SEC reaches deal with FRM, CL&M

Financial Resources Mortgages Inc. and its affiliate CL&M have reached a preliminary settlement with the U.S. Securities and Exchange Commission over charges relating to their involvement in an alleged giant Ponzi scheme.The preliminary agreement includes a pledge that the two companies won’t engage in securities fraud in the future, according to a filing in bankruptcy court.The settlement does not include FRM’s former president and founder, Scott Farah, and Donald Dodge former CL&M president, as individuals, nor does it include the Center Harbor Christian Church, run by Farah’s father, Bob Farah.All three were named in the SEC complaint that was filed in April. But the filing does say that it is working with other SEC defendants on similar settlements.The SEC said the settlement, which involves no monetary damages, was reached to avoid a costly and time-consuming jurisdictional battle between the bankruptcy trustee and the agency over which will recover assets from the bankrupt companies and distribute it to those hurt in the alleged scheme. If the settlement is approved, that power will solely rest in the hands of trustee, whose actions must be approved by the bankruptcy court.In the proposed settlement, which still has to be approved by the full commission in Washington as well as the U.S. District Court in Concord and the bankruptcy court in Manchester, FRM and CL&M won’t confirm or deny the charges, but cannot contest the charges in any public forum in the future.FRM, a Meredith-based conduit for investors primarily engaged in commercial mortgages for residential developments, closed its doors suddenly last November and was forced into bankruptcy shortly afterward. In April 9, just two days after the U.S. Attorney General’s office filed criminal charges against Farah and Dodge, the SEC filed its civil suit, charging that Farah and Dodge, through their businesses, “operated a fraudulent Ponzi scheme that defrauded at least $20 million for at least 150 investors” since at least 2005.The SEC originally sought “disgorgement of ill-gotten gains” and “civil monitory penalties,” but the proposed settlement does not refer to any fine or restitution. Instead, FRM and CL&M would be “permanently restrained and enjoined” to “employ any device, scheme, or artifice to defraud,” “to make any untrue statement of a material fact” or “to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.” — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

Categories: News