Texas Securities Commissioner Travis J. Iles on Feb. 25 ordered Austin insurance agent Gary N. Beasley to stop offering promissory notes tied to a Philadelphia, Pa. company that has been sanctioned by two states and sued for predatory lending to small businesses.
According to the Emergency Cease and Desist Order, Beasley, a former Austin investment adviser and currently licensed insurance agent, has sold at least $300,000 in unregistered promissory notes through his company, Merchant Growth & Income Funding LLC, in the past three months.
Neither Beasley nor Merchant Growth are registered to sell securities in Texas, according to the order.
The order alleges that Merchant Growth is a sales agent for Philadelphia-based Par Funding, a company with a history of regulatory sanctions and lawsuits alleging illegal lending practices.
The Pennsylvania Department of Banking Securities in November 2018 fined Par Funding $499,000 for the unregistered sale of promissory notes.
In December 2018 the New Jersey Bureau of Securities issued a Summary Cease and Desist Order against Par Funding. Par Funding’s unregistered agents were receiving commissions of 5% to 25%, depending on the interest rate promised to investors, the order found.
According to the order, Par Funding claims it uses sales agents such as Merchant Growth and that it raised $270 million from more than 1,200 investors in the past year.
Beasley’s connection to Par Funding starts with his Austin companies, Senior Asset Protection Inc. dba Encore Financial Solutions, and Merchant Growth.
Beasley has advertised the investments on local radio in Austin, urging listeners to contact Encore Financial Solutions to learn about investments that supposedly would protect them against a stock market decline. Beasley also solicits investors through Encore Financial websites.
According to the order, potential investors who contacted Beasley and Encore Financial were actually offered investments issued by Merchant Growth. Beasley said Merchant Growth generated high rates of return by loaning money to businesses with cash-flow problems.
Beasley is claiming he makes all investment decisions for Merchant Growth, but according to the order he has limited experience in commercial lending. Still, Beasley allegedly told investors they could earn annual rates of return from 8% to 14%, depending on the amount of money they invested – the higher the amount, the higher the return.
Merchant Growth, according to the order, is one of 44 entities recruiting investors and sending their money to A Better Financial Plan, a company headquartered in Pennsylvania and New Jersey. A Better Financial Plan supposedly uses the money to invest in short-term lending securities issued by Par Funding.
According to the order, Par Funding supposedly pays returns to investors. Beasley also receives commissions for recruiting investors.
Beasley, however, is not disclosing a raft of relevant information about PAR Funding, which controls all the investor funds.
Beasley is not telling investors about the New Jersey emergency order, the $499,000 Pennsylvania fine, or about pending litigation against Par Funding in U.S. District Court for the Eastern District of Pennsylvania.
The federal lawsuit, initially filed in Texas state court by a Dallas golf course construction company, alleges that Par Funding charged illegally high rates of interest on short-term funding loans and didn’t disclose the complete terms and penalties associated with the loan.
Beasley is also misleading investors by telling them Par Funding is ultimately responsible for paying their returns, according to the order. Investors in Merchant Growth sign contracts stating that the company alone is responsible for paying their returns.
Beasley is not disclosing the current capitalization of Merchant Growth or any financial information that would allow investors to gauge its financial strength, according to the order.