U.S. Securities and Exchange Commission
Litigation Release No. 21837 / February 4, 2011
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)
United States v. Scott Farah and Donald Dodge, (U.S.D.C., District of New Hampshire) Criminal Action No. 1:10-CR-44-PB-01/02
COURT ENTERS FINAL JUDGMENTS BY CONSENT AGAINST DEFENDANTS IN NEW HAMPSHIRE PONZI SCHEME CASE
INDIVIDUAL DEFENDANTS ARE SENTENCED TO PRISON IN PARALLEL CRIMINAL ACTION
The Securities and Exchange Commission announced that on February 2, 2011, the United States District Court for the District of New Hampshire entered final judgments by consent against Scott D. Farah and Donald E. Dodge, and their businesses, Financial Resources Mortgage, Inc. and C L and M, Inc., defendants in a fraud action filed by the Commission in April 2010 alleging a massive Ponzi scheme involving a purported private lending program that defrauded at least $33 million from investors.
The Commission alleged in its complaint that the Ponzi 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. The complaint further alleged that 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.
Without admitting or denying the allegations in the Commission's complaint, Farah, Dodge, Financial Resources Mortgage, Inc., and C L and M, Inc. consented to final judgments entered by the Court. The judgments against Farah and Financial Resources Mortgage, Inc. permanently enjoined them from future violations of Sections 5 and 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The judgments as to Dodge and C L and M, Inc. permanently enjoined them from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
On January 19, 2011, in a parallel criminal proceeding, Scott Farah was sentenced to 15 years in prison and co-defendant Donald Dodge received a 6 year sentence, based on their respective guilty pleas in October 2010 to criminal charges brought in April 2010 by the United States Attorney's Office for the District of New Hampshire. The judge stayed a ruling on whether Farah and Dodge should be ordered to make restitution pending a report from the trustee in a related bankruptcy proceeding. In the criminal action, which was based on the same underlying facts as the Commission's civil complaint, both Farah and Dodge were charged, and pled guilty to, one count of wire fraud, and Farah was also charged and pled guilty to one count of mail fraud.
The United States Bankruptcy Court for the District of New Hampshire appointed a trustee in late 2009 to preside over each of the defendants' assets. In April 2010, the bankruptcy trustee overseeing the defendants' assets sued the Center Harbor Christian Church for recovery of property and fraudulent transfers of funds it allegedly received from the defendants. The bankruptcy proceeding is still pending.
The Commission's action, filed in April 2010, initially named the Center Harbor Christian Church as a relief defendant based on its alleged receipt of investor funds as donations from the defendants. On January 24, 2011, the Commission stipulated to a voluntary dismissal from its action of relief defendant Center Harbor Christian Church.
The Commission will also institute a separate administrative proceeding against Scott Farah, in which Farah has consented to be barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and from participating in any offering of a penny stock.
For further information, see Lit. Release No. 21482 (April 9, 2010) [civil action filed].