Jun. 28—Dean Vagnozzi and John Pauciulo were genial partners in a growing financial business, for 16 years. Their relationship seemed to hold up even after the feds moved in.
No longer. Now they are adversaries, heading for court.
In happier times, Vagnozzi, a King of Prussia financial salesman well-known through his once-ubiquitous radio ads, raised more than $200 million from investors seeking alternatives to the stock market.
Pauciulo, a partner at a big law firm, packaged unconventional investments for Vagnozzi's clients, reviewed his radio ads, attended his dinner sales pitches, and sat literally at his right hand to assure investors that it was all sound and legal. Vagnozzi says he paid Pauciulo more than $1 million in fees.
"We have been working together since 2004," Vagnozzi said in one of the friendly videos the pair made for prospective customers. "I need a person like John," he told viewers, to show "we are not a bunch of gunslingers."
In another video, Pauciulo bragged, "Together, Dean and I have created a model" where small investors could get in on the kind of "alternative asset" action typically limited to rich investors.
Last summer, the U.S. Securities and Exchange Commission took a less enthusiastic view. It filed a sweeping civil fraud case against Vagnozzi and others over one of Vagnozzi's most popular investments, a Philadelphia lender to small business known as Par Funding. The suit alleges that Par Funding's owners, Vagnozzi and the other defendants defrauded 1,200 investors, hiding from them Par's shaky finances, reckless lending, and the criminal past of a Par founder.
Vagnozzi has fought back against the SEC, rejecting its complaint as groundless. But in April, he turned his fire in a new direction — suing his old ally, Pauciulo, in Common Pleas Court in Philadelphia. Pauciulo's "lazy, " "amateurish," and "incompetent" lawyering led Vagnozzi and his investors astray, the suit claims.
"He never pulled me aside and told me what I was saying was wrong, or was a violation of securities law," Vagnozzi said in an email to The Inquirer. "He never told me to change my message. Never."
Vagnozzi summed it up this way: He was the amateur relying on the professional, "just like I am at the mercy of my auto mechanic when it comes to fixing my car."
Vagnozzi, 52, may know little about cars — he likes them, though, driving a Porsche and an Aston Martin in his video spots that showcased his success. But he is not unschooled in business. An accounting major in college, he went on for a time to become a licensed securities broker. His required disclosures in the SEC lawsuit show that in just the last two years before the SEC pulled the plug, he made $8 million in profits on $17 million in revenue. His book on investing is available on his website for $19.95.
Pauciulo, 55, is a Temple law grad who has been with the Pittsburgh-based Eckert Seamans firm for more than a decade, leading its financial transaction group out of its Philadelphia office.
Pauciulo and his lawyer didn't return calls seeking comment. In a court response this month to Vagnozzi's suit, Pauciulo hit back at his former client. He said Vagnozzi had ignored legal advice, brushed aside warnings that Par had refused to answer questions, and now was vastly exaggerating Pauciulo's role.
Until Vagnozzi and Pauciulo turned against each other, they had been able to weather increasingly rocky weather together. Since 2019, Vagnozzi agreed to pay more than $1 million to settle civil actions brought by securities regulators over three separate investments Vagnozzi said Pauciulo had advised him on.
The SEC didn't name Pauciulo as a defendant in its lawsuit. But investors have. In the last 10 months, investors have sued Pauciulo and his firm in Delaware, Florida, and Philadelphia. Two suits named both Pauciulo and Vagnozzi as defendants. A third, filed by Philadelphia lawyer Clifford Haines on behalf of 17 people who set up pools that pumped nearly $50 million into Par, names just Pauciulo and his firm.
Now, Vagnozzi has brought his suit against Pauciulo and his firm. Vagnozzi's brother, Albert, also a financial salesman and a township supervisor in Montgomery County, has sued Pauciulo, too.
"type":"video The main event — the federal civil fraud trial led by SEC lawyer Amie Riggle Berlin — is scheduled for December. Gaetan Alfano, the Philadelphia lawyer for the court-appointed receiver in that case, wants all the other suits ended or delayed until then.
