to the receiver for review. 

Vagnozzi also came under scrutiny when the receiver uncovered a legal settlement payment made from a bank account to a client who had refused to sign a new deal with Par Funding. Outlined in a separate lawsuit as well as the SEC’s case against Vagnozzi, a Pennsylvania client sued Vagnozzi after refusing to accept a renegotiated promissory note contract from Par Funding. In July of 2020, Vagnozzi’s attorney negotiated a settlement with the client who had purchased a promissory note in March of 2020 for $601,000. The settlement concluded in principle with the client receiving a check for $550,000; however, the actual payment did not transact until after Vagnozzi had been placed under receivership. This information became public when the plaintiff filed a praecipe — an order requesting a writ or legal document — in late August, which showed that the settlement was backdated to July 29, 2020 despite no written agreement being concluded until August 12, 2020. By that date, Vagnozzi was already under receivership. 

As a result, Stumphauzer indicated in DE-208 that Vagnozzi was in violation of the receivership order for effectuating an agreement for the transfer of monies without the consent or knowledge of the receiver. The lawyer representing the receiver, Gaetan Alfano, requested that the client return the money that he had been paid in the settlement from Vagnozzi to the receiver as reported by the Philadelphia Inquirer in late August, but no known payment has been returned to date. 

In receivership documents DE-227 and DE-238, Stumphauzer outlines findings to the court that claimed Vagnozzi did not include a full and accurate depiction of his finances and omitted a bank account in a July 2020 filing that was used by A Better Financial Plan to collect money paid by Par Funding for the Merchant Cash Advance investments. As outlined in DE-227, this new bank account, MK Corporate Debt at Citizens Bank, was set up for the purpose of paying off investors who rejected the renegotiated 4% note that was released in the late Spring of 2020 amid the COVID-19 pandemic. 

When Par Funding and A Better Financial Plan could no longer keep up scheduled payments to investors due to the coronavirus shutting down businesses across the country, Vagnozzi and Par Funding executives renegotiated their promissory notes to offer a reduced return for an extended period of several years. Originally, Merchant Cash Advance promissory notes were issued for periods of 12 – 36 months, with 10% – 14% returns and a full repayment of principal at the end of the contract. The businesses who received these advances were forced to close and could no longer keep up their payments to Par Funding, creating a chain reaction through A Better Financial Plan causing their investors to not receive their monthly payments. 

As this process broke down, Par Funding and A Better Financial Plan renegotiated their notes and created a new bank account which, Par Funding funneled more than $4 million into to pay off investors who refused to sign the new extended notes of which there were several, including the client who settled with Vagnozzi for $550,000. In email correspondence to clients during April 2020, Vagnozzi claimed that if investors didn’t sign the new notes they could risk losing all of their investment money or spending thousands in legal fees to fight for what they are owed in court. A few weeks later, Vagnozzi and his attorney at the time, John Pauciulo, created a 16 minute long video on Vimeo explaining the new note to investors and encouraged urgency to get the notes signed and returned quickly so Par could resume the renegotiated payments the first week of June. 

As the SEC points out in DE-227, investors were not told about the more than $4 million that was put into a new account for investors who did not want to sign the renegotiated note. Investors who refused were paid back in-part, or in-full and in late July 2020, Vagnozzi removed the remaining funds, which consisted of more than $500,000 in the MK Corporate Debt bank account and placed that money into his personal bank account — this account and transfer was not disclosed in Vagnozzi’s July court filing per the receiver’s orders. Thus, Vagnozzi was then ordered to amend his disclosure to reflect the transfer as well as another transfer he had made moving $60,000 from Victory Bank into his own personal account. 

On page 2 of DE-227, the SEC wrote, “We have already identified two significant transfers he [Vagnozzi] made to himself after the Court’s entry of the Orders in this case, and we should not have to investigate to discover additional ones he might have made.” They continued stating, “This was the purpose of the sworn accounting, with which he [Vagnozzi] utterly failed to comply in full.” Despite already receiving orders and being placed under receivership, Vagnozzi attempted to maneuver funds without disclosing them, which placed the safety of investors funds in jeopardy according to the SEC. 

Of the more than $4 million that was paid by Par Funding into the MK Corporate Debt account, more than $500,000 remained after settling with several investors. The funds that remained were then transferred into Vagnozzi’s personal account. In DE-238 the SEC ordered that those funds be placed under control of the receiver as they were moved from the MK account at Citizens Bank into Vagnozzi’s personal bank account at the end of July. 

