Dodge joins Farah in FRM guilty plea

Donald Dodge joined his partner Scott Farah on Monday in pleading guilty to federal charges of running a massive Ponzi scheme that defrauded investors of tens of millions of dollars.Dodge entered his plea in exchange for a 10-year cap on his sentence. Farah, president of Meredith-based Financial Resources Mortgage Inc., faces a sentence of nearly twice that long, but may get a considerably smaller one due to his cooperation with federal prosecutors. Both won’t be sentenced at least until January.While Farah’s plea bargain was announced in advance in a letter from the U.S. attorney’s office to FRM victims, Dodge’s plea — with jury selection for his trial set for Tuesday — was a bit of surprise.Dodge headed CL&M, an unlicensed loan servicing company through which most of the cash was stashed with an unsecured line of credit from Dodge to Farah.That credit line mushroomed to $20 million by the time FRM shut its doors in November 2009. In pleading guilty to one count of wire fraud, Dodge admitted defrauding his victims of $20 million.Farah has admitted he defrauded investors of $33.6 million when he pleaded guilty to one count of wire fraud, as well as another count of mail fraud.Farah’s charges date back to 1989, when he founded FRM, though — as his attorney clarified — and prosecutors agreed, it was not a criminal scheme until the late 1990s. It was then that investors were told that their funds would be going to a specific project, when actually they were used to pay the interest on other projects.But it was only in 2005 — after having to raise $3 million, partly due to a pending settlement with the state Bureau of Securities Regulation for selling unregistered securities — when all the funds were pooled in a single bank account.Money from lenders — still supposedly earmarked for specific projects backed by real property — were used for everything from land acquisition for Farah’s family, donations to his father’s Center Harbor church and Farah’s own compensation of approximately $150,000 a year.CL&M was formed, as part of this scheme, with the funds hidden from banking inspectors that focused on the licensed entity — FRM — and ignored the entity operating illegally without a license, namely CL&M.As a servicer, Dodge collected the mortgage payments, and then kicked out the funds to Farah in terms of loans — a fact that Dodge and Farah kept secret from investors and most of their own employees.Based on the larger fraud amount and a greater longevity, the advisory sentence guideline for Farah — about 15.5 years to 19.5 years — was greater than that for Dodge.But prosecutors not only recommended that Farah should receive a sentence at the low end of that scale, they also agreed to ask the federal court for an even smaller sentence, in exchange for previous and future cooperation.However, prosecutors would not reveal what they would be seeking, “because his cooperation is not complete,” said Assistant U.S. Attorney Donald A. Feith. “There are other matters still pending.”Farah was at the top of the witness list for Dodge’s trial, but now that Dodge has pleaded guilty, it is not clear what the other matters were.No one else is charged criminally, though the U.S. Securities and Exchange Commission has charged Dodge, Farah and Farah’s father — Pastor Bob Farah — with civil fraud charges. The U.S. bankruptcy trustee also is trying to uncover assets to remunerate various investors.Dodge’s sentence is not tied to any cooperation. Both defendants will continue to be free on bail until they are sentenced, though Judge Paul Barbadoro expressed some concern about Dodge, who started taking anti-depressants when FRM went under and briefly flirted with suicide. Dodge said Monday that he had no intention of killing himself.While Monday marks the end of criminal prosecution, the FRM matter is far from over.In addition to the SEC charges and the bankruptcy proceedings, a legislative committee looking into the matter has yet to issue its final report. The state Executive Council will soon be considering a removal petition for Banking Commissioner Peter Hildreth, whose department failed to uncover the fraud and who was criticized for not adequately recusing himself because of his brother’s involvement with the firm.The issue has been raised in the U.S. Senate campaign, in which former Attorney General Kelly Ayotte — whose office bungled several referrals under her watch, although she says she never dealt with the matter personally.The state Securities Bureau also plans to announce yet another probe into the matter Tuesday, with the possibility that some officials might be questioned under oath. — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEWS