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.
