Democrats argue state has more pressing needs than compensating victims of FRM fraud
The $1 million scholarship fund would cover both the borrower fee and the bank fee in the loan process for those who are eligible. (Getty Images)
A lot has happened in the decade since the state busted the Financial Resources Mortgage Ponzi scheme that robbed nearly 150 people of $20 million. A state audit faulted the investigations led by state banking and justice officials. One of the key players wrote a book and ran for governor. And the ringleader has lost multiple bids to serve his remaining prison sentence in his father’s house.
What hasn’t happened is compensation for the victims despite a 2016 law that created – but never funded – a process for repaying them. That would change under the proposed budget, which includes $10 million over two years for victims of the FRM fraud. Supporters say the state’s inadequate investigation obligates it to compensate victims.
Sen. Gary Daniels, a Milford Republican who chairs the Senate Finance Committee, said the state is in a position financially to follow through on something it committed to years ago.
“Number one, the economy is going well,” he said. “This situation is something that never should have happened. The fact that we had the revenue coming in as it has, it is the due diligence of the state to take care of this.”
The state Attorney General’s Office, which oversees the fund and would be charged with investigating claims, said it would have to hire additional staff with financial investigative expertise to comply with the legislation. The department did not say how much that would cost.
Among the Democrats who oppose the $10 million investment is Sen. Lou D’Allesandro, a Manchester Democrat who co-sponsored the 2016 legislation that created the FRM Victims’ Fund. D’Allesandro said he’s pulling his support for a number of reasons. He’s upset Republicans refused to support programs he believes take precedence – like dental benefits for Medicaid recipients. He objects to the use of taxpayer dollars to compensate victims. And, he opposes the business tax cuts, which he believes support the wealthiest taxpayers at the expense of the rest.
“It really bothers me what we’re doing when we have other needs,” D’Allesandro said. “I have empathy for the people who lost money, don’t get me wrong, but it’s not fair.”
Sen. Cindy Rosenwald, a Nashua Democrat, cited similar reasons for the party’s objection to the $10 million expenditure.
“It is not a fiscally prudent use of taxpayer dollars when we are facing a tremendous homelessness problem, families in danger of losing their homes, and underfunded schools,” Rosenwald said. “The last thing we should be prioritizing right now is funding a handout to a small group of investors with the public’s hard-earned money.”
Daniels characterized a decision to vote down the state budget over a single item shortsighted. “I would take a step back and look at the whole package,” he said, pointing to the millions in property-tax relief going to D’Allesandro’s city, as well as support for affordable housing and the state’s businesses.
In 2013, D’Allesandro joined a Senate Republican in sponsoring legislation that would have compensated victims by using 20 percent of fines and penalties collected by the state departments of Justice and Banking, and the Bureau of Securities Regulation. The bill failed in the House.
The 2016 legislation that created the FRM Victims’ Fund proved to be unworkable.
It called on the Charitable Trusts Unit within the Attorney General’s Office to hire an attorney to administer the claim investigations and payments. It lacked funding for victims or an administrator’s salary. Instead, the administrator was expected to raise private money for victim payments and take 10 percent of that for a salary.
In late 2016, the director of the Charitable Trusts Unit told House and Senate leaders only two people had applied. And the only one who interviewed dropped out after learning more about the position.
The proposed budget headed to the House and Senate Thursday initially pulled the $10 million for FRM victims from various state agencies. The Senate amended that to use general funds instead.
As part of their scheme, FRM owner Scott Farah and partner Donald Dodge persuaded victims to invest in commercial mortgages and used the money to pay off loans and other investors, and to cover personal expenses. Both pleaded guilty and went to prison, leaving behind insufficient assets to cover nearly $20 million in losses. Dodge completed his sentence in 2017. Farah, who was sentenced to 15 years, remains in federal custody with a 2023 release date.
Farah has twice been denied a request to be released into the custody of his ailing father so he could care for him. A federal court denied the second request last year.
Before the court handed down that ruling, COVID-19 nearly gave Farah the early release he’d been seeking. U.S. Attorney General William Barr had directed federal prisons to “depopulate” facilities of nonviolent offenders like Farah as a pandemic precaution. The New Hampshire Business Review reported in August 2020 that prison officials reversed their decision after victims learned of the plan and protested.
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