US SEC – Long-running Ponzi scheme dressed up as a real estate investment program

Litigation Release No. 21482 / April 9, 2010
Securities and Exchange Commission v. Scott D. Farah, Donald E. Dodge, Financial Resources Mortgage, Inc., and C L and M, Inc., as Defendants, and Center Harbor Christian Church, as Relief Defendant., 1:10-CV-00135 (District of New Hampshire, April 9, 2010)
SEC Charges New Hampshire-Based Operators of Private Lending Program With Investment Fraud
The Securities and Exchange Commission today charged two individuals and the two entities that they operated out of Meredith, New Hampshire in connection with a fraudulent Ponzi scheme involving a purported private lending program. The Commission’s complaint alleges that Scott D. Farah of Meredith, New Hampshire, and Donald E. Dodge of Belmont, New Hampshire, acting through their businesses, Financial Resources Mortgage, Inc. and C L and M, Inc., defrauded at least $20 million from at least 150 investors beginning as early as 2005.

The Commission’s complaint, filed in the United States District Court for the District of New Hampshire, alleges that the scheme involved raising investor money to fund purported loans to specific real estate construction projects and other businesses. According to the Commission’s complaint, Scott Farah and his mortgage brokerage company, Financial Resources Mortgage, Inc. offered investors annual returns of 12% to 20% and falsely represented to investors that invested monies would be segregated and invested in the specific project that the investors had agreed to fund. The complaint alleged that Donald Dodge and his unlicensed loan servicing company, C L and M, Inc., serviced all loans brokered through Scott Farah and Financial Resources Mortgage, Inc. In reality, according to the Commission’s complaint, the Defendants did not segregate investor money and used it for a variety of purposes not authorized by the offering documents, including paying returns to earlier investors, paying personal expenses, paying operating expenses of Financial Resources Mortgage, Inc. and C L and M, Inc., and donating money to the Center Harbor Christian Church, a church founded and owned by Scott Farah’s father, and of which Scott Farah was treasurer. The complaint names the church as a relief defendant, and seeks the return of investor funds diverted to it.

The Commission’s complaint alleges that defendants Scott D. Farah and Financial Resources Mortgage, Inc. violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and that Defendants Dodge and C L and M, Inc. violated Section 17(a) of the Securities Act of 1933 and violated, or in the alternative, aided and abetted Farah’s and/or Financial Resources Mortgage, Inc.’s violations of, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Commission seeks, among other relief, the entry of permanent injunctions, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against the defendants. The Commission also charged as a relief defendant the Center Harbor Christian Church and seeks from it disgorgement plus prejudgment interest of investor funds that were diverted to it.

The Commission acknowledges the assistance of the United States Attorney’s Office for the District of New Hampshire and New Hampshire Bureau of Securities Regulation.

See Also: SEC Complaint

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