How Adviser Dean Vagnozzi Built His Brand, And Drew SEC Scrutiny

Philadelphia Inquirer (PA)

For financial adviser Dean Vagnozzi, it's been a tough year.

Since 2016, he had urged customers to invest in funds linked to a Philadelphia firm known as Par Funding. Then, one day in early 2020, he learned that Par Funding couldn't make payments to investors.

"I was holding my breath that it wouldn't come to that, but it did," Vagnozzi would say later in a deposition. "It was a very -- it was a very difficult day. It was ... one of the most troubling days I've had in a long, long time .... My phone was ringing off the hook ... from hundreds of people, hundreds of panicked people."

In July, federal financial regulators sued Vagnozzi, along with the owners of Par Funding and others, alleging they had defrauded 1,200 investors who put in nearly $500 million. The U.S. Securities and Exchange Commission says Vagnozzi and Par Funding misled investors about Par's financial soundness and the criminal past of a founder. Vagnozzi and Par say those allegations are false.

The SEC and the defendants are fighting over the civil suit in federal court. In the interim, the agency and Vagnozzi have made public hundreds of pages of documents that provide a snapshot of Vagnozzi's business approach -- and show how he made himself one of the region's best-known financial advisers.

The court filings include hours of transcripts of sworn depositions he gave to SEC lawyers, as well as reports from Vagnozzi on his income and spending.

In the depositions, Vagnozzi said he believes his business didn't run afoul of SEC rules intended to bar financial advisers from selling unregistered securities to the public.

He talked with pride about his unconventional investment strategies and bridled at any suggestion that he sought to "solicit" business -- a word he said he found "sleazy." In his language, his dinner meetings with investors were "client appreciation events."

In email responses to questions for this article, Vagnozzi wrote: "my staff and I are good, hard-working, ethical people."

He says he vigilantly looks out for his customers, hasn't mishandled any of their money and will be vindicated in court of the SEC complaint. If Par Funding was a fraud, he says, his investment funds were big victims too.

The documents show that between 2018 and this summer, Vagnozzi's businesses reported more than $8 million in profits. In that time, his firms took in $17 million in revenue by marketing and managing insurance and investments.

Vagnozzi's father was a suburban police officer who became a lawyer and chair of the Upper Merion supervisors. Vagnozzi, 52, graduated from Albright College in Reading in 1990 with an accounting degree. In his 20s and early 30s, he worked for his father-in-law's tech company and a big accounting firm, among other jobs, before settling into a groove selling life insurance. He and his wife, Christa, have raised four children and live in a Collegeville house he valued for the court at $800,000.

In 2008, he passed industry exams to become a securities broker, licensed to sell stock and other SEC-registered financial instruments. He gave it up after about a year and his registration has since lapsed. Vagnozzi told the SEC that he "didn't like being a broker," and "went into it reluctantly anyway. I was selling life insurance."

Vagnozzi made his next significant move in 2010, creating the company in King of Prussia he named A Better Financial Plan, or ABFP. He began selling more than life insurance: he urged investors to put their money into "alternatives" approaches to the stock market and its volatility.

Since then, Vagnozzi has recommended an array of financial ventures -- including investments unregistered with the SEC and thus immune from the agency's scrutiny and public disclosure requirements. (Since he was no longer a licensed securities broker, he couldn't sell securities, in any event.)

At first, he marketed investments in a burgeoning new market, for so-called life settlements. In these, investors pay a discounted rate to the elderly for their life insurance policies, assume the burden of the premiums and bet the sellers will die quickly enough to make a big profit.

He also recommended investments in real estate, in the outcome of lawsuits and in a startup promoting new addiction-treatment software. But Vagnozzi's latest bet was on Par Funding, the Old City firm at the center of the SEC fraud suit.

Par's business model was to take in money from investors, pay them up to a generous 14% a year in interest, and to loan the money via cash advances to small merchants, charging them whopping rates of 50% or more.

Among other issues, the SEC claims that Par Funding hid that a founder, Joseph LaForte, was using aliases to keep secret his two prison terms for financial crimes, including a $14 million real estate fraud. Vagnozzi says he was kept in the dark about LaForte's record.

Vagnozzi also raised almost $5 million for the addiction-related software idea of a man who went by the name of Henry Ford, according to the SEC. The agency says Ford was identified as Cleothus Lefty Jackson when he was previously arrested in Arizona for mortgage fraud. The agency this year reached a deal with Vagnozzi under which he and his business paid a $600,000 penalty in connection to his fundraising for Ford. Vagnozzi says he knew nothing of Ford's background.

In an email to the Inquirer, Vagnozzi said "due diligence was done" regarding LaForte. As for Ford, Vagnozzi said a board of directors at Ford's company knew of Ford's criminal record. "I was not on that board, and not present when paperwork was filled out and [investors'] money sent in," he said.

He also said he had "weighed the cost of a lengthy legal battle vs. settling without admitting or denying any wrongdoing."

Vagnozzi has spent heavily on advertising in the Philadelphia market; he told the SEC that he was spending up to $20,000 a week. His ubiquitous spots on KYW 1060 and WPHP 1210 would pop up five or six times a day, seven days a week, voiced by Vagnozzi himself. He also advertised on CNN, Fox News, CBS, and CNBC television.

His pitch? Ordinary investors could be "like the big boys" by pooling their money to back entrepreneurs whose products weren't traded on the stock market. To potential investors dining free at Ruth's Chris steak houses and the like, Vagnozzi would explain how they could avoid the market's up and downs. His appeal was to an aging middle-class who had done well during the 1980s and 1990s stock booms, only to be burned by the 2001 tech collapse and the deeper financial crisis of 2008.

At times, Vagnozzi held "payout dinners," similar to pep rallies where checks for massive amounts would be displayed and investors celebrate their returns. The investors were encouraged to bring friends.

One such dinner in November 2019 was secretly filmed by a private detective. The private eye was working for a lawyer preparing a financial lawsuit against Vagnozzi.

"We're about to hand out a million dollars to investors," Vagnozzi's sister, Dana said, kicking off the gathering, "who had faith in my brother or who took a chance in our investments."

Next, Vagnozzi introduced what he called "my team," including the owners of Par Funding. "Who wants more than 4 percent?" Vagnozzi asked. "That's where we're going to deliver for you."

He urged those who had invested in Par to stand up.

"All the non-investors, look at this," he directed. Turning to the investors, he said, "Raise your hands -- who here is getting double-digit return on their money?"

All of this, the dinners, and payout events, the heavy ad buys, drew the attention of the SEC, which has rules that bar financial advisers from selling unregistered securities to the public through "general solicitation."

In his depositions with the SEC, Vagnozzi argued that radio ads and the rest didn't bump up against the SEC restrictions because his pitches were at a "high level" and avoided the nitty-gritty of the financial instruments he was recommending.

"I'm vague, generic, don't mention what the investment is, don't mention the details," he said of his ads. "I don't talk about any specifics."

When SEC lawyers remained skeptical, he said of the attendees, "they come for a free meal."

Last year, Vagnozzi agreed to pay almost $500,000 to resolve a civil complaint from Pennsylvania financial regulators for steering people into Par Funding without proper registration to do so.

Earlier this year, shortly before the SEC sued Vagnozzi over Par Funding, the agency filed another civil action about his work lining up $33 million in investments in buying life-insurance policies from the elderly. The agency enumerated his radio ads, free dinners, and mailings and said he was improperly selling unregistered securities. Without admitting wrongdoing, Vagnozzi agreed to pay a $95,000 penalty.

Three days after the settlement, Vagnozzi wrote investors "all they can say is they don't like my advertising methods and the fact that I served steak dinners in 2013 as a way for people to hear about our investments."

To the SEC attorneys, Vagnozzi described typical investors as people who have "several hundred thousand dollars and there is a piece of that money, say, $50,000 to $100,000, that they don't need for four to eight years." He added: "The overwhelming majority of people come in because they're scared of a market connection."

