Bankrupt Company Hurts Investors from Beyond the Grave
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Bankrupt Company Hurts Investors from "Beyond the Grave"

August 8, 2011

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Two years after the collapse of fraudulent New Hampshire mortgage company Financial Resources Mortgage (FRM), the company’s bankruptcy case still isn't settled. According to reports from Fosters.com, one of the "most complicated bankruptcies in New Hampshire history" is causing trouble for its trustee and the people who lost money to FRM's schemes.

The problems boil down to how the court defines the defunct company's bankruptcy estate:

  • Ponzi scheme investing: Before it folded, FRM reportedly promised high-interest mortgage investments to its clients. Many people invested, not realizing the company was designed as a Ponzi scheme.
  • Company collapse: In 2009, FRM and its mortgage servicing department went under. Investors apparently lost tens of millions of dollars and the two men at the helm got slapped with prison sentences.
  • Bankruptcy started: In hopes of regaining some funds for creditors, the state forced the company into bankruptcy. But sorting out the terms of the liquidation has been complex and strenuous. Creditors have made claims topping $150 million but so far the bankruptcy trustee in charge has only managed to collect $3.4 million, $1.1 million of which has gone to various fees.
  • Defining the estate: The court's newest maneuver is to attempt to collect money from those who invested in FRM when it was existent. The court has reportedly claimed that the interest people earned was invalid and thus they must hand it over to the court.

The bankruptcy court's requests for funds from those who already lost money to FRM investments have understandably ruffled feathers. But the court legally has a right to distribute funds from the bankruptcy estate among creditors.

In most business bankruptcy liquidations, the bankruptcy estate consists of any money the business has in its coffers plus any money the trustee can raise by selling off equipment, leases, merchandise or parts of the company itself.

In this situation, where the business in question was never legitimate (in that it never actually turned a profit, just operated a complex Ponzi scheme), figuring what's part of the estate and what isn't has proven much more difficult.


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