As September came to an end, Stumphauzer and the court set in motion requests for a jury trial which would take place in August of 2021 and outlined the schedule and deadlines from September 2020 to August 2021 in DE-279. In DE-256, the SEC also levied a preliminary injunction against Vagnozzi to restrain him from violating multiple sections of the Securities Act of 1933 and Securities and Exchange Act of 1934 by offering or selling securities and destroying any records, documents, or items pertaining to the scope of investigation. 

While the case against Par Funding, Vagnozzi, and other defendants looks to be headed to trial, it is unclear what this will mean for A Better Financial Plan’s investors who did and did not sign the renegotiated note. The judge overseeing the case also warned that investors may not have all of their money returned, if any, depending on the outcome of the case and the future of Par Funding. For more information about the SEC case against Vagnozzi and Par Funding, SEC Receiver Ryan Stumphauzer set up a website where concerned citizens, investors, and others can access key documents to stay up-to-date as the case unfolds. 

Americans Returning to Work Amid COVID-19

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returning to work amid covid-19

There is a growing concern that older Americans who were displaced from their job due to the COVID-19 pandemic will remain unemployed as state economies begin to reopen in the coming weeks and months. Historically, older workers have found difficulty reentering the workforce following an economic downturn or recession, forcing many into early retirement. These instances can turn retirement planning on its head for individuals nearing the end of their career as they are forced to make up for the lost income. Often times this results in taking social security earlier than anticipated, staying on unemployment longer, or even diving into other retirement accounts to make ends meet.

The COVID-19 pandemic has created a worse outlook for older, unemployed Americans because they are the at-risk population to contract the virus and experience the more severe side effects, like respiratory issues. Unlike the 2008 Great Recession, older workers have their health and their finances to worry about when attempting to reenter the workforce, which may ultimately lead to employers considering younger employees to fill positions in the coming months.

The American Association of Retired Persons (AARP) conducted a study in 2015 following the 2008 financial crisis to analyze how older workers reassimilated back into the economy. They found that it was very difficult for these workers who were nearing the end of their careers to find full-time employment or the job that they previously held before being laid off. A number of factors contributed to these findings, such as payroll and rebuilding with younger employees who the companies didn’t have to pay as much.

According to the AARP study, older workers faced issues with unemployment, reduced pay, and some were forced into early retirement. 45% of all workers aged 55 or older spent on average 27 weeks on unemployment after being laid off during the 2008 crisis. 59% of older workers who spent more than 27 weeks on unemployment experienced reduced pay compared to the job they held pre-crisis and 41% for older workers who spent less than 27 weeks on unemployment following the 2008 crisis. Thus, the AARP study showed a correlation between time spent on unemployment and the increased likelihood of making less income once finding a new job.

With the COVID-19 pandemic, the likelihood is that workers aged 55 or older will spend 27 weeks or more on unemployment due to the health risks of the virus in the absence of a vaccine. As long as a vaccine remains unavailable for these workers they may not return to work or seek employment, paving the way for younger workers to take their place – reducing the opportunities for older workers down the road. Furthermore, workers nearing the end of their careers that do go back to work face the threat of losing their job due to automation in certain industries.

A report published by the Center for Retirement Research at Boston University concluded that a rise in automation would ultimately push workers aged 55 and above out of the workforce and into non-traditional jobs. In their study, they define non-traditional jobs as those that offer reduced pay and no medical or retirement benefits. In certain industries where this is a possibility, it is another obstacle that those nearing the end of their career must consider while planning for retirement. One glimmer of hope that is not connected to this study is the passage of the SECURE Act, which was signed into law by the Trump administration in December of 2019 and opened the door for companies to expand certain benefits to part-time employees. Therefore, whether it’s COVID-19 or the introduction of automation into the workplace, older workers may be able to find part-time work with benefits that otherwise wouldn’t be available if it wasn’t for the SECURE Act – this bright side certainly was not existent from 2008 to 2015 when AARP conducted their analysis.

Older Americans who had jobs before the COVID-19 crisis face the risk of being left behind as the economy begins to take-off again. Statistically and historically, workers above the age of 55 have faced more hardship trying to find new jobs or returning to jobs previously held before being laid off. While the research conducted by AARP is valuable, it only represents a financial crisis that impacted this age demographic, while the COVID-19 pandemic adds the element of health into the mix on top of a financial crisis. The COVID-19 financial crisis was also artificially created by states shutting down their economies while the 2008 crisis was a mixture of bad policies and greed.

