Two FRM victims settle with bankruptcy trustee

Al and Susan McIlvene, the outspoken leaders of the group of victims of the Financial Resource Mortgages Inc. Ponzi scheme, have settled their own legal differences with the trustee to the bankruptcy estate, but they say they are still continuing to advocate on behalf other victims, both in bankruptcy court and out.The Kittery, Maine, couple will receive $155,000 on their claims of $843,000, plus three-quarters of whatever else they are able to collect in the future, according to a settlement filed on Monday. The estate would receive $50,000 and the other 25 percent.”The cost of fighting for what is rightfully ours would have exceeded the settlement cost,” said Al McIlvene in explaining the motivation to settle.Meredith-based FRM was primarily a commercial mortgage company that promised high interest rates to those lending it money to fund specific projects. FRM and its mortgage servicing arm CL&M collapsed in 2009, costing dozens of lenders tens of millions of dollars, resulting in the lengthy prison sentences for its two principals, Scott Farah and Donald Dodge, prompting numerous state investigations into regulatory agencies and launching one of the most complicated bankruptcies in the state’s history.Bankruptcy trustee Steven M. Notinger has claimed that since the lenders’ funds were commingled, they were actually the duped investors of a fraudulent company, meaning that the mortgages that they either held – or were told that they held – were not valid, and any interest they collected should be returned to the estate, and distributed.In May, the trustee reported he had collected $2.7 million and disbursed $1.1 million. The trustee is still going after small change – like selling off the Farahs’ family Steinway piano for $12,000. But much of the larger claims have been in litigation for years, with the trustee suing – or threatening to sue — many of the victims either for cash, or mortgages on the property that are held.Those proceedings may pick up a bit now that the July 6 deadline to file all proof of claims has passed, and more victims are either settling or being sued.If claims are not settled, the trustee goes after the lender for both principal and interest. In May, the trustee filed suit against Anne Peterson and Spruce Mountain Association, a Jackson Realtor, for $217,000 and $39,000 in interest. In another suit filed against a group of Arizona lenders, the trustee seeks $272,000 and $45,500 in interest.The most watched case is that of Philip and Melanie Migliaccio of Washington state.On July 8, the bankruptcy court dismissed two of the five counts against them, but left the rest intact. The McIlvenes point to that decision, and the protracted litigation sure to follow, as vindication of their decision to settle.”The court ruled that even if she owns the piece of paper, Notinger is entitled to go after the money,” said Susan McIlvene.But the McIlvenes said they will continue their battle on various other fronts. They are still pressing a right-to-know claim against the state concerning a crucial meeting four days after the bankruptcy filing between officials from the Banking Department, the Attorney General’s Office and the bankruptcy trustees.They contend that the various powers-that-be colluded to form a common strategy to paint the lenders as investors, hurting their chances for recovery. They also are backing a bill referred back to committee in the last legislative session that calls for restitution by state for ignoring many warnings about the Ponzi scheme could have resulted it in shutting down FRM years earlier.They said they met with Gov. John Lynch on his invitation about both of these matters on May 4 and have not heard from him since.The McIlvenes also said they plan to attend further legislative hearings on the matter, and to pore through thousands of financial records that Notinger recently placed online, to see if any money was squirreled away.”It’s a huge job,” said Al McIlvene. “But we will do what we feel compelled to do.” — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

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