NEWARK – The Bureau of Securities today issued an emergency order to stop a Philadelphia-based company from selling in New Jersey unregistered securities tied to a small-business financing industry that is increasingly coming under the scrutiny of state and federal regulators.
In a Cease and Desist Order issued today and effective immediately, the Bureau found that Complete Business Solutions Group, Inc., which does business as PAR Funding (collectively “CBSG”), is violating the State’s Uniform Securities Law by offering and selling unregistered securities to purportedly raise capital to fund cash advances to small businesses.
CBSG is one of a growing number of small-business funding companies that provide cash advances to businesses in need of capital. These types of companies often offer cash advances in exchange for accounts receivable (“factoring”) or for future credit and debit card sales (“merchant funding”).
Proponents of the industry say cash advance companies fill a void created when bank lending to small businesses dried up in the wake of the 2008 financial crisis. But others say the industry is a magnet for financial predators who operate without the same constraints that apply to other lenders.
In recent months, allegations of improprieties in the small-business funding industry have drawn the attention of state and federal securities regulators and consumer protection agencies who are taking a hard look at how they’re operating.
“The Bureau’s action today puts cash advance companies on notice that we are watching closely,” said Attorney General Grewal. “We will enforce all laws at our disposal to protect consumers, as well as investors, from falling victim to financial predators in this industry.”
“When it comes to the small-business funding industry, we’re advising New Jersey consumers and investors to use caution,” said Paul R. Rodríguez, Acting Director of the Division of Consumer Affairs. “There is a growing concern nationwide about how these companies operate. As we continue to monitor the industry, we urge everyone to do their homework before doing business with or investing in merchant cash providers.”
The Bureau found that between April 2016 and December 2017 CBSG sold more than $90 million of unregistered securities to hundreds of investors nationwide, including more than $8 million of unregistered securities to at least twenty-nine New Jersey investors.
The Bureau also found that CBSG entered into “finder’s fee agreements” with at least sixteen individuals (“Finders”) to offer and sell the CBSG Securities, of which at least four of the Finders offered and sold CBSG Securities to or from New Jersey. The Finders, who received varying commissions for many, but not all of their sales of the CBSG Securities, were not registered to offer or sell securities in the state, the Bureau found.
In November, CBSG and the Pennsylvania Department of Banking and Securities, Bureau of Securities Compliance and Examinations (“PABOS”) entered into a Consent Order wherein the PABOS concluded that CBSG violated Pennsylvania securities laws by entering into agreements with unregistered agents to sell CBSG securities.
As a result of the Consent Order, CBSG was required to pay an administrative assessment of $499,000 to the PABOS.
“The Bureau will not sit back and allow issuers of private offerings to continuously violate state securities laws,” said Bureau Chief Christopher W. Gerold. “The Bureau is proactively investigating private offerings sold, whether through broker-dealers or unregistered agents, to ensure that the securities sold to New Jersey investors are complying with the securities laws.”
The Bureau's action was handled by Deputy Chief Amy Kopleton and Director of Examinations Stephen Bouchard of the Bureau of Securities within the Division of Consumer Affairs.
The Bureau thanks Section Chief Victoria Manning, Assistant Section Chief Evan A. Showell and Special Services Employee Onno Chekemian of the Securities Fraud Prosecution Section of the Division of Law for their assistance in this matter.
The Bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors "Check Before You Invest." Investors can obtain information, including the registration status and disciplinary history, of any financial professional doing business to or from New Jersey, by contacting the Bureau toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378) or from outside New Jersey at (973) 504-3600, or by visiting the Bureau's website at www.NJSecurities.gov. Investors can also contact the Bureau for assistance or to raise issues or complaints about New Jersey-based financial professionals or investments.