The added health risk of returning to work for older Americans may force some into an early, involuntary retirement, which will make financial security a hardship for their retirement. If older workers are unable to find employment following the COVID-19 crisis, similar to the 2008 crisis, the possibility of Americans falling into poverty in their senior years will be raised significantly for those with inadequate retirement planning. Individuals planning on social security to supplement the majority of their income are especially vulnerable to this scenario.

Only time will be able to tell what the outcome of the COVID-19 crisis has on the older population of workers, however, if history stands to repeat itself, the aforementioned outcomes are likely to be repeated. If individuals can’t obtain their previous job, there is a high chance that they remain on unemployment, or worse, take an early retirement. Some may have the option to enter the workforce again but generally, this is done at reduced pay and or benefits. Often times, this demographic will settle for part-time work as a way to make ends meet, ultimately sacrificing time to continue building their retirement nest egg.

Truth Tracker: A Better Financial Plan (Part 3)

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The Truth Tracker continues its close look at A Better Financial Plan and its CEO, Dean Vagnozzi who proclaims he has a greater financial plan, “better than anything out there.” The firm’s advertisements vaguely describe multiple alternative investments that guarantee double-digit returns for their investors, with interest paid quarterly and the return of your principal investment after two years. A Better Financial Plan claimed that the enforcement order issued to them by the Pennsylvania Department of Banking and Securities was due to a large gray area in the law. At least, this is their explanation to ease the minds of their clients to continue to do business with the firm. In reality, if an agent is engaged in the sale of securities on behalf of someone else, as Vagnozzi was, the agent must be registered. Even if the company issuing the securities is exempt from registering, the agent must. To control the narrative, A Better Financial Plan gave a letter given to clients from their legal team stating that they preferred to settle the case with the Department and pay a fine instead of taking on expensive litigation costs. The truth of the matter is that Vagnozzi would have lost the case. Therefore, in order to mitigate the damage, Vagnozzi settled and tried to spin the story.

In an emailed statement from A Better Financial Plan’s legal counsel regarding the 2019 enforcement order, it was said that Vagnozzi was in the process of obtaining the proper credentials to become a broker, however, according to the Department of Banking and Securities, this is not true. They further misrepresented the truth as they described the actions that took place leading up to the enforcement order by stating the Department was alleging that Vagnozzi was acting as a broker. The official redacted 2019 enforcement order alleges that Vagnozzi, “effected transactions in securities in Pennsylvania while neither registered nor exempt from registration as an ‘agent’ in willful violation of Section 301(a) of the 1972 Act 70 P.S. §1-301(a).” While the state’s definition for agent and broker-dealer are relatively similar, the difference comes down to how the transactions were being affected and whether or not compensation was received for effecting the sale. In this case, Vagnozzi was effecting transitions on behalf of Par Funding and receiving compensation from them, thus classifying him as an agent. Therefore, there is no gray area in the department’s ruling and in an attempt to set the record straight, A Better Financial Plan’s legal counsel willfully mislead clients on the matter.

Nearly one year following the enforcement order, A Better Financial Plan has found a way to exploit the gray area of the law. If what Mr. Doe explained in part two of the Truth Tracker is true, then the investment pattern has changed and A Better Financial Plan, not Par Funding, would be considered the issuer according to the Pennsylvania Securities Act of 1972. An issuer is defined as, “any person who issues or proposes to issue any security, and any promoter who acts for an issuer proposed to be formed.” This is significant because it connects how both A Better Financial Plan and Par Funding are still doing business with Merchant Cash Advances while remaining in compliance with the Pennsylvania State security regulations. So while this updated investment pattern is legal, A Better Financial Plan has skirted the gray area to comply with the Pennsylvania Department of Banking and Securities.

To explain this process, the proposed investment pattern that took place before the enforcement order was issued must be analyzed. Prior to 2019, Par Funding issued non-negotiable, unregistered high-risk promissory notes to unregistered agents to be sold to investors on behalf of their company. Those funds were then used to lend Merchant Cash Advances to small businesses who would pay back the principal plus a high-interest payment. The payments from small businesses are generally derived from the business’s credit card sales as a way to ensure that the advance will be paid back in full plus interest. Additionally, the payments made by the small businesses would then be used to pay the monthly or annual payments on the client’s unregistered high-risk promissory notes – which were being sold by the agents working on behalf of Par Funding. Since Vagnozzi was not a properly registered agent to effect these transactions on behalf of Par Funding and received a commission from his sale of non-negotiable unregistered high-risk promissory notes, he was ordered to pay a fine. A fine that he would not have been able to litigate in court because he was in violation of the state’s security regulations.

