Las Vegas firm eyed for profit promises

Don Thompson

Tuesday, April 12, 2005 | 11:16 a.m.

SACRAMENTO -- Federal and California authorities are investigating a Las Vegas company that promises 24 percent annual returns by investing in payday loan and check-cashing companies that in turn charge customers hefty interest.

Par Three Financial Inc. and its operators apparently aren't licensed to lend money or sell securities or other investments -- but say they don't have to be under federal law.

The company uses current investors to recruit new investors with a $200 referral fee and a monthly percentage of whatever new investment money they bring in. It also has advertised for investors in newspapers including the San Francisco Chronicle and Seattle Times, and at online classified ad sites.

Company officials told private fraud investigator Barry Minkow they have raised millions of dollars from more than 100 investors in states including California, Florida, Kansas, Nevada, Oklahoma, Texas, Utah and Washington, with a minimum investment of $10,000.

Minkow is a convicted felon himself who has since co-founded the for-profit Fraud Discovery Institute in San Diego. He and other experts said Par Three's promised return rates seem unreasonably high, a frequent sign of an unsustainable Ponzi scheme in which money from new investors is used to pay previous investors.

In a year-end newsletter, company Vice President J.W. Long tells investors that revenue gains neared 35 percent in 2004 and are projected to top 40 percent this year.

He included a letter from "the chairman of our trade association -- Financial Service Centers of America or FiSCA. You will probably see articles in the newspapers referencing this organization and our industry in general. I hope that this message from (FiSCA chairman) Gary Dachis will shed more light on our ever-expanding industry."

Yet FiSCA, the largest national organization representing the check cashing industry, has no listing of Par Three as a member, nor Long, nor any of five others known to be affiliated with the firm.

"I don't know them from a hole in the wall. Obviously, what he's trying to do is drum up investors," said Bob DeChillo, who handles FiSCA's membership roll as director of business development. "He could have gotten that (letter) out of magazines. ... He could have taken a piece off our Web site."

Community Financial Services Association of America spokesman Steven Schlein also said he had never heard of Par Three. His organization represents payday advance companies.

The firm's Las Vegas headquarters is actually that of KeyState Corporate Management, which lists Par Three as one of 35 businesses with headquarters in the same office suite in a nondescript building a short distance from the Las Vegas Strip.

Par Three does not disclose on its Web site or to its investors which payday loan or check-cashing companies are its customers.

Ron Hammers, the company's vice president and general counsel, declined to provide financial details, references from customers, nor say how many clients Par Three has, though he said it aids more than 75 cash-advance stores, most of them long-term customers.

Par Three's password-protected Web site says the company makes loans, but as "notes" that are collected within nine months. That, the Web site asserts, means the company isn't selling regulated securities.

Florida regulators have warned that such nine-month notes have been used by operators of Ponzi schemes to avoid full disclosures that are required of securities dealers. Moreover, they said most such transactions still require licensing.

The federal Securities and Exchange Commission, Federal Bureau of Investigation and California Department of Corporations wouldn't comment, but Corporations spokeswoman Susie Wong said "if there are any California investors, they should contact our department."

Par Three acknowledges on its Web site that lending money at the rate it charges would be illegal, but says it is engaging in "accounts receivable purchase agreements," not loans.

"What we do is above board -- it's legal," Hammers said in an interview with the Associated Press Friday.

Hammers said the company was formed in 1997 and incorporated in 1998, but is little known because "we don't advertise (for clients) -- a lot of it is basically word of mouth." He said the company has few investors, using mostly its own money.

"We loan our money out at a high rate to check cashing and payday stores across the country," Hammers said. "They pay us a nice rate of return and we're able to pass that along to our factors."