Mortgage firm closure leads to lawsuits, FBI investigation
November 25, 2009
MEREDITH — The sudden closing of a local mortgage firm has brought on a hail of lawsuits, an investigation by the FBI and state agencies, and word that millions of dollars are now unaccounted for.
Last week Financial Resources Mortgage, Inc. on 15 Northview Drive, managed by Scott Farah and Donald Dodge closed its doors, as did associated CL and M, Inc.
The company Web site is down and the phone is no longer in service.
The Better Business Bureau Web site said it was notified on Nov. 10 that the company had shut down and encourages customers to contact the state Banking Department with questions.
New Hampshire Attorney General Michael Delaney said in a statement dated Nov. 13 that he, Banking Commissioner Peter Hildreth, and Director of the Bureau of Securities Regulation Mark Connolly are coordinating efforts with state and federal authorities on the closure of Financial Resources Mortgage, Inc. and reviewing the circumstances to see if any laws were broken in the process.
"We are continuing to work closely with the Banking Department and the Bureau of Securities Regulation and federal authorities to address the closure," Delaney said. "(We) received a number of calls with investors who have raised complaints regarding the closure, and these are being actively reviewed."
Delaney said the FBI is investigating the closure and state officials are coordinating efforts with the FBI and the US Attorney.
The Attorney General's office announced later in the week that it has Involuntary Petitions for Bankruptcy against Financial Resources Management, Inc. and C L and M, Inc. in the United States Bankruptcy Court, District of New Hampshire.
According to a statement from the office, the State's Petitions allege that Farah, the sole shareholder of FRM and Donald Dodge, the sole shareholder of C L and M, have abandoned their respective businesses. The total amount being claimed to be lost by those contacting the AG's office is $23 million.
According to the statement, the state learned that money obtained from various investors had been used by the companies for the construction of housing developments and other construction projects. In addition, individuals who obtained mortgages from FRM, and are ready and willing to make payments on their outstanding mortgages, are unable to determine where to direct their payments. Some investors, who are fearful of losing their investments, have demanded direct payment from homeowners or threatened to take possession of property securing the various loans.
The petition has asked that an interim trustee be appointed to manage the companies' assets.
"I have taken this action in order to begin the process of an orderly and lawful dissolution of both FRM and C L and M, Inc.," Deleany said in a statement. "This step is necessary to provide assurance to those who, in good faith, obtained loans from FRM and C L and M, and are looking for a procedure for making future payments. The filing of the bankruptcy petitions will also begin the process to establish a system for the orderly distribution of assets to creditors."
By the end of the day Friday, nine suits had been filed in Belknap County Superior Court against Financial Resources, its holders, and associated firms and trusts. Two of the cases are equity petitions and seven are civil suits.
In their court paperwork, investors almost universally said that they had invested large sums of money in transactions through Financial Resources and/or CL and M, including real estate transactions, loans, and other investments. Many investors said they did not receive a return for their investment and later tried to contact the company, Farah, and Dodge, and discovered the office had closed.
Harry Bean of Gilford filed an Ex Parte Petition with Scott and Ellen Wolff and David DeVeber seeing a total attachment of $4 million, $3 million for Bean and $1 million for the Wolffs and their party.
According to the petition, Bean started a business relationship with Dodge and Farah in 2006 and invested in real estate investment vehicles.
"The petitioner developed an extremely close professional and trusting relationship with Dodge and Farah, who purported to serve as financial advisors to the petitioner," the petition reads.
In the past 30 days, Bean had invested in excess of $500,000 and, according to the petition, has yet to receive paperwork for the investment.
On Nov. 8 Bean received a phone call from Dodge saying there would be "no further payments" and "the money was missing" from the CL and M account. Bean later learned the company was being investigated by the Banking Commission, the firm closed, and Farah and Dodge had sought legal counsel.
Robert and Chris Furgerson filed a civil suit seeking an attachment of $1.288 million.
According to the petition the Furgerson's invested $1.6 million with Dodge and Farah, who represented to them that the money would be invested in 16 separate loans. As of Nov. 9, $40,000 was being held in escrow for the loan investments.
According to the petition, Farah obtained information on the Furgerson's and sent them mailed materials on making investments. Between Oct. of 2007 and Nov. of 2009, the Furgerson's invested $1.6 million.
On seven occasions, according to the petition, the Furgerson's were informed that their loans were unable to close and they were induced to place them in rollover funds onto other funds brokered by the defendants. In February of 2008, the petition said Farah learned a $600,000 investment would realize $1.2 million from the sale of a complex in Huston and "intensified" the effort to encourage them to make additional investments.
During one office visit they were invited to spend a weekend at the lakeside home of Farah's father Robert Farah in Moultonboro. According to the petition, Robert Farah, the Pastor of the Center Harbor Christian Church, encouraged them to invest and said similar investments had made much money for parishioners.
On Nov. 1, the Furgerson's were scheduled to receive a $50,000 repayment on their loan. The payment was no received by Nov. 2. After a phone call, Robert Furgerson was told the payment was forthcoming, but it was not received by Nov. 6. He called Scott Farah and was told he was not at work due to an illness. He then called Financial Resources and learned the telephone service to the building had been shut down.
Richard and Linda Frucci and Paul and Lindsay Frucci filed a civil suit with an Ex Parte Attachment $5.5 million, $3.706 million for Richard and Linda Frucci and $1.633 million for Paul and Lindsay Frucci. The total investments made by the Frucci's was $5.399 million. According to the suit, only $246,000 was paid on principal outstanding while $5.153 million remains outstanding.
Lee Daley filed a civil suit against the firm and its associates, seeking $300,000 in attachments. The petition said Daley had been solicited by mail for real estate investments by Financial Resources. Since Nov. 9 he has been unable to make contact with Farah.
The Attorney General's Office said in a statement asking that anyone who is aggrieved by the closure of Financial Resources, Inc. call 271-1392.