But in court already, Vagnozzi and his former lawyer have exchanged blows regarding a crucial issue in the SEC case: Vagnozzi's choice not to tell investors that Joseph LaForte, one of the founders of Par Funding, was a twice-convicted financial criminal.
Unlike with Par's owners, the SEC doesn't accuse Vagnozzi of taking clients' money. Instead, it says he failed to register investments as securities and to warn buyers of the risks — risks that became undeniable when Par stopped paying investors last year. In contrast, the receiver in the Par funding case says LaForte; his wife, Lisa McElhone; and other Par insiders kept for themselves more than $140 million out of the total of nearly $500 million put in by investors.
Vagnozzi began recommending Par Funding to investors in 2016. Par's "merchant cash advance" loans were another in the kind of unconventional investments Vagnozzi was looking for to supplement previous pitches, notably for investments in life-insurance policies sold at a discount by the elderly.
He contends that he ordered Pauciulo to do a "deep-dive, due-diligence background check" on Par Funding, and that the lawyer reported back, "There are no red flags." Pauciulo denies saying that and says the requested dive wasn't deep, but little more than an emailed quiz.
What is undisputed is that neither man informed investors that LaForte used aliases and started the firm shortly after serving prison terms for two convictions, for a $14 million real estate scam and running an illegal offshore gambling operation.
More recently, LaForte was arrested last year after the FBI seized seven firearms at his $2.4 million house in Lower Merion. His trial is pending. As a felon, he is barred from possessing guns. (Agents also found $5 million in cash there and at his other homes, in the Poconos and Jupiter, Fla.)
In his suit, Vagnozzi says that Pauciulo told him about LaForte's criminal record in about 2017, but that the lawyer also said "everyone deserves a second chance" and that Vagnozzi didn't have to tell investors about it.
Vagnozzi's account is different from what he said in court in Florida. There, he filed legal papers saying he learned about LaForte's record in late 2018 — and not from Pauciulo but from a Bloomberg investigative news story reporting that Par Funding used enforcers to collect on loans with threats.
A spokesperson for Vagnozzi's lawyer said: "Dean was going from memory and simply got the year wrong."
In those earlier filings, Vagnozzi also argued that there was no legal requirement that investors be told about LaForte's convictions. This defense goes unmentioned in the Philadelphia suit.
Pauciulo, in his rebuttal pleading this year, holds firm to that argument, saying, "LaForte's criminal conviction for mortgage fraud did not need to be disclosed because it was more than 10 years old."
Indeed, LaForte entered a guilty plea to mortgage fraud on Oct. 4, 2006. However, Pauciulo's pleading does not mention that LaForte pleaded guilty again, on Dec. 30, 2009, to a new crime, his role with illegal internet gambling. That later date means the 10-year disclosure window didn't shut until 2019, well after Vagnozzi had raised millions for Par from investors who were told nothing about LaForte.
In his recent email exchange with The Inquirer, Vagnozzi said he did what he had reason to believe was right for investors. If they are victims, he says, he's one, too.
"All my assets were frozen. I literally had only the money in my pocket," he wrote, referring to the period after the SEC brought its suit. "My impeccable credit score was destroyed." His million-dollar-plus yearly income fell to "zero."
His lawyer, George Bochetto, says big firms such as Eckert carry lots of malpractice insurance. According to Bochetto, that kind of coverage could be enough not only to pay Vagnozzi but also investors.
Eric Lechtzin, a Bucks County lawyer who brought one of the first investor suits against Vagnozzi and Pauciulo, said Vagnozzi was trying to avoid responsibility for his own role.
"Vagnozzi is in no way off the hook here," Lechtzin said. "The SEC considers the issuer who sells the securities to have primary liability."
In Lechtzin's analysis, any Vagnozzi win over his former lawyer and his law firm won't restore his fortunes.
"If he gets a significant judgment from Eckert, we'll go after that," Lechtzin said.
(c)2021 The Philadelphia Inquirer
Visit The Philadelphia Inquirer at www.inquirer.com
Distributed by Tribune Content Agency, LLC.