This new process, as described by Mr. Doe, places A Better Financial Plan as the instigator of the post-enforcement proposed investment pattern. To avoid violating the regulations, A Better Financial Plan began issuing the unregistered high-risk promissory note securities and working around the registration requirements by filing Form D with the Securities and Exchange Commission. A Better Financial Plan issues these unregistered high-risk promissory notes through different investment funds registered with the SEC for Merchant Cash Advances. That investment money is then lent to an alternative lender – Par Funding who was also named in the 2019 enforcement order with Vagnozzi and A Better Financial Plan. Mr. Doe did make mention that Par Funding did sound familiar and that it was likely that they are still working with A Better Financial Plan.

After the money is invested, it is lent to Par Funding, which contracts small businesses in need of cash advances at an interest upwards of 35% or more. The small businesses pay back the principal and interest on those advances and the funds travel back through Par Funding to A Better Financial Plan and then each investor’s monthly interest payments are directly deposited into a bank account of their choice.

According to Doe in part two of the Truth Tracker, this investment pattern guarantees the annual returns of 10%, 12%, or 14%. Since A Better Financial Plan filed an exemption with the SEC to file Form D, they are exempt from registering their securities – in this case, unregistered high-risk promissory notes – with the State of Pennsylvania. In the same respect, because this exemption is filed, A Better Financial Plan does not have to be registered as an issuer of securities with the Pennsylvania Department of Banking and Securities. Finally, Par Funding is not acting as an agent on behalf of A Better Financial Plan and does not need to be registered as an agent, nor do they need a license to engage in Merchant Cash Advances. Since the advances are not considered loans, no federal or state oversight is required.

While the Pennsylvania Department of Banking and Securities has declined to comment on the proposed investment pattern, there is reasonable evidence to suggest that this is how A Better Financial Plan is issuing securities for the purpose of Merchant Cash Advances. It is also reasonable to assert that the other investment funds incorporated by A Better Financial Plan operate in a similar fashion. Based on literature acquired from Mr. Doe, the investment fund that was set up for Litigation Funding operates very similarly to that of the Merchant Cash Advances.

Investment opportunities are aplenty in the Philadelphia financial market. From putting investors money at risk on the stock market to investing in safe alternatives, there is no shortage of firms or investments for consumers. While investments in Merchant Cash Advances are legal, the business practices of A Better Financial Plan issuing unregistered high-risk promissory notes are not transparent. Referring back to part two of the Truth Tracker, John Doe received nothing in the form of physical paperwork regarding his investment. Further, Doe stated that when he requested to see a copy of the policy that protects his contract, he was denied. Rather, he was told to come into the office if he wanted to read the policy. His contract does not list who manages the investment, how the investment accrues its monthly interest payments, nor what the investment is for – the contract does not mention Merchant Cash Advances. The only information contained in Doe’s contract is that he invested a principal sum of money for a guaranteed 10% annual return after one year. As far as the purpose of his investment, this was all disclosed by an advisor through the use of PowerPoint. Considering Doe received no physical paperwork that would document the aforementioned information raises significant red flags about transparency and credibility.

In the end, while Vagnozzi claims he is the most ethical guy in the business, the truth is that he skirts around securities regulations and lacks transparency as an investment professional. He has denied clients access to information regarding their own investments, purposely misled clients concerning the 2019 enforcement order, and provides no physical paperwork that would educate or inform their clients about what they are investing in. Merchant Cash Advances are an unregulated high-risk alternative to the stock market, and for that reason, alternative investments such as Merchant Cash Advances should result in increased transparency during the investing process, not less. Misinformation not only hurts the image of A Better Financial Plan but significantly disadvantages their investors and puts them at risk. While A Better Financial Plan is technically within the bounds of the law and regulations, transparency is a real issue for the firm.

