Nursing student complaints from 2005 caught in FRM web

In April 2005, two months before Financial Resources Mortgage Inc.’s massive acceleration of its Ponzi scheme, seven nursing students wrote to the Attorney General’s Office that a “pastor’s son” who was a financial partner in Skill Med, a nursing school that had gone bankrupt, stole $100,000 from the school and was mixed up in drug dealings and organized crime.That business partner was none other than Scott Farah, the president of FRM, who was sentenced in January to 15 years in federal prison after pleading guilty to defrauding hundreds of investors out of tens of millions of dollars.There is no indication that there was any evidence behind the students’ allegations. Indeed, charges of organized crime and drug dealing seem to have had little foundation. But one thing is clear: the allegations of criminal activity landed at the Attorney General’s Consumer Protection Bureau and were referred to the state Postsecondary Education Commission, as were two other complaints to the Attorney General’s Office that alleged the money was “embezzled” from Skill Med. No one investigated the charges. When the Attorney General’s Office issued its final report on FRM, it primarily faulted the state Bureau of Securities Regulation for missing red flags. But for the past several months, the bureau has all but put the AG’s office on trial, revealing more involvement by the office in the FRM matter than had previously been revealed. More facts have come to light through Right to Know requests of the victims, while other facts are still in the shadows.Farah may not have been mentioned by name in the nursing students’ allegations. But there is no doubt the Postsecondary Commission knew his name and the allegations that he stole money from the nursing school. How much of that was passed on to the Attorney General’s Office and what did it do with that information? Nobody is talking about it.Fraud allegationsBonnie McPhail founded Skill Med Services Inc. in 2002 with Scott Farah, according to the company’s corporate filings. She apparently knew him through the church led by his father, Pastor Robert Farah, according to others.(McPhail, who moved to Oklahoma after her business failed, declined a request for an interview, but in her November 2005 bankruptcy hearing, she referred to Farah as the treasurer who stepped down sometime in 2004.)In a scenario all too familiar to other victims of FRM, Farah set up lenders to front the school – which, according to McPhail, had a budget of $300,000 and 45 employees at its height. McPhail said she didn’t see the money because it was lent to FRM.At the bankruptcy hearing, McPhail said that Farah had or should have had $150,000.”So $237,529 was pumped into a company that had no assets?” said the attorney representing the lenders.”That’s why our attorney is going after Mr. Farah in Financial Resources in Meredith, New Hampshire,” said McPhail.The attorney was Chris Carter, formerly a white-collar prosecutor in the Attorney General’s Office, who was also trying to collect money owed by FRM to the Stone family. Carter had already warned the bureau’s criminal division about how Farah was commingling funds. The AG’s office decided that it didn’t have the resources to investigate the charges and referred them to the Federal Bureau of Investigation. The AG’s office didn’t follow up to find out what happened after the FBI referral was made, even in preparing its report, Associate Attorney General Richard Head told the Securities Bureau hearings.Carter told NHBR he didn’t bring the Skill Med fraud allegations to the AG’s office because he felt he had already done so through his involvement in the Stone suit. Instead, he was representing McPhail’s case to the state Board of Nursing, which threatened to strip McPhail of her license, and the Postsecondary Commission, which was trying to get money back for the students.It was to that commission that then-Senior Assistant Attorney General Richard Head referred complaints from the students, including a complaint signed by seven students on April 9, 2005. At a March 22 meeting, they wrote, McPhail explained to them that “her pastor’s son,” who was her financial partner, had stolen $100,000 from the company. The complaint went on to say that on April 6, 2005, Martha Aguiar, who worked for the school, told students that the pastor’s son had actually stolen $300,000 from the company and that there were “Mafia/drug” connections. The seven students said that each of them invested $10,500 in the program and would like to finish their education.Aguiar told NHBR she is not sure that she actually said those things six years ago, and if she did she would have mainly been repeating what McPhail told her, because she had no independent knowledge of any criminal activity. But she is sure that the AG’s office never called her about the information – until the week NHBR began making inquiries about it.No mention of ’05 complaintsOn June 28, Head forwarded to the commission another letter from a student, who said that someone “was embezzling the money from Skill Med” and wanted $525 she paid toward her tuition for a course that never started. Two days later, Head forwarded another letter with a note from a June 7 meeting with McPhail. According to the letter, “the person in charge of the money embezzled a huge portion of the money. As the embezzlement grew so did the company and soon they ran out of money.” This student said she was owed $11,000.All of the referrals went to Lynn Colby West, who attended the Skill Med bankruptcy hearing when Farah’s name and his company were mentioned. Eventually she wrote a letter to the students saying that they recovered $10,000 from a bond of $39,965.20, so that each student would only get a portion back.West told NHBR that “from our perspective, whatever was happening at the time with Farah is irrelevant. Our role was to get the students’ money back.”And that was taken care of, said Katherine Bargon, the Postsecondary Commission’s executive director.Bargon said that they shared all information about the matter with the AG’s office, but when asked about specifics of communications, she said, “this is an ongoing investigation with the Securities Bureau, and we are not talking about it. Anything we discuss with the Attorney General’s Office is confidential.”When Head was asked about the matter, and why the 2005 complaints were not mentioned in his report, he answered by explaining that he would respond to a Right to Know request.A previous FRM-related request from NHBR has been pending for three weeks at this deadline. The Securities Bureau provided NHBR with copies of complaints to the AG’s office the same day the request was made.But at least one assistant attorney general, Peter Roth, who encountered various matters relating to Farah and FRM several times, was aware of the McPhail case.Roth had personally worked on the case representing the Board of Nursing to overcome the bankruptcy court’s stay of disciplinary proceedings against McPhail. He said, however, that he was not aware that Farah was McPhail’s partner, nor aware that he owed her money.”It is possible I saw the name, but it wouldn’t have had any importance to me at the time,” Roth said at the Securities hearings.Bob Sanders can be reached at bsanders@nhbr.com.