Court Orders Ex-Restaurateur to Repay Investors

WOODLAND HILLS — A federal court judge has ordered the former head of the Woodland Hills-based Papashon restaurant chain to repay more than $3 million he had taken from investors for restaurants that were never built.

U.S. District Court Judge Steven V. Wilson ordered Jonathan C. Papa, who served as chairman of the board of Papa Holdings Inc., to pay a judgment of $3.1 million, plus $422,876 in interest.

The money will be used to repay some of the $21.6 million raised from 1,300 investors who were defrauded in a scheme to raise funds for eateries that were never built, according to the Securities and Exchange Commission. A civil suit the agency filed against Papa last May lead to last week’s ruling.

In his March 8 order, Wilson also ordered Papa to pay $110,000 in civil penalties.

Papa, who ran the company along with other family members, did not contest the filing but so far has not agreed to repay the funds, according to Kelly Bowers, assistant regional director for the SEC.

“I’m not sure what our likelihood of being able to collect is,” said Bowers, who handled the case. “The last we heard he was in the Philippines.”

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Neither Papa nor an attorney representing him appeared in court for the hearing, said Bowers, adding that he has not talked with Papa since last year. Neither could be reached for comment Thursday.

Papashon opened his first restaurant in Pasadena in 1994, later expanding to Beverly Hills, Encino and Long Beach. The restaurants were all closed last year.

According to the SEC, Papa did not dispute allegations that he raised millions of dollars from investors nationwide between November 1995 and January 1999 by promising to build restaurants in San Francisco, New York, Las Vegas and elsewhere to add to the rapidly expanding chain.

But those establishments were never built and Bowers said much of the investors’ funds went to fund money-losing restaurants the company already had built.

Also, Papa paid himself commissions of 40% on sales he personally made and an 8% override on sales made by others.

Some investors said Thursday they were pleased with the judgment, but doubted they would see much, if any, of their cash returned.

“I think it’s sad how somebody could start up a corporation, get $21 million and just leave,” said James Valerio, a New Jersey man who invested $37,500 in Papa Holdings. “This makes me feel like a fool. You end up trusting people and they end up letting you down.”

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In addition to burned investors, many former employees of the corporation are still owed back pay and even W-2 forms, said Diana Curland, former manager of the Encino outlet.

Curland said workers are owed more than $25,000 in back wages and vacation pay, and that $8,000 of that is owed her.

Wayne Hardy, an investor from Denver, said he is owed more than $17,000. He too holds out little hope of recovering his funds.

“At least this gives you some satisfaction that they nailed him,” said Hardy of the judgment. “But that doesn’t really help you with your money.”