Truth Tracker: A Better Financial Plan (Part 2)

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The Truth Tracker continues its close look at A Better Financial Plan and its CEO, Dean Vagnozzi who proclaims he has a greater financial plan, “better than anything out there.” The firm’s advertisements vaguely describe multiple alternative investments that guarantee double-digit returns for their investors, with interest paid monthly or quarterly and the return of your principal investment after two years. In a number of promotional videos, Vagnozzi can be heard proclaiming that he is the most ethical investor in the business, despite his history of financial negligence. Part one of the Truth Tracker investigation highlighted issues that arose with the Pennsylvania Department of Banking and Securities and Par Funding, a predatory alternative lending company involved in the sale of non-negotiable high-risk promissory notes for the purpose of Merchant Cash Advances. According to Vagnozzi, breaking securities regulations for profit is an ethical decision. To expand on his interactions and business operations, the Truth Tracker sat down with a client of A Better Financial Plan.

John Doe, a resident of Pennsylvania, met with A Better Financial Plan to invest a large sum of money after hearing about the guaranteed double-digit returns on the radio. As a retired individual, Doe was seeking high-growth investments and decided to put A Better Financial Plan’s method to the test. After discussing the details of his contract with an advisor at A Better Financial Plan, Doe was guaranteed a 10% annual return and full repayment of his principal when the contract matured, one year later. As reported in part one of the Truth Tracker investigation, the returns are dependent on how much money was invested. According to a website advertising the Merchant Cash Advance investments, an investment of $100,000 – $250,000 will guarantee a return of 10%. $251,000 – $500,000 guarantees a return of 12%, and an investment of $501,000 or more guarantees a return of 14%.

It was explained to Doe, by A Better Financial Plan, that the monthly payments on his unregistered high-risk promissory note contract were derived from the interest paid on the Merchant Cash Advances. As discussed in part one of the Truth Tracker, Merchant Cash Advances or MCAs are given to small businesses attached with high-interest payments that can exceed 35% or more. Doe went on to explain how his investment plays a role in his guaranteed return. After making his investment and signing his unregistered high-risk promissory note contract, A Better Financial Plan lends the funds to an alternative lender, Par Funding, who then issues the MCAs. After the small business receives the advance, the payments made by the small business then get funneled back through Par Funding to A Better Financial Plan and that money is paid out to investors as their monthly interest payments. Therefore, the 35% interest payments, “legitimize the 10% [annual interest payments] to prospective customers,” said Doe.

Thus, the money travels from the investor to A Better Financial Plan in the form of an unregistered high-risk promissory note – which is considered a security – to Par Funding who contractually hands out Merchant Cash Advances to small businesses. As the money is repaid along with the interest, that money reverses track and finds its way back to A Better Financial Plan’s investors in the form of their monthly payment, which is a fraction of their annual 10%, 12% or 14% return. The money repaid to investors is done so through a direct deposit, according to Doe.

While talking to Doe about the contents of his unregistered high-risk promissory note with A Better Financial Plan, the process of investment that was explained to him by A Better Financial Plan is not outlined in his contract. Furthermore, he was not informed about who manages his money after it gets invested. Instead, the only documentation that the client received about his investment is in his contract, which states that he will receive a 10% annual return along with full repayment of his principal once the contract matures after one year. In their radio and television advertisements, A Better Financial Plan has increased the repayment period to two years, likely because of the economic downturn caused by COVID-19. Doe is not aware if Par Funding is partnered with A Better Financial Plan to engage in this investment, but said that the company name sounded familiar after reading the 2019 enforcement order which listed both A Better Financial Plan and Par Funding. With any investment, the investor should have a comprehensive knowledge and understanding of what they’re putting their money into and how the investment works, and based on Doe’s recollection of the meeting, this was not the case.

During Doe’s meeting with A Better Financial Plan, Doe stated that Merchant Cash Advances were the only investment opportunity being promoted and encouraged. Aside from leaflets left around the office of A Better Financial Plan, there wasn’t much information available for Doe to educate himself about MCAs. While sitting with one of A Better Financial Plan’s advisors, Doe recalled a PowerPoint presentation being used to swiftly explain the details of the investment, while adding, “[I received] no physical paperwork other than my contract.” Although Doe claims the encounter was professional, he stopped short of calling it informative. Following the meeting, Doe was informed that his contract was backed by a popular international insurance agency, wherein the event of a default on the unregistered high-risk promissory note, the insurance company would ensure that the investor accrued no losses. Doe requested a copy of the policy to review and keep in his records, however, his requests were denied. Instead, he was told to come into A Better Financial Plan’s office and read the policy in person with one of the advisors.

