The disclosure that federal Judge Rodolfo Ruiz II and court-appointed receiver Ryan K. Stumphauzer clerked for the same judge during consecutive terms has raised questions among lawyers and supporters of former Par Funding management including incarcerated CEO Joseph LaForte about whether their professional history should have been disclosed at the outset of the receivership.
Stumphauzer clerked for Judge Federico A. Moreno (above) in the Southern District of Florida from 2003 to 2004. Ruiz, who presides over the Securities and Exchange Commission’s (SEC) case against Philadelphia-based Par Funding, clerked for Moreno from 2005 to 2006.
Critics of the receivership contend that disclosure would have allowed the parties to evaluate whether the relationship created an appearance of partiality, particularly given their longstanding complaints about the court’s treatment of the receiver.
The SEC recommended Stumphauzer in a sealed emergency application on July 24, 2020. Judge Ruiz appointed him on July 27.
In an October 16 email inquiry, Black Star News asked the SEC about the selection process followed by Senior Trial Counsel Amie Riggle Berlin, including whether other candidates had been considered or interviewed before Stumphauzer was recommended. Black Star News also sought to establish whether Berlin knew of the shared Moreno clerkship when she made the recommendation or learned of it subsequently, and whether the SEC considered the connection relevant to potential conflicts of interest or their appearance.
In a separate email inquiry that day, Black Star News asked Stumphauzer whether the shared clerkship warranted disclosure to the parties and also asked him to correct the publication’s understanding that CBSG’s counsel had not been informed of the connection. Neither Stumphauzer nor the SEC responded by the stated deadline or before publication.
“Out of the thousands of lawyers out there, it was purely by coincidence that Amie Riggle Berlin decided to select Stumphauzer? There seems to be a pattern,” a lawyer who represented Par Funding said, pointing to a separate, past, unrelated case involving Judge Moreno and his former clerk Stumphauzer.
In 2016, Moreno appointed Stumphauzer to succeed another former clerk, John Delionado—who had also been one of his former clerks—as special master in litigation in the Southern District of Florida. Southern District of Florida Blog, which was referred to by The New Times as “the definitive source on South Florida’s federal court system,” reported the appointment in an article under the headline “All in the Family,” on Dec. 14, 2016. “Judge Moreno has named a new special master in the Takata Air Bag litigation. Former law clerk John Delionado has resigned, and Judge Moreno handed the reigns over to another former clerk, Ryan Stumphauzer,” the article stated, in part.
Black Star News has been reviewing court filings on the receiver’s website in the ongoing dissolution of Complete Business Solutions Group (CBSG), Par Funding’s parent company. Former management and its supporters have questioned several aspects of the proceedings.
They dispute the SEC’s justification for the original emergency action by Senior Trial Counsel Riggle Berlin in 2020, which froze company accounts and placed the business under receivership. They contend that funds the SEC characterized as having been moved or concealed were transferred between company accounts in the ordinary course of business.
They also challenge the receiver’s reliance on a financial report prepared by Bradley D. Sharp, chief executive of Development Specialists Inc. (DSI), the receiver’s financial consultant. Lawyers for the former management contend that the report used a flawed methodology that did not comply with Generally Accepted Accounting Principles (GAAP) and helped establish what they describe as the false “Ponzi scheme narrative” surrounding Par Funding, thereby allegedly prejudicing subsequent court proceedings.
They contrast Sharp’s findings with those of Joel Glick, a forensic accountant and director at Berkowitz Pollack Brant Advisors and Accountants, whose report was submitted to the court in April 2021. Glick concluded that Par Funding was profitable and that cash collected from merchants was sufficient to cover payments to investors. His findings directly challenged the financial conclusions presented by Sharp and DSI.
Significantly, the SEC has since distanced itself from the characterization of Par Funding as a Ponzi scheme. In response to an earlier inquiry from Black Star News, the agency stated that it had not described Par Funding as a Ponzi scheme in its complaint and would “take issue” with attributing that characterization to the SEC.
This raises another question raised by the Par Funding attorneys about the receivership proceedings: If the SEC itself disputes having characterized Par Funding as a Ponzi scheme, why did that description become so prominent in the proceedings, and what weight did the court give the disputed Sharp report when considering the company’s financial condition and future?
The critics also cite a December 15, 2020, status conference transcript in which Judge Ruiz threatened to mute defense attorney Alan Futerfas while permitting Stumphauzer to continue speaking. The judge explained that the purpose of the conference was to obtain a clear picture from the receiver and resolve procedural issues. Critics cite the exchange as an example of what they consider unequal treatment.
More recently, former management’s lawyers and supporters have criticized receivership professional fees exceeding $30 million, together with approximately $30 million in operating expenses. The combined figure approaches 30 percent of the roughly $200 million they say has been returned to investors.
Black Star News previously reported that outside counsel for the receiver billed the estate for reviewing Black Star News articles and questions submitted to the receiver. Billing records also referred to forwarding a memo about Black Star News coverage to the FBI or other government officials.
In its October 16 inquiries, Black Star News renewed its request for Stumphauzer to explain a memorandum prepared by his counsel for the FBI that referenced the publication’s reporting. The SEC was separately asked to comment on the memorandum and the apparent billing of the receivership estate for work associated with it. Neither provided a response.
Why news coverage raising questions concerning the receivership billings was forwarded to federal authorities remains unclear.
Stumphauzer has not responded to more than a dozen requests for comment from Black Star News over recent months concerning receivership billings, expenditures, and other issues.
LaForte, the former Par Funding CEO, is serving a 15½-year federal prison sentence. His supporters maintain that the receivership proceedings warrant closer scrutiny.
The unanswered questions remain: What process did the SEC use to select Stumphauzer? Were other candidates considered? Was the shared clerkship known when he was recommended and appointed? Should that connection have been disclosed? And how should the court address concerns about impartiality when the parties have repeatedly challenged the receiver’s conduct and expenses?
