Farah and Dodge indicted on fraud charges
April 14, 2010
MEREDITH — The managers of two Meredith-based financial companies that closed in late 2009 have been indicted for allegedly operating a Ponzi scheme.
Scott Farah and Donald Dodge were both indicted in United States District Court in paperwork dated April 7.
Farah was charged with Mail Fraud, Wire Fraud, and Aiding and Abetting and Dodge was charged with Wire Fraud and Aiding and Abetting.
The indictments came five months after the sudden closure of Financial Resources Mortgage, Inc. and CL and M in November of 2009, leading to millions of dollars unaccounted for and numerous lawsuits filed by investors.
According to the indictment, Farah, during a period starting around 1989 until Nov. 6, 2009, "knowingly and willfully devised a scheme and artifice to defraud and obtain money and property by means of fraudulent pretenses, representations, and promises, and for the purpose of executing such scheme and artifice" through mailings that went through the Postal Service to prospective lenders "from which he solicited money that he falsely represented would be used for the exclusive purpose of funding specific private mortgages."
On the Wire Fraud charge, both Farah and Dodge took part in these actions through wire communications in the name of CL and M maintained at Citizen's Bank and FRM and accounts in the name of SMM 2007 Realty Trust, maintained by Citizen's Bank and Lowell Cooperative Bank.
"It was a part of the scheme to defraud that defendant, Scott Farah, represented to potential private lenders that their funds would be used to fund specific projects and that any funds provided by the private lenders would be held at CL and M until all funds necessary for the project were collected," the indictment read. "It was further a part of the scheme to defraud that Scott Farah and Donald Dodge directed private lenders agreeing to provide funds for the projects offered by Scott Farah and FRM to make the funds payable to CL and M and that the funds were deposited in accounts."
The indictment alleges that part of this scheme included not disclosing to private lenders that their money was used for other purposes and defrauded lenders of around $33,567,110.43.
The indictment said CL and M, without the knowledge of its lenders, had entered into a $10 million Discretionary Line of Credit Agreement and Promissory Note with Farah on June 1, 2005 and $1.05 million had been transferred to Farah under the line of credit on July 31, 2005. Additionally, the indictment said they issued revisions to the original line of credit that exceeded the $10 million limitation. Around Nov. 5, 2009, the indictment alleges, Dodge completed a bank note previously executed to Farah reflecting a sum of $20,348,321.43 transferred from CL and M to the benefit of Farah and FRM during the period of June 1, 2005 through Nov. 2, 2009.
In a document dated April 9, the Securities and Exchange Commission filed suit against Farah, Dodge, Financial Resources Mortgage, Inc., and C L and M, Inc., as defendants, and Center Harbor Christian Church, as Relief Defendant under the charges of Investment Fraud.
In a statement, the SEC alleged that those named in the suit were part of a Ponzi scheme and Farah and Dodge, acting through their businesses, Financial Resources Mortgage, Inc. and C L and M, Inc., defrauded at least $20 million from at least 150 investors beginning as early as 2005.
The Commission's complaint filed in US District Court alleged that the scheme involved raising investor money to fund purported loans to specific real estate construction projects and other businesses. According to the Commission's complaint, Scott Farah and his mortgage brokerage company, Financial Resources Mortgage, Inc., offered investors annual returns of 12 percent to 20 percent and falsely represented to investors that invested monies would be separated and invested in the specific project that the investors had agreed to fund. The complaint alleged that Donald Dodge and his loan servicing company, C L and M, Inc., serviced all loans brokered through Scott Farah and Financial Resources Mortgage, Inc. In reality, according to the Commission's complaint, the Defendants did not segregate investor money and used it for a variety of purposes not authorized by the offering documents, including paying returns to earlier investors, paying personal expenses, paying operating expenses of Financial Resources Mortgage, Inc. and C L and M, Inc., and donating money to the Center Harbor Christian Church, a church founded and owned by Farah's father, Robert Farah, and of which Scott Farah was treasurer.
The complaint names the church as a relief defendant, and seeks the return of investor funds diverted to it. In the suit, the Commission alleged that the Center Harbor Christian Church received fund transfers from FRM totaling at least $475,000 and from CL and M totaling at least $130,000. The Commission alleged the church also received transfers totaling at least $64,000 from Scott Farah and his wife and the relationship between the defendants and the relief defendant and the transfers indicate diversion and misuse of the investor funds.
The Commission named several examples of alleged fraud, including an investment in Kittery Point, Maine and involvement in Earth Protection Systems.
In its complaint, the Commission seeks for the court to enter a preliminary injunction against Farah and Dodge, order freezing assets against Dodge and Center Harbor Christian Church, and order for other equitable relief against all named defendants and, upon further motion, enter a comparable preliminary injunction, order freezing assets, and order for other equitable relief. The Commission said in its statement that it also seeks, among other forms of relief, the entry of permanent injunctions, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against the defendants. The Commission also seeks disgorgement from the Center Harbor Christian Church plus prejudgment interest of investor funds that were diverted to it.
In its statement, the Commission acknowledged the assistance of the United States Attorney's Office for the District of New Hampshire and New Hampshire Bureau of Securities Regulation.