As mentioned in part one of the Truth Tracker, A Better Financial Plan has multiple investment funds for the several investment opportunities that are available through their firm. Doe’s contract and check were written out to one of the six known income funds that deal with MCAs. He described that even though he wrote a check to one of the funds, he did not know its purpose, nor was it explained to him. “At worst, the contract is potentially misleading,” Doe said, although remaining confident in his investment.

The unregistered high-risk promissory note contract issued by A Better Financial Plan for MCAs to Doe is not registered with the State of Pennsylvania, nor the Securities and Exchange Commission. The Pennsylvania Department of Banking and Securities states that “[S]mall businesses that want to issue stock or debt and do not qualify for an exemption must register the security with the Department.” They go on to say, “The business may not make offers or sales of securities in Pennsylvania until the offering has been cleared by the Department.” Since A Better Financial Plan files for the exemption mentioned in part one of the Truth Tracker – Rule 506 of Regulation D – A Better Financial Plan and it’s CEO, Dean Vagnozzi, are not required to register their security or to register as a broker or issuer.

There were several instances where Doe’s recollection of his experience with A Better Financial Plan would raise issues of transparency. The first being the lack of information presented to the client during the meeting and the unavailability of physical paperwork other than the promissory note contract. When Doe requested more information about the protections in his contract, he was denied and told that he would have to physically come into the office as if the policy was a secret. Furthermore, Doe was not told who manages the investment fund, where the money goes after he invested the money, and there is no outline of how the investment works – that is troublesome, to say the least.

If what Doe described is true, about how his investment manufactures a return, then A Better Financial Plan and Par Funding have not moved on from their financially negligent past. Rather than fix and address the issues raised by the Department of Banking and Securities in 2019, the two companies decided to change the investment pattern to skirt around the regulations and simply file an exemption. Doe was alarmed, but not dismayed when he learned about the 2019 enforcement order, and A Better Financial Plan even sent Doe a letter explaining their side of the story and claimed that the enforcement was a result of a large “gray area” in the regulation of securities. Regardless of A Better Financial Plan’s retort to the enforcement order, Vagnozzi and A Better Financial Plan maintain serious transparency  issues with the State and with their clients. Despite correcting past wrongdoing by changing the investment pattern, A Better Financial Plan’s behind-closed-door tactics and unnecessary protection of information from clients certainly refutes their claim of being the most ethical in the business.

Truth Tracker: A Better Financial Plan (Part 1)

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Throughout the tri-state area, investors can hear financial professionals advertising different types of investment opportunities. From encouraging investors to put their money at risk in the stock market to considering safer investment alternatives, there is no shortage of choices for individuals in the Philadelphia financial market. One Sales Firm, in particular, located in the suburbs of Philadelphia proclaims it has a greater financial plan, “better than anything out there.” Their advertisements vaguely describe multiple alternative investments that guarantee double-digit returns for their investors, with interest paid quarterly and the return of your principal investment after two years. These investments include Merchant Cash Advances, Litigation Funding, and Life Settlements.

Merchant Cash Advances (MCAs) are loans that are given to small businesses who are seeking short term capital for expansion or projects. The companies receiving MCAs typically do not have good enough credit to obtain a loan from a traditional lending institution, like a bank, and are required to pay immense interest rates on these advances. Sometimes the interest rates can exceed 35% on top of the principal. According to testimonials from A Better Financial Plan (the Philadelphia Sales Firm in question), as the interest is paid back on these loans, investors receive their guaranteed quarterly returns through direct deposit. Although the CEO of the sales firm, Dean Vagnozzi, has publicly stated that he is not guaranteeing double-digit returns, the returns on MCAs are advertised as a 10%, 12%, or 14% annual return. Further, the annual returns on investment are dependent on the amount of principal that was invested.

Vagnozzi and A Better Financial Plan has previously been hit with enforcement orders from the Pennsylvania Department of Banking and Securities and ordered to pay a hefty fine for not being a registered broker. This is significant because the MCAs are not lent out from A Better Financial Plan. Instead, a Philadelphia based alternative lender, Complete Business Solutions Group (doing business as Par Funding), partnered with A Better Financial Plan to obtain the capital necessary to engage in the MCA program. Since Par Funding is not a bank and MCAs are not legally considered loans, there is no state or federal oversight regulating these cash advances. Thus, it begs the question of how the advances are funded and by whom.

