N.H. State Budget Allocates $10 Million For Victims Of FRM, The Ponzi Scheme That Shook State Politics
Authorities say the FRM Ponzi scheme was the largest financial crime in New Hampshire's history. Now, the victims are getting some restitution via a fund included in the state budget.
The state budget included a $10 million restitution fund for victims of the FRM Ponzi scheme. The fund's creation got relatively little attention, but it marked another chapter in a saga that once engulfed state politics.
It’s easy to forget how prominent FRM was, unless you were directly connected to the case as an investor or victim, knew someone with a legal connection to it, or, in my own case, as someone who had to cover it as a reporter.
Before FRM imploded in the cratering economy of the Great Recession, it was run out of a Meredith mortgage company. It took hundreds of investors, many from the Lakes Region, for more than $30 million.
The architects of what authorities called the largest financial crime in state history were an unprepossessing duo.
Scott Farah, the walrus-mustached, son-of-a-Center Harbor pastor said he never thought his company would fail, even at the end, when he essentially ran FRM out of a single bank account.
“I didn’t believe it was going to collapse until it actually did,” he said.
Donald Dodge, Farah’s co-conspirator, was a mortgage servicer from Belmont who first met Farah when Farah was 12. Dodge wore tracksuits to court and said Farah’s mind moved too fast for him.
“He was too smart for me, it made me uncomfortable, that I could not keep up with him,” Dodge told authorities.
Their crimes landed both in federal prison. Farah remains there. But in addition to the harm FRM caused investors, the Ponzi scheme also shook New Hampshire politics.
There were the criminal proceedings that put the crime’s perpetrators in prison. There were proceedings in bankruptcy court that lasted for years.
Those found that FRM was, as scams go, a primitive operation. Scott Farah was a talented conman, trustees concluded, who was a bad real estate investor. He didn't stint on spending other people’s money on himself or his family, but by the end was frantically soliciting new investors just to stay afloat.
At the State House, officials tried to sort out what went wrong and to defend their failure to police FRM. There were months of public finger-pointing and accusations of bad faith.
The allegations implicated the Attorney General’s office, the state securities bureau and the banking department.
There were dueling reports detailing how the state fell short in policing the Ponzi scheme. The Attorney General’s office issued one. It spread blame but laid most of it at the feet of state securities regulators. The securities bureau issued its own report that argued the banking department was more at fault.
Regulators from both offices ended up stepping down; a top lawyer at the state DOJ saw his appointment to be deputy AG blocked over FRM.
That level of public infighting is rare at the State House. It’s certainly yet to be repeated. By New Hampshire standards, FRM amounted to a big political scandal that bled into the 2010 elections.
It became an issue for both Gov. John Lynch and former attorney general and then-Senate candidate Kelly Ayotte. Neither ended up suffering much politically. But the question of restitution has persisted. It was raised serially when now-U.S Sen. Maggie Hassan, who as a state senator led the Legislature’s look at FRM, was governor. But the issue was never fully resolved.
Some at the State House always felt restitution was warranted due to the state’s regulatory failures; others believed victims had mostly themselves to blame.
Both arguments have some merit.
In 2016, the state did authorize an FRM compensation arrangement in which the state would hire someone to oversee a fund to benefit victims of the Ponzi. The idea was to solicit private donations to raise money for victims and the money to hire the person to oversee the payouts.
But the program was never launched.
This year, a strong state balance sheet and support from GOP lawmakers made state-backed relief for victims .
At least one of them could gain under the policy. GOP Rep. Harry Bean’s family lost millions to FRM.
But no one expects any FRM investor to be made whole by this arrangement, which isn’t anticipated to be revisited when the money's gone. Of the $13.5 billion budget, $10 million doesn’t amount to much.
Now, the Attorney General’s office says it’s moving towards hiring someone (likely a lawyer with some background in accounting or finance) to oversee the state’s revamped FRM compensation fund but has no set timetable.
The fund will get $5 million this year and $5 million in 2022.
Officials at the Department of Justice say after an administrator is hired, they will likely spend months reaching out to potential beneficiaries. After that, people who believe they improperly lost money to FRM will have a 180-day window to file and document claims.
There is no timetable yet for any payouts.