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Bankruptcy Trustee Describes Mortgage Company As Giant Ponzi Scheme, Denies Discharge

Posted By admin || 24-Aug-2010

Bankruptcy Trustee Describes Mortgage Company As Giant Ponzi Scheme, Denies DischargeBankruptcy Trustee Steve Nottinger denied a bankruptcy discharge for Scott David Farah and his now infamous company Financial Resources Mortgages Inc., saying the company was nothing more than a giant Ponzi scheme designed to bilk investors out of millions.

On Wednesday, the bankruptcy court issued an order that the request to discharge the Farah case was denied -- the usual course when alleged fraud is involved. Farah agreed to waive the request for a discharge, apparently believing that it would be next to impossible to obtain a discharge in the near future.

As the case wound its way through complicated bankruptcy proceedings, the U.S. Securities and Exchange Commission filed charges of securities fraud in the case, the U.S. Attorney's Office has filed criminal charges, the director of the New Hampshire Bureau of Securities Regulation has resigned, charging a "cover-up" of the FRM case, the Executive Council has petitioned for the removal of state Banking Commissioner Peter Hildreth over the department's handling of the matter and a joint legislative committee held public hearings as part of its investigation into FRM.

And while Farah's bankruptcy discharge denial will technically allow creditors to pursue him and his company for payment via the courts after the bankruptcy case is closed, the company as few real assets that can be attached.  So far the bankruptcy court has only been able to recoup $25,000 after an auction of some of the company's assets. But future bankruptcy auctions of the company's real estate properties are facing challenges from some creditors who say that those properties were collateral for various hard-money construction loans. But the bankruptcy trustee insists that since funds were mixes the mortgages on those properties are fraudulent and that the creditors had invested in a company that was already insolvent.

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