In 2019, the fine was ordered to Vagnozzi and A Better Financial Plan because Vagnozzi was an unregistered broker working on behalf of Par Funding engaging in the sale of non-negotiable, unregistered high-risk promissory notes. Vagnozzi was in violation of security regulations outlined in the Pennsylvania Securities Act of 1972. Among those involved, Par Funding was also forced to pay a fine for issuing the unregistered high-risk promissory notes to unregistered brokers to be sold on behalf of their organization.

According to a 2019 Security and Exchange Commission (SEC) filing, both organizations still maintain a working relationship and continue to engage in Merchant Cash Advances. Therefore, it is reasonable to believe that individuals who invest with A Better Financial Plan are having their investments funneled to Par Funding to make the cash advances, with the returning interest being used to pay investors monthly interest payments. This investment pattern was confirmed by a client of A Better Financial Plan who shared his contract – an unregistered high-risk promissory note – with the Truth Tracker for examination.

While examining other SEC filings by A Better Financial Plan, multiple investments and income funds have been set up for Merchant Cash Advances, Litigation Funding, and Life Settlements. All of these funds were made accessible through an EDGAR or SEC search, but there is no evidence to suggest that Vagnozzi has obtained the proper licensing to broker securities in the State of Pennsylvania. Since A Better Financial Plan and Par Funding still maintain a working relationship, Vagnozzi would have had to obtain a brokers license to continue selling securities for the purpose of Merchant Cash Advances; unless the pattern of investment was changed.

Through further research, A Better Financial Plan has filed certain exemptions with the SEC, which do not require that the securities being issued be registered with the state or SEC. Pursuant to SEC Rule 506 of Regulation D, the State of Pennsylvania’s Department of Banking and securities does not require registration of the individual, nor the securities being sold if they obtain exemptions through SEC Rule 506 of Regulation D. Therefore, while Vagnozzi is not a registered broker according to the Financial Industry Regulatory Authority (FINRA) or Investment Advisor Public Disclosure (IAPD), the SEC’s rule makes him exempt. 

Since A Better Financial Plan is now issuing the unregistered high-risk promissory notes for Merchant Cash Advances, as confirmed by one of their clients, then the investment pattern was changed to avoid further enforcement from the State of Pennsylvania. Rather than issuing securities from Par Funding to brokers – as the two organizations did before the enforcement order – A Better Financial Plan now issues the securities, files for an exemption so the securities do not have to be registered, and then funnels that money to Par Funding who uses that investment money to engage with small businesses in the form of MCAs. The returning interest payments from the small businesses then get paid back to investors as part of their monthly returns. This process has been confirmed by one of A Better Financial Plan’s clients.

While this process may be legal, the question remains whether or not A Better Financial Plan is upholding the responsibility to consumers and their investments. Although Vagnozzi is not listed as a registered broker with FINRA or the IAPD, he and his firm are exempt from registering the securities which they are issuing. Thus, Vagnozzi is also exempt from becoming a registered broker pursuant to the rules outlined in SEC Rule 506 of Regulation D. Additionally, since the State of Pennsylvania is very lenient in their regulation of Merchant Cash Advances, as well as the licensing thereof, it is especially important that the involved parties – investors, issuers, and Par Funding – remain transparent in their transactions. Based on the conversation with one of A Better Financial Plan’s clients, transparency is a major issue.

Truth Tracker: Merchant Cash Advances (Part 2)

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Businessman with money in studio . Business concept

Retirement Media Inc. Presents: The Truth Tracker. Over the last couple of weeks, the Truth Tracker revealed the dangers of Merchant Cash Advances for high-risk borrowers and high-risk lenders in the Philadelphia region. This week the Truth Tracker expanded its view to Texas, as a February enforcement order from the Texas State Securities Board has connected A Better Financial Plan (a Philadelphia Sales Firm) and the predatory alternative lender Par Funding (based in Philadelphia) to a Texas sales firm, Merchant Growth & Income, LLC.

There are potentially forty or more companies raising capital for Par Funding by issuing high-risk promissory notes for Merchant Cash Advances just like A Better Financial Plan.

