Court denies Farah bankruptcy discharge



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Most people who file for bankruptcy eventually get off the hook. Their debts are discharged, and they get a fresh start to get on with their lives. But not Scott David Farah, the head of the infamous Financal Resources Mortgages Inc., which the bankruptcy trustee charges was mostly a giant Ponzi scheme involving a still uncertain amount totaling millions of dollars. On Wednesday, the bankruptcy court issued an order that the request to discharge the Farah case was denied -- the usual course when alleged fraud is involved. Farah agreed to waive the request for a discharge, apparently believing that it would be next to impossible to obtain a discharge in the near future.Farah didn’t declare bankruptcy. The New Hampshire Banking Department forced him into bankruptcy, along with an affiliated company, CL&M, and David Dodge, who worked with Farah as mortgage agent out of the same Meredith offices, which shut down suddenly in November 2009. As the case wound its way through complicated bankruptcy proceedings, the U.S. Securities and Exchange Commission filed charges of securities fraud in the case, the U.S. Attorney's Office has filed criminal charges, the director of the New Hampshire Bureau of Securities Regulation has resigned, charging a “cover-up” of the FRM case, the Executive Council has petitioned for the removal of state Banking Commissioner Peter Hildreth over the department's handling of the matter and a joint legislative committee held public hearings as part of its investigation into FRM.The case also has become political fodder for opponents of former Attorney General Kelly Ayotte -- a candidate for the Republican U.S. Senate nominatino -- who headed the AG's office when it dropped the ball despite several complaints about FRM and Farah.Given that backdrop, it’s no surprise that Farah will not walk away from this situation debt-free in the near future, said Steve Nottinger, the bankruptcy trustee. Technically, that will give creditors the right to pursue claims against Farah, “but they will have to wait in line.”Thus far, the bankruptcy court is trying to sell off various properties to raise money for the creditors, but many of those creditors are challenging the trustee, arguing that those properties were collateral for various hard-money construction loans.The trustee, however, argued that because the funds were commingled, the mortgages they hold are fraudulent, and the creditors were really investors in a bankrupt company.The trustee auctioned off the assets in the FRM offices in July, but that money won’t go very far. According to reports filed last week on the auction, a little more than $25,000 was raised, after expenses, almost all of that was for an excavator ($26,500). The priciest item after that was a $500 phone system. Flat screen monitors sold for $20 each. -- BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

 

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