CONCORD, N.H. — The head of a failed New Hampshire mortgage firm who pleaded guilty to defrauding investors out of millions of dollars said Wednesday he never believed the company would collapse.
“I didn’t see the company going down. It was a self-delusion,” said Scott Farah, who testified at a hearing called by Secretary of State Bill Gardner to learn more about the fall of Financial Resources Mortgage, which went bankrupt in November 2009.
Farah, 47, said he was in debt and was borrowing money that belonged to the investors — not to him — to keep the firm afloat. Farah, who was promising investors high returns for money loaned for commercial and residential real estate deals, said in 2009 he was expecting financial backing on a project that would have helped, but fell through.
“I always thought it was going to pull out,” he said of the firm. “I didn’t believe it was going to collapse until it actually did.”
It was the first time Farah spoke publicly about the firm’s demise, which has resulted in two department head resignations, four major investigations, and became part of a U.S. Senate campaign.
Farah pleaded guilty to mail fraud and wire fraud in October. Although he could face up to nearly 20 years in prison when he is sentenced in January, prosecutors indicated he has been cooperative and could get less time.
On Wednesday, hearing officer Charles Chandler said Farah came voluntarily and did not need to be subpoenaed.
Farah has admitted pooling investor funds to pay off other loans, investors and personal expenses. Authorities called it a Ponzi scheme, saying he defrauded at least 150 investors of at least $30 million.
Susan McIlvene of Kittery, Maine, who along with her husband, Al, lost nearly $850,000 through the firm, said many investors have just had enough. “They’ve come to the realization they’ve lost their money and they’ve got to move on with their life. And it’s too stressful for a lot of people.”
When asked what led to the failure of the firm and a secondary company used to service the loans, Farah said it was due to the poor economy, the downturn in the real estate market — which he thought would recover — and “the fact that I took on way too much of the losses.”
Farah also was involved in real-estate deals on his own that failed or weren’t fully completed. “I was FRM and FRM was me,” he said, referring to Financial Resources Mortgage. “I controlled everything.” When asked, though about a number of transactions and documents, Farah said he couldn’t remember because he didn’t have the paperwork in front of him.
On Tuesday, Farah’s assistant, Donald Dodge — who also faces sentencing for fraud — testified that he put his trust in Farah and didn’t realize the business was in trouble until shortly before it collapsed. Dodge said he set up a line of credit for Farah to close loans, not realizing he shouldn’t have allowed him to borrow from it, taking other people’s money.
Farah said he believed that Dodge set up the line of credit “to help get the ship righted” and knew that some transactions did not have the necessary financial backing.
For three weeks, Chandler has been taking testimony from numerous victims who lost money through loans that never closed. He referred to one woman, a refugee from Bosnia who along with her husband lost $65,000 — their life savings.
He asked Farah if he recalled telling the couple such statements as, “You can never lose your principal,” “No one has ever lost anything,” or “You will never lose your capital.” Farah said he didn’t recall.
A group of investors who attended the hearing were angry and disappointed with Farah’s testimony. The Rev. Arnold Olsen, who at 83 returned to ministering at the Congregational Church of Goffstown after losing his savings, said Farah has “a selective amnesia” on certain matters, yet remembered others clearly. “I would have pressed him had I been chairing this meeting,” Olsen said.