Legislative solution to Peterborough scam fund recovery unlikely

  • The Peterborough Town House Staff photo by Ben Conant

For the Ledger-Transcript
Published: 10/20/2021 3:54:36 PM

In public discussions over a $2.3 million fraud perpetrated against Peterborough, some have questioned whether the New Hampshire Legislature could pass a bill to restore the lost taxpayer money.

So far, that doesn’t seem likely.

“Discussions about legislation of this type have been had with members of our delegation and with other persons serving in the State government; so far none of those conversations have been fruitful,” Town Administrator Nicole MacStay said in an email.

Lisa Thompson, an attorney who is chair of the New Hampshire Bar Association Intellectual Property Section, said such a bill would set a bad precedent.

“It would mean that every time a town had some kind of issue like that they would expect to be reimbursed,” she said. “I mean I understand trying for legislation, but I think the state would be foolish to do that because it would lead to everybody coming and wanting to be reimbursed.”

She said that such legislation could also lead municipal officials to become complacent about cyber training and less diligent about protecting against online crime.

It’s been two months since Peterborough officials revealed the fraud, which occurred when criminals portrayed legitimate town vendors in emails and persuaded town employees to route payments to bank accounts set up fraudulently. Much of the money was then converted to cryptocurrency so it couldn’t be recovered.

The U.S. Secret Service, which is investigating the case, was able to recover $594,331 that had not yet been converted.

MacStay said the town still doesn’t have a definitive answer on coverage for the incident from its insurance carrier, Primex, the New Hampshire Public Risk Management Exchange.

Speaking at a Select Board meeting last month, local resident Doug Whitney questioned whether the town can exert legal pressure on Primex to get them to cover the claim.

“If you have a fire and your house burns down, the insurance company builds you a new house. If we have cyber security insurance and we have a mistake or something, or have errors and omissions insurance like I have with my business, and you have a mistake, then the insurance company pays,” he said.

“An insurance company’s job is to try not to pay the claim, so of course that’s what they’re going to do. At this point, we need pushback. If we’ve got adequate coverage, they need to pay us back.”

MacStay said she could not discuss legal strategy on this or on another public suggestion made at the September 21 meeting: Exploring a lawsuit against any bank that may have been used by the criminals in furtherance of their scam.

Thompson, who conducts cyber training for municipal officials, said such litigation would be difficult.

“It seems like that would be a contributory negligence claim, and I don’t think that would hold up,” she said. “For the bank to be negligent, they would have had to know that these were fraudulent accounts.”

MacStay said town employees did not follow proper verification procedures when the routing of electronic payments meant for the ConVal School District and Main Street Bridge contractor Beck & Bellucci were sent to accounts set up by perpetrators of the fraud.

It’s not clear whether such a mistake on the part of town staff could affect the viability of the insurance claim.

Three vendor payments were involved. It’s also not clear whether the insurance company would handle this as separate claims, which could lead to a higher coverage amount than if it were to regard the crime as a single incident.

The town has not identified the staff member or members who were targeted in the fraud.

Finance Director Leo Smith, who took his long-planned retirement after the fraud was revealed, has declined to comment.

Marty Karlon, a spokesman for the New Hampshire Retirement System, said that Smith retired as of September 1 and his preliminary monthly retirement benefit is $894.

Town accountant Shannon Kelley, who was in charge of accounts payable resigned on Sept. 7. She could not be reached for comment. Kelley did not work long enough in government to receive a state retirement benefit, Karlon said.

MacStay said no town employee was financially penalized for the incident.

“No member of town staff, current or former, has been found criminally responsible for the loss, and therefore no fine or penalty has been assessed,” she said.

Lilli Gilligan has been hired as the town’s new finance director and MacStay said the town is in the final stages of hiring a new accountant.


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