In one flier obtained by the SEC, he summed up his offer this way: ""How to safely earn 8 to 12 percent in an investment not offered by any stock broker or banker."

Vagnozzi was adamant his events weren't sales pitches.

"We didn't have sales meetings, Amie," he told SEC trial counsel Amie Riggle Berlin earlier this year. "I'm going to keep pushing back on that. We had -- we had meetings with customers that had money to potentially invest. I don't want to refer to them as sales meetings. It sounds -- it sounds -- it sounds -- it sounds cheap."

He said: "A sales event makes it sound like just that, like -- like I'm in used-car sales and just trying to sell stuff."

In time, his A Better Financial Plan grew to employ about 15 people. The family on staff included his father-in-law, Gerard Nave, head of compliance; his sister Dana, and a son, Alec Vagnozzi, listed as a business principal. His brother, Albert Vagnozzi, a township supervisor in Upper Providence in Montgomery County, was briefly on staff, but left some years ago to work as a registered investment adviser.

Dana acted as "gatekeeper," Dean Vagnozzi told the SEC. "When people want to come meet with us, her job is to make sure that it's a good use of everybody's time."

Vagnozzi has lived well as his business grew. His court-filed financial reports list spending on trips to the Caribbean and Hawaii and outlays ranging from $18,000 at Govberg jewelry in Ardmore to $7,735 at the Coral Stone Club on Grand Cayman Island. No investor money ever went to pay for personal expenses, Vagnozzi said in an email.

He's also developed a taste for luxury cars, such as a $230,000 Aston Martin Vanquish and a Maserati Levante SUV, which starts at about $70,000. This summer, the Wall Street Journal published a feature story that highlighted the nine-hole practice green behind his house, newly installed for an estimated $75,000.

The Vagnozzis have made charitable gifts, too. Last year, Vagnozzi and his wife gave $27,000 to St. Joseph's University for a covered bench for the soccer team, which included their daughter, Gabrielle.

At the November 2019 dinner, Vagnozzi emphasized that his advice had paid off for his customers, year after year. Payments on investments had arrived as promised, he said.

"Nobody has missed a payment," he said. "Nobody. OK?"

In early 2020, he had a more downbeat financial message. He told many of his investors in life-settlements that the elderly whose policies they had invested in weren't dying as fast as predicted, which means investors' payments weren't arriving as forecast. "I apologize for how poorly this fund has performed," he said.

In an email to an Inquirer reporter, Vagnozzi said some of the life-settlements investments have done very well recently, returning sizable gains.

A few months later in 2020, Vagnozzi also warned clients that Par Funding was in financial trouble.

In the spring, the funds invested in Par missed two months of payments to investors. They resumed payments later, but at a far lower rate. Par and Vagnozzi blame its problems on the COVID virus, although the federal judge in the lawsuit has suggested Par was financially shaky before the pandemic.

(Vagnozzi's business, too, said it was hit by the virus. According to government records, one of his firms this year received federal payroll aid, called a Paycheck Protection Program loan, of between $150,000 and $350,000. The records don't disclose the precise amount of the loan, designed to help businesses keep employees on staff during the pandemic.)

In July, the SEC named him as a defendant in the civil suit about Par Funding. A trial is scheduled for next year.

In recent weeks Vagnozzi said he would take steps to overhaul his businesses. In an Oct. 31 court order, he agreed to sell or transfer his financial interest in funds others than those tied to Par Funding. He also said A Better Financial Plan would no longer manage the funds. (As for the Par-related funds, a court-imposed receiver took charge of them earlier this year.)

In a recent letter to investors about all this, Vagnozzi said the SEC case had no merit.

"The legal process will prove my innocence in due time," Vagnozzi wrote. "What I can state, with 110% certainty, is that me or the staff at ABFP never misplaced or mishandled any investor dollars, not one penny, in any investment, EVER!"

Staff writer Joseph DiStefano contributed this article.

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