Par Funding Sanctioned by New Jersey Over High-Yield Notes

(Bloomberg) -- Par Funding, the merchant cash-advance company that sent an intimidating debt collector to pay surprise visits to delinquent borrowers, was ordered to stop raising money from investors in New Jersey.

The New Jersey Bureau of Securities issued a cease-and-desist order on Thursday to Par, a Philadelphia company that lends money at high interest rates to small businesses. The regulator said Par has been violating state securities law by selling high-yield notes to investors without proper registration.

“The Bureau’s action today puts cash-advance companies on notice that we are watching closely,” Gurbir Grewal, New Jersey’s attorney general, said in a statement. He oversees the Bureau of Securities. “We will enforce all laws at our disposal to protect consumers, as well as investors, from falling victim to financial predators in this industry.”

The New Jersey regulator said Par raised more than $90 million from investors around the country without having the proper registration, selling more than $8 million of unregistered securities to at least 29 New Jersey investors. The notes accrued interest at rates as high as 44 percent, according to the order.

Justin White, a lawyer for Par, said the company complies with all securities laws and only sold notes to investors it believed were accredited, making the sales perfectly legal. The company’s investors are generally satisfied and "have historically enjoyed very good returns," he said.

Booming Industry

The merchant cash-advance industry has been booming since the financial crisis as banks have pulled back from lending to small businesses. They lure contractors, truckers and restaurant owners with offers of fast cash. The industry is almost completely unregulated and has become a magnet for crooks. New Jersey’s action only relates to how Par was raising money, not its loans or collection practices.

Par, also known as Complete Business Solutions Group Inc., says on its website that it has advanced $600 million to more than 2,500 businesses. The effective annualized interest rates on its advances can top 250 percent.

The New Jersey action comes after Bloomberg News reported last week that Par had used intimidation tactics to collect its debts. In interviews and court filings, borrowers said that Par’s debt collector, a muscular ex-con, would show up unannounced, demand to speak to the owner and say he wasn’t leaving until he got paid. Par denied doing anything wrong at the time.

Last month, Pennsylvania’s Department of Banking and Securities ordered Par to pay $499,000 for violating that state’s laws by entering into agreements with unregistered agents to sell securities. White, Par’s lawyer, said that the company denied liability and agreed to settle to avoid costly litigation.

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