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What is the recourse   for N.H. fraud victims?

State regulators and legislators shed light on the current state of affairs

As the old adage goes, “If it’s too good to be true, it probably is.”

The phrase may sound cliche, but state officials say the words are ones that prospective investors should live by in deciding whether or not to invest when presented with the prospect of a high financial return. Investors who neglect to research a stockbroker or business before they invest are making a critical mistake, according to James T. Boffetti, senior assistant attorney general and chief of the N.H. Department of Justice’s Consumer Protection and Antitrust Bureau.

“What we hope is that people become savvy investors and that they don’t get caught up in fraudulent schemes,” Boffetti said Wednesday. “Once they’ve lost that money. It’s hard to get it back.”

But scams, including Ponzi schemes, are real and can result in losses of thousands if not millions of dollars, Boffetti said. And cases of fraud aren’t restricted to Internet and telephone communications between two strangers; in some instances, investors are victimized by family members or friends. That’s what is alleged by a handful of people in Southern New Hampshire and Washington state who have reported to the Ledger-Transcript that they invested with a Rindge investment manager and now their money is gone.

So how can investors protect themselves at the outset and identify a shady deal before entering a financial partnership? What protections are afforded New Hampshire’s investors who find themselves victims of a scam? In what follows, Boffetti and others offer tips and explain the recourse options for New Hampshire residents.

Protecting investors

There are positive signs that the state is trying to do more to assist victims of fraud. But there’s an underlying problem that exists: The greater focus is on recourse for victims, rather than proactive measures to prevent fraudulent schemes.

A state fraud unit devoted to keeping abreast of complaints and state-related investment activities could be a part of the solution, according to Boffetti. Currently, state officials’ time is split too thin and all of the necessary resources aren’t there, he said.

In February 2012, 49 states and the federal government announced a historic joint settlement with the country’s five largest mortgage service providers — Ally/GMAC, Citi, JPMorgan Chase, Wells Fargo and Bank of America — after it was discovered that the banks had signed thousands of foreclosure affidavits without reviewing the validity or accuracy of the sworn statements. Borrowers homes were then illegally sold or taken in foreclosure, between Jan. 1, 2008, and Dec. 31, 2011.

“One of the terms of the settlement is [the banks] pay New Hampshire $10.5 million. One proposal on the table is that a portion of that money be used to start up a small financial fraud unit [at the state Department of Justice],” Boffetti said.

The startup unit is part of Democratic Gov. Maggie Hassan’s 2013-14 budget proposal, said Boffetti, adding that the Justice Department is hopeful that the unit will be viewed favorably by the Legislature, too.

“There’s no taxpayer money involved,” Boffetti said. “It gets the money back to the people in the form of services and protections.”

Meanwhile, state legislators are reviewing a bill that would establish a process of restitution assistance for victims of the 2009 Financial Resources Mortgage fraud — a $33 million Ponzi scheme. In March, the N.H. Senate approved Senate Bill 180, which establishes a fund from access revenues, from several state regulatory agencies and settlements, to repay the 150 lenders who lost money to the Meredith-based company. The total restitution investors will see if the legislation passes will remain unclear until revenues can be calculated at the end of the fiscal year, according to Sen. Lou D’Allesandro, D-Manchester.

D’Allesandro, cosponsor of Senate Bill 180, said Wednesday that the state has to be more vigilant in protecting the public in an effort to prevent cases like the FRM scandal from happening in the future. “There is a clear indication that the state erred in this situation,” he said, noting that complaints from the public went without follow up.

Investors and others had reportedly contacted state regulators at the N.H. Bureau of Securities and the Attorney General’s Office to complain about investor money being used to fund purported loans , but dozens of those complaints were ignored. While numerous bills have been introduced in the past few years concerning the scandal, attempts to establish restitution funds for victims have failed.

When asked if the bill could be broadened to include any victim of criminal financial fraud, D’Allesandro said every situation is unique and that the case of FRM in unique in that the state had notice, but failed to act.

The Bureau of Securities is continuing its investigation into a Rindge investment manager whose investors allege they lost thousands, if not millions of dollars. The bureau confirmed last week that its investigation of Aaron E. Olson of Rindge, owner of a Massachusetts-based investment firm known as KMO Associates, is ongoing. KMO is named in two pending lawsuits that allege Olson was running a fraudulent scheme. What recourse there could be for the alleged victims if the case is prosecuted is unclear. Among the alleged victims is Fitzwilliam-based Park Construction, whose principals say the company lost $15 million.

Questions investors should ask

One of the first questions investors should ask themselves is “Am I dealing with a registered or unregistered investor,” said Kevin Moquin, an auditor at the Bureau of Securities, on Tuesday. If the answer is unregistered, than that should immediately raise a red flag, he said.

In both good and bad economic times, there are instances of financial fraud, and investors have to know who they are dealing with, Moquin said.

“The problem with most frauds is that we don’t find out about them until it’s too late,” Moquin said.

The bureau can take administrative action against securities fraud and, in criminal cases, will work with the Attorney General’s Office, which has the statutory authority to prosecute, according to Moquin. While both the bureau and Attorney General’s Office seek restitution for fraud victims, Moquin said, its always uncertain as to what percentage of victims’ investments will be returned. Sometimes, he said, it’s too late and the money is gone.

Higher returns mean greater risk for the investor, Moquin said, so be suspicious of any claims that an investment will pay high returns without high risk. Be careful of high-pressure sales tactics, and don’t invest in anything you don’t fully understand, he said. And don’t invest without first setting aside money for emergencies.

Any good business professional is going to assess the investor’s comfort with risk and his or her investment objectives, according to Moquin. “If someone guarantees your investment against loss, that should be an immediate cause for concern,” he said.

Alyssa Dandrea can be reached at 924-7172 ext. 228 or adandrea@ledgertranscript.com. She’s on Twitter at @alyssadandrea.

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