It not only games the system and swindles taxpayers, it also nourishes public cynicism

The recent budget passed by the New Hampshire legislature contained a $10 million measure to partially reimburse a few hundred clients who lost millions of dollars in the infamous Financial Resources Mortgage Ponzi scheme scandal of more than a decade ago.

Two FRM executives were eventually convicted and sent to federal prison for fraud in the largest Ponzi scheme in state history. Since the collapse of FRM in 2009, there has been no shortage of blame directed at state agencies including the Banking Department, Securities Division and Attorney General’s office. Many victims have claimed over the years that lax state enforcement in the banking department allowed the scheme to thrive.

A June story in The Boston Globe highlighted a Massachusetts Inspector General’s report that found an estimated two dozen Massachusetts Bay Transit Authority police retirees received an estimated $470,000 in sustained, supplemental overpayments from 2005 to 2018. One factor unearthed in the investigation was that there was almost “no system” to track so-called supplemental payments given out by the separate and private police pension fund that was heavily financed by taxpayers.

The abuse only came to light when a new MBTA director was hired in 2017 and initiated a review of supplemental payments during the past two decades.

Last year, the Boston Police Department was rocked by a scandal in which nine former and current officers were charged with theft and fraud by receiving more than $200,000 in overtime pay for work not done. Six of those charged in the federal indictment had retired and were already collecting police pensions.

Highlighting these developments isn’t to pick on Boston police, public sector pensions or New Hampshire lawmakers. Rather, it is to put on your critical thinking hat and ask important questions that matter. Betraying the public trust not only games the system and swindles taxpayers, it also nourishes public cynicism.

It is clear that many New Hampshire bureaucrats were asleep at the wheel before the FRM collapse. But it was a sign of the times. Though not directly related, the FRM scheme was part of the “regulatory-light” environment that fueled the subprime lending boom that ultimately led to the collapse of financial markets across the globe in 2008. The late Mark Connolly, former state Securities director, explained the opacity of regulations in his exposé book, “Cover Up.” The subprime lending boom was in many ways a widespread Ponzi scheme with dubious mortgage lending, leading to a boom in cheap bundles of securities that led to even riskier lending and so on.

FRM investors were fleeced by con men who offered the mirage of fantastic returns from secured commercial mortgages that were anything but secure — in other words, irredeemable junk bonds. Many investors suffered six-figure losses and higher. In 2021, after a decade of failed FRM restitution attempts, the Legislature offered up $10 million in taxpayer funds without much debate or discussion. Some simply wanted the issue to go away.

In playing devil’s advocate here, ask yourselves why New Hampshire taxpayers should get this tax bill. What was the overriding public interest? Should investors have done more due diligence and asked better questions about their investment? Then again, bailing out financial institutions, who doubled down on their own risky behavior, was considered necessary to keep the financial system solvent in 2008. In lieu of moral hazard, the willingness to pay the costs of risk for major players depends on who will bail them out when the time is ripe. Often, individual investors don’t get such recourse.

Seeing the lack of public outrage or challenges to ballooning pension liabilities, public corruption and dubious political deal-making, we are left wondering about accountability and public sentiment. We can honor public service and the pensions that come from them, but not at any cost and not without accountability.

If we, as citizens, do not question the need for taxpayer-financed alterations that lead to ever-ballooning pension liabilities or demand more accountability for public corruption, we will continue to be puppets dancing to the whims of lobbyists, lazy politicians who are rarely held accountable for their bad decisions and Ponzi scheme practitioners. Increased public indifference or cynicism is just collateral damage for someone else to pay the bills and clean up the mess.

Tom Sedoric is partner, executive managing director and wealth manager and D. Casey Snyder, CFP, is partner, senior vice president and wealth manager of The Sedoric Group of Steward Partners in Portsmouth. For more information, visit thesedoricgroup.com.