FRM fallout will continue to dog Concord
When asked what would happen if demands were not met for a deeper legislative probe into the alleged Financial Resources Mortgage Inc. Ponzi scheme, Alan McIlvene - one of the leaders of the people whose funds have essentially evaporated - said, "Believe me, we'll not fold up our tent and go home." There are other forums, he said.Indeed, there are several, because the FRM matter simply won't go away.For those who just parachuted in from Jupiter last week, FRM is a Meredith company that funneled hard money lent by individuals to fund particular commercial projects - usually construction loans for residential developments. The problem, according to regulators and law enforcement officials, is that the money didn't usually go directly to those projects. Instead, unbeknownst to the lenders, the money was lumped together. And since it was never really enough to cover the totality of the projects, the whole scheme unraveled after the economy collapsed, forcing FRM into bankruptcy.The lenders, instead of holding rock-solid mortgages that they could foreclose on, if necessary, were treated like investors in a now-bankrupt company and were told to just get in line.The political scandal, however, is that various state agencies were warned nearly a decade ago that the company was insolvent, but, with the exception of the New Hampshire Bureau of Securities Regulation, they never really did anything about it. Even the Securities Bureau didn't shut the operation down.Thus far, the fallout has been the resignation of Mark Connolly as Securities Bureau director after he charged there has been a "cover-up" of how the FRM affair was handled, along with an Executive Council vote to draw up a petition to remove Banking Commissioner Peter Hildreth. The issue also has been dogging the U.S. Senate campaign of Republican nominee Kelly Ayotte, who was attorney general when her office failed to heed several criminal complaints.In fact, echoes of FRM can be found in just about every corridor of power now:• On Sept. 22, the Executive Council was scheduled to vote on whether to approve a removal petition for Hildreth for his actions - or lack of action - in regulating a company licensed by the Banking Department. Hildreth will have at least 45 days to respond, meaning that - unless Hildreth resigns or the council changes its mind - FRM and its aftermath will drag on until at least early November (after Election Day, incidentally.)In the Executive Council hearing, if there is one, aside from finding out whether Hildreth keeps his job, we should also learn more details about what Hildreth did or did not know despite his on-again, off-again recusal from FRM-related issues because of his brother's role as an FRM investor.• A criminal trial of Scott Farah, head of FRM, and Donald Dodge, head of an affiliated company, CL&M, is set for Oct. 5, though no one would be surprised if there was another delay. Aside from the question of whether Farah and Dodge will be convicted, a public trial may shed light on how the system was manipulated.• A private lawsuit has been filed by Frank Marino in Belknap County Superior Court against Hildreth, the Banking Department and the state of New Hampshire, alleging that he suffered losses because the department failed to inform him about numerous violations and complaints concerning the company.The state moved to dismiss the case in early August, arguing that Marino was expecting the state to act as a "risk manager." Marino countered on Sept. 17 that the state had a duty to inform him of these problems but instead "masked the scandalous rap sheet on FRM which the Banking Department had compiled over a decade."• The bankruptcy trustee has hired a private investigator to see if Farah and Dodge have squirreled away any assets that belong to the estate. Those proceedings will be drawn out over the next several years, as key questions get played out: Should a private attorney hired by the trustee decide which investors should get paid, and how much? Does a deed filed in a courthouse mean anything to a lender when the conduit to that mortgage was involved in a giant Ponzi scheme?• The Securities and Exchange Commission is apparently working out a settlement with FRM and CL&M, according to a recent filing in bankruptcy court. But the agency appears to be moving ahead for now with civil charges against Farah and Dodge as individuals, which raises the question of whether there was actual securities fraud, and if so, why did the Securities Bureau - which had FRM in its clutches with a consent order - let it continue?• Ayotte, wounded by attack ads by her primary and general election opponents, barely won the primary, which means that FRM is not likely to go away in her campaign either. Although numerous reviews of her e-mails confirm (thus far) that "the buck" (as she called it in legislative hearings) did not stop at her desk, the question now is: Why didn't it get there, particularly after the revelation that a former white-collar prosecutor in the AG's office brought up serious allegations of criminal misconduct involving FRM? (The response was an assumption that the office could not handle such a matter, and it got passed on to the FBI, with no follow-up.) In other words, the issue is likely to be: was the Attorney General's Office, under Ayotte, serious about prosecuting white-collar crime?• Finally, there are the legislative hearings themselves. The joint committee issued a long report echoing many of the findings of the report of the Attorney General's Office, which itself was roundly criticized as a brief in the defense of that office (and an attack on the Securities Bureau). The committee report differed in emphasis, however, and offered concrete examples of legislative follow-up.‘Very disappointed'But the committee's report is not enough for a group of 70 victims, who the day after the primary were joined at a press conference by Connolly, as well as the two lawmakers who called for the report in the first place."I'm very disappointed," said Rep. Paul McEachern, D-Portsmouth. McEachern wanted the committee, who mainly questioned department heads, to dig deeper and question their subordinates under oath, including auditors in the Banking Department, who recommended that the company be shut down (it was a recommendation that appeared to disappear) and that former prosecutor who tried to get the Attorney General's Office involved.Also at the press conference, Connolly repeated his claim that not only were not all records on the matter released, there was no real accounting for what records were not released by the state."What is not being made available for public inspection?" he asked. Connolly added that the report didn't even discuss whether the state should begin to regulate commercial mortgages.But if the chair of the legislative committee looking into FRM has her way, there won't be much follow-up testimony."I think, frankly, there is a bit of a disconnect here," said Sen. Maggie Hassan, D-Exeter. "The group of victims want to get to the bottom of what happened in the past. The committee is strictly looking at laws moving forward. No matter how much the victims want to understand details, that is not our task."Thus far, the committee has only been interested in re-interviewing some of the people it already talked to, Hassan told NHBR. And even if it wanted to, time is running out."This is a group of legislators that would be out of office on Dec. 1. I don't know what the next group will be. It doesn't mean no one will continue to look into it," she said, adding that she has only one vote on the committee.In fact, last week's meeting was delayed to give committee members a chance to address the recommendations of the victims and others.So the committee may have some decisions to make, among them: Should it interview anyone else? Should it try to get the full Legislature to give it subpoena power and put those testifying before it on oath?The committee also could consider whether it should exercise the power given to it by the full Legislature last session to recommend that the Department of Administrative Services issue a request for proposal for a "consultant review" of the state's regulatory structure governing the financial services industry.Bob Sanders can be reached at email@example.com.