Merchant Growth & Income, LLC engaged in the sale of high-risk unregistered securities – promissory notes – to investors and allegedly forwarded investors funds to A Better Financial Plan or Par Funding. The enforcement order was levied against Merchant Growth & Income, LLC, A Better Financial Plan and Par Funding for not being registered agents or dealers in the sale of high-risk, unregistered securities. Further, the Texas State Securities Board issued the enforcement because Merchant Growth & Income, LLC did not disclose the regulatory issues of both A Better Financial Plan and Par Funding, as well as, providing misleading information to investors.

As reported by the 2020 enforcement order, Par Funding has used Merchant Growth & Income, LLC and others to raise more than $270 million dollars in the past year for Merchant Cash Advances. In the case of A Better Financial Plan and the Merchant Growth & Income, LLC, the high-risk, unregistered promissory note investments are virtually identical. Both firms use limited liability companies to issue the high-risk, unregistered promissory notes and the guarantees on investors’ contracts are practically the same. Merchant Growth & Income, LLC offers five classes of promissory notes (Classes A through E), compared to the three classes offered by A Better Financial Plan for Merchant Cash Advances.

Investments in a Class A Promissory Note show a return of 8% annually which requires an investment of $74,000-$124,000. Class B Promissory Notes show a return of 10% annually and range from $125,000-$249,000. Class C Promissory Notes show a return of 12% annually for investments of $250,000-$399,000. Class D Promissory Notes carry a return of 13% annually if $400,000-$499,000 is invested and finally; Class E Promissory Notes give the investor a 14% annual return on any investment made above $500,000.

A Better Financial Plan offers three classes on their Merchant Cash Advance high-risk promissory notes with the lowest rate of return being 10% for investments made between $100,000-$249,000; 12% for investments made from $250,000-$500,000, and 14% annual returns for any investment made above $501,000.

The enforcement order asserts that Merchant Growth & Income, LLC has not disclosed regulatory issues relating to A Better Financial Plan or Par Funding to their clients. Not only did A Better Financial Plan receive enforcement from the Pennsylvania Department of Banking and Securities for being an unregistered agent, but so did Par Funding for their role, as well as receiving enforcement from the State of New Jersey. Par Funding is also involved in a pending federal court case involving a Texas company that claimed that the predatory alternative lender charged illegal high-interest rates, and used deceptive tactics to prey on the Texas small business.

Further misleading information from Merchant Growth & Income, LLC alleges that they are telling investors that A Better Financial Plan or Par Funding is responsible for paying the investors returns – when in reality, the high-risk promissory note contracts state that Merchant Growth & Income, LLC is responsible. According to a promissory note contract obtained by the Truth Tracker from a client of A Better Financial Plan, Par Funding, nor Merchant Growth & Income, LLC, or any company for that matter is listed as the responsible party for paying the returns on their investment. Yet, it was the client’s understanding from the advisors at A Better Financial Plan that their investment would gain their returns from Merchant Cash Advances issued by Par Funding.

It is also alleged that Merchant Growth & Income, LLC – just like A Better Financial Plan – forwards invested funds to Par Funding for Merchant Cash Advances, with the returning funds from Par Funding being used to pay investors annual returns. The enforcement order states that Merchant Growth & Income, LLC may be lending the money to A Better Financial Plan first as part of a management agreement, however, prior research conducted by the Truth Tracker suggests that the money is most likely being forwarded directly to Par Funding. 

Once again, A Better Financial Plan is connected to violations in the securities industry as Merchant Growth & Income, LLC has been ordered to cease and desist from offering high-risk unregistered promissory notes, as well as, ceasing the spread of misinformation about their investments. Clients of both sales firms are unaware of how their investments are managed, how they gain their monthly returns and unaware of the regulatory issues that have been brought against both A Better Financial Plan and Par Funding. According to the Texas State Securities Board, this kind of misinformation is labeled as fraud and deceit.

The Merchant Cash Advance industry is filled with fraudulent, deceitful tactics and is exemplified in the Texas enforcement order based on the actions of A Better Financial Plan, Merchant Growth & Income, LLC and Par Funding. Guaranteeing certain returns based on a principal investment is more like a high-risk pay-to-play investment strategy and without proper education from the Sales Firms, investor’s funds could be left at risk with high-risk predatory Alternative Lenders.

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crash proof retirement system

The Crash Proof Retirement System – A Safer Way to Save for Retirement

There are many strategies that Americans use to save for retirement and each one has different benefits and drawbacks. Some of these...

Congress Builds on the Foundations of the SECURE Act

Congress is officially set to move forward with legislation that will alter the retirement saving landscape once again, more than a year...