Securities Bureau launches new FRM probe

The New Hampshire Bureau of Securities Regulation has launched yet another probe into Financial Resources Mortgage Inc., the Meredith-based company behind a multimillion-dollar Ponzi scheme. But this one will be armed with subpoena power, and would — for the first time — allow investigators to question witnesses under oath.The bureau has hired retired attorney Charles Chandler to sift through boxes of newly available documents and preside over hearings three times a week — starting right after the election. It will be perhaps the most broad and intensive look at the FRM scandal, which, said Richard Long, acting securities director, is national in scope.FRM not only had offices in 13 states, but similar schemes are being investigated all over the country, Long said.According to Long, he discovered after attending a national meeting of securities directors that there is widespread concern over how to regulate a new type of instrument, a “matchmaker” between commercial borrowers and investors from around the country, often mediated by trusts. “This is a national problem,” Long said. “We are on the cutting edge in finding an appropriate solution.”Secretary of State Bill Gardner – whose office oversees the Securities Bureau — said he had been considering authorizing such an investigation for months, but the national scope of the probe and the release of many new documents convinced him to go ahead.The bureau announced the new probe Tuesday, the day after the two principals of the scheme — FRM president Scott Farah and Donald Dodge, who headed CL&M, FRM’s loan servicing arm — pleaded guilty in federal court. The pleas averted a trial at which witnesses would be put under oath, but it also means that the massive amount of documents seized by the government may now be open to inspection.In addition, Long said, the bankruptcy court is making available its documents – some 110 boxes worth — and is waiving attorney-client privilege on behalf of the bankrupt estate, meaning some legal documents from attorneys might become available as well.But what would make the Securities Bureau investigation stand out from preceding FRM investigations is the ability to compel sworn testimony”We have been waiting for this for 10 months,” said Ken Miller, one of the FRM victims who was on hand for the press conference.Miller and other victims dissatisfied with other inquiries – have been especially critical of the attorney general’s report into how the state handled the matter as well as of a joint legislative probe that focused on recommendations, but did not really aim at finding out what happened.Both reports found fault with the Securities Bureau, which in 2007 did manage to get a long-delayed consent order against FRM for selling unregistered securities in 2007.The purpose of the new Securities Bureau hearings is to examine whether such notes tied to real property are securities, and Long added that he did not intend to witnesses at previous investigations to “rehash of the same old ground”On the other hand, he said he might recall witnesses “if necessary” to “ask them questions, this time, under oath,” Long said.One key witness who has not been talked to yet, is Andrea Shaw, the Banking Department attorney who recommended the company be shut down in 2006 — a recommendation the department on which the department didn’t follow through.Shaw, according to the AG’s report, refused to answer questions on the matter and is beyond the reach of the state’s subpoena power. But Long said his agency might ask the securities agency in that state to subpoena Shaw. He said he also plans to exchange information about FRM with other securities bureaus, including that of his home state of Oklahoma, where FRM set up an office, he said.While Chandler would limit himself to a “fact-finding” hearing, without trying to come up with any ruling or law, Long said he hopes to make some recommendations to the Legislature, which may or may not agree with those made by the joint legislative committee. Among the facts to be found: “Whether the agency handling of its part of the FRM matter by the Bureau of Securities Regulation was improper,” said Long.”We want to get to the truth,” he added. “We will take our lumps.” — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW