FRM victims’ fund hit headwinds this year in N.H. House, with a vote delayed until January
A bill that would establish a special state fund to compensate fraud victims of Financial Resources Mortgage, the Lakes Region firm that collapsed in 2009, sailed through the Senate this spring. But it hit headwinds in the House, and at this point its prospects are unclear.
“The funding mechanism is the question,” said Rep. Donna Schlachman, an Exeter Democrat and vice chairwoman of the House Commerce and Consumer Affairs Committee. “I think it’s one we can find an answer to.”
The panel voted unanimously in May to retain the bill, which had passed the Senate on a voice vote in March. It will go to the House floor in January for a vote.
Rep. Ed Butler, a Democrat from Hart’s Location and the commerce committee’s chairman, isn’t laying odds on whether it will pass then.
“I think there still needs to be work done,” he said this week. “That’s why we retained it, and I think it’s too early to predict what the outcome would be.”
Officials have described Meredith-based FRM as the largest Ponzi scheme in New Hampshire history. It collapsed in late 2009, and more than 250 investors lost about $33 million.
In 2011, the two men who ran FRM were sent to federal prison: Scott Farah was sentenced to 15 years and Donald Dodge was sentenced to 6½ years. But a number of investigations have faulted three state agencies for failing to stop the fraud, despite years of warning signs: the New Hampshire Banking Department, the attorney general’s office and the Bureau of Securities Regulation, which is part of Secretary of State Bill Gardner’s office.
So Sen. Lou D’Allesandro, a Manchester Democrat, filed a bill this year to create a special “recovery fund” for FRM victims. He said since the state failed in its duties, some kind of public restitution was appropriate.
Senate President Peter Bragdon agreed, and the Milford Republican signed on as a co-sponsor.
“When a person suffers a financial loss at the hands of a state-licensed and state-regulated entity who was in clear violation of state laws and rules, and the regulating agency fails to act on those violations, then I think we’ve crossed the line where state recovery assistance should be considered,” said Bragdon as the Senate considered the bill this spring.
One big question, though, is the money. How should the state fund the restitution program?
At one point, the bill ordered the state to pay $3 million a year into the fund. The Senate’s final version didn’t envision a specific amount, but earmarked 50 percent of undesignated money from settlements reached by the Department of Justice and 50 percent of Bureau of Securities Regulation income above the amount required for the agency’s budget, plus any additional money appropriated by the Legislature.
The money is a sticking point for the House committee, too, as well as broader questions about whether the state should commit to repaying victims of one specific fraud.
“I think it runs the full gamut,” Butler said of the Commerce and Consumer Affairs Committee’s concerns.
So the committee voted to retain the bill, which blocked it from reaching the House floor this year. Butler said a subcommittee will begin to work on the bill in September, the full committee will then make a recommendation and the full House will vote in January.
Schlachman said some committee members oppose the bill, but some, like her, believe it has merit. Other states, she said, have established broader funds to repay victims of financial fraud; Indiana, for example, created a “Securities Restitution Fund” in 2010 that it described as the first of its kind in the nation.
D’Allesandro and Schlachman had sponsored a bill in 2011 to create a general state fund to repay victims of financial fraud. It was re-referred to the Senate Executive Departments and Administration Committee for more work, then killed by the Senate in January 2012.
Gov. Maggie Hassan, a Democrat, hasn’t indicated yet whether she would support the proposed FRM fund. But she’s no stranger to the issue: In 2010, while serving as Senate majority leader, Hassan chaired a legislative committee that looked into the state’s response to the mess.
“As she chaired the commission on the FRM scandal during her time in the Senate, Gov. Hassan understands the complexity of the issues related to the FRM fraud and will closely review the proposal as it moves through the legislative process in the coming year,” said spokesman Marc Goldberg in a statement.
(Ben Leubsdorf can be reached at 369-3307 or
firstname.lastname@example.org or on Twitter @BenLeubsdorf.)