Dodge explains why he let Farah take 'other people's money'

CONCORD — One of the two Lakes Region men who in October pleaded guilty in U.S. Federal Court to defrauding hundreds of people out of millions of dollars admitted to the Secretary of State's special investigator yesterday that he was indeed guilty, but only of withholding key information from potential clients.

Donald Dodge of Belmont said the day he formed CL& M as a servicing company for Financial Resources Mortgage, Inc. of Meredith (June 1, 2005), he created a line of credit for FRM President Scott Farah so Farah could "have access to short-term funds which would otherwise sit idle..."

"It is very clear that setting this up was a breach of my fiduciary responsibility as a custodian over other peoples money," read Dodge from a statement he had prepared for his criminal trial, after he learned Farah would take a plea and testify against him.

He said his real crime was not telling potential lenders about this line of credit, believing now that if he had, many would have chosen not to do business with FRM.

As part of an independent investigation into the workings of FRM, CL&M, their sudden collapse in November of 2009 and the state agencies that were supposed to oversee it, Secretary of State William Gardner ordered a special investigation and asked retired Tilton Attorney Charles Chandler to be the lead investigator.

Dodge testified for four hours yesterday, answering questions presented by Chandler and attorneys for the State Bureau of Securities. Except for the first hour, he was alone and without his attorney Mark Howard.

Others who have testified are the victims, who lost collectively between $80 and $100-million, developers Gary Coyne of Meredith, Phillip Brouillard of Laconia, Yves Tanguay of Concord and Vlatche Manoukian of Nashua and Dodge's office manager Diane Smith.

In October, Dodge pleaded guilty to fraud and will be sentenced to no more than 10 years in federal prison in January. He is 67.

The line of credit, or "air loans" as he referred to them, were supposed to allow Farah to "close loans" before he had secured enough from individual lenders. He told Dodge he was "losing the cream of the crop" because these borrowers had great credit and could go anywhere for the money.

In reflection, Dodge said he now believes that Scott needed to raise quick money to satisfy about $3-million in outstanding investments to people after he was ordered to do so by the N.H. Department of Securities.

"For months, (in late 2004 and early 2005) Scott had been discussing with various lenders and/or potential lenders about setting up a $1 to $3-million line of credit," read Dodge, adding he was in the office to overhear Farah's side of some of those conversations.

He said he was told that Farah would testify against him in Federal Court and would say that Dodge knew he was setting up CL&M to allow Farah to "continue to steal from people like he had been doing for years."

Farah also pleaded guilty to two counts of wire and mail fraud in October and will also be sentenced in January to no more than 19 years in federal prison.

"Pure baloney," Dodge said while fighting back tears. He said he never would have agreed to further a crime much less encourage his wife and friends to lend money through Farah.

Dodge's wife and his two best friends — David and Diane Smith — were FRM clients. Diane Smith was also Dodge's bookkeeper and office manager.

"I know how hard they worked for their money," he said looking straight at victim Alan McIlvene and adding that he also knows how hard many of the other people, "good people like Al," worked for their money as well.

Dodge said he kept believing in Farah because for the entire time they worked in the same building, Farah would tell him he was close to closing a $300-million deal with someone from Dubai and another $300-million deal with a John Anderson.

While his testimony elicited some measure of sympathy with the six victims who were there to witness it, Dodge couldn't answer some key technical questions asked by investigators.

Under a barrage of questions from Securities Attorney Eric Forcier, Dodge was unable to explain how or why Forcier had a piece of paper written in Dodge's handwriting that said FRM didn't owe CL&M any money.

"Scott owed CL&M money," Dodge said. "Technically FRM didn't."

"Then why did you sign this," asked Forcier waving the document and pressing Dodge as to why he would sign annual confirmation statements for Farah's accountants and not mention the loan, which eventually grew to between $10 and $20-million.

"Did CL&M have any assets of its own?" asked Chandler.

"No," Dodge replied.

"What's the source of the $10 million?" Chandler asked.

"I never thought about it," Dodge said.

"Other people's money?" Chandler continued.

"Yes," Dodge said staring down.

"You didn't have $10-million," Chandler said. "How is this different than paying Farah with other people's money?"

"That's why I said I should go to jail," said Dodge, asking Chandler if he wanted a re-creation of the loan that he had made.

"How did you calculate this? How did you get the numbers?" asked Chandler looking at a piece of paper Dodge gave him.

"I copied it to a USB drive and gave it to my attorney," Dodge said, adding that he knew he couldn't take his computer and didn't know if he would ever be allowed back into the offices after the collapse so he copied it to the portable drive.

"I took the line of credit, the life insurance, lots of things I took that I didn't want to get lost," Dodge said, adding there was a $10 million life insurance policy on Farah "in case he got killed on one of his silly trips to Africa."

Dodge also told about the Nov. 6 evening phone call he got from Farah telling him the company had collapsed.

He said he and his wife and the Smith's had gone to dinner and were at his house to watch a movie. He said he went onto the other room to take the phone call about which Diane Smith testified on Monday.

Dodge said that for about 10 days prior to Nov. 6 he knew both companies were in financial trouble but Farah kept saying the money was coming.

Until that Friday.

"He called to tell me there was no hope and he was leaving," Dodge said.

"It was gone," Dodge continued as he began to cry. "Everything. David. Diane, my wife, my heart and soul. All the people I had known and destroyed."

"I offered to kill myself in in front of Harry Bean," Dodge said, referring to the Gilford man whose family lost $4-million and who had been his friend for 30 years.

He said he drove toward Bean's house in Gilford.

"I had the gun with me. I got close to his house and I pulled over. I couldn't drive anymore," he said.

Dodge said he called Bean on his cell phone and Bean said to him, "Goddammit. You better not kill yourself. You're the only one who can help me out of this. And besides, 'I love you.'"

"If you know Harry, not many people hear that from him," Dodge said.

Dodge said Bean also told him he was in Florida and they would deal with it when he got back.

"So you knew it was an illusion?" Chandler asked him.

"It was a fantasy," said Dodge. "Oh I knew. It was just a fantasy and all dumb and stupid."

"Do you now now wonder why you you didn't think it was an illusion?" Chandler asked.

"I would never have believed it," Dodge said telling Chandler that right up until the last 10 days he thought FRM was "stable and strong."

"It was unbelievable to watch [Farah] work and I thought I was doing a good job," Dodge said, seemingly still in awe of the man who was 24 years his junior and who Dodge first met when he was 14-years-old boy and Dodge taught him Sunday school.

"For three weeks I listened to victims and they universally said their contact was CL&M and Dodge," said Chandler.

"Didn't any red flags go up, Mr. Dodge?" he asked.

Dodge said he never got the phone calls from the lenders. Diane did and that Farah always had an answer.

He said from the beginning of CL&M he believed Farah to be a wealthy man and that he was "in all sorts of deals."

Describing Farah as the captain of a ship, Dodge said he asked him to come to work for him by telling him there were a few holes in the hull and he could help fix them.

"Now I know it was the Titanic after it hit the iceberg and I foolishly welcomed aboard all of my friends and family and we all believed in the captain and the ship until it was going down." he said.

"We were fools," Dodge said.

Scott Farah is scheduled to testify this morning at 10 a.m.