CONCORD — New Hampshire banking and securities regulators have taken action against what they say is an illegal bank operating in the Connecticut River Valley, shutting down the operation and forcing it into bankruptcy.
The Upper Valley Commercial Corporation, based in North Haverhill, agreed on Dec. 27 to a consent order requiring it to cease and desist unlawful securities and banking activity, while neither admitting to nor denying the state's allegations.
The company filed for bankruptcy on Dec. 31, in a proceeding that will be closely monitored by state officials, according to Ingrid White, deputy banking commissioner. "It's conceivable they've been operating illegally since 1965," she said. "In the end, that's what our investigation will demonstrate."
The attorney general has been notified by the securities and banking departments, although no criminal charges have been filed and the company has been fully cooperating with state officials, White said.
Investors are owed $10.5 million, according to the bankruptcy filing.
State officials are concerned that the company has little cash on hand to pay those debts, since the $12 million in assets cited in the bankruptcy documents consists mostly of anticipated payments on outstanding loans.
"We are reasonably confident that we will be able to pay off all our creditors in full, over time," said Nashua attorney Peter Tamposi, representing UVCC in the bankruptcy proceeding.
Tamposi acknowledged that the $12 million in assets is almost entirely in accounts receivable. "The company has enjoyed a very low default rate on loans," he said. "So we have no reason to believe that most of that won't be collectible."
He said the company has had more than 45 years of successful operation, with most of the investors consisting of direct or extended family members.
Two of the largest investors are David E. Patten of North Haverhill, UVCC president; and Alvin S. Fadden, also of North Haverhill, vice president. Both are referred to as "insiders" in the bankruptcy filing.
"Our plan is to pay off non-insiders first, and insiders after that," Tamposi said.
The bankruptcy was not the result of any insolvency or complaints by creditors, he said, but came about in negotiations with state officials who initially wanted to seek court-ordered receivership, which would put control of the company in the hands of a court-appointed third party.
"We collectively determined that a Chapter 11 liquidation would be a better result than a court receiver," Tamposi said.
Officials in both the securities and banking departments confirmed that no formal complaints by investors have been filed against UVCC. "We are not aware of any complaints," said White. "We searched the records that we have available here, and we had not heard of them before."
The problem revolves around licensing.
The company was never licensed or chartered as a bank. It may have been licensed to sell securities at one point, but that license lapsed after the passage of the Uniform Securities Act in 1982, according to Jeff Spill, deputy director at the securities division.
Even though it had no securities or banking license, the company was primarily in the business of borrowing money from individual members of the public with the promise of returning the money plus interest, according to the consent order.
"While we don't see evidence of losses right now, we feel it's important to protect the interests of depositors, where this bank is not insured by the FDIC," said White. "We feel the filing of Chapter 11 is a good step that will allow them to unwind the company and make sure the money is there for depositors."
According to the bankruptcy filing, David E. Patten has invested nearly $3 million in the company. His father, Edward C. Patten, died in May, and was recognized in his obituary as an "entrepreneur, financial consultant and propane distributor."
At the time of his death, Edward C. Patten was the chairman of the board of the Upper Valley Commercial Corporation, "a financial institution serving the Northeast," the obituary stated.
His widow, Alfa M. Patten, has nearly $300,000 invested.
Other family members and their investments, according to the bankruptcy filing, include Crystal Farr of Etna, $860,496; Deanna P. Mitchell of York, Maine, $476,312; Kimberly D. Hines of Piermont, $238,834;
White said the UVCC had close to 200 depositors or creditors, many of whom are not family members. The company had two main products, according to the consent order — unsecured promissory notes payable to the lender; or a demand card, which the order described as "essentially a ledger entry maintained by UVCC and reflecting its obligation to the individual lender or depositor."
Apparently the company was able to operate for decades under the radar of regulators, until auditors from the securities bureau began to investigate another company, and received a tip about UVCC.
The action taken against UVCC comes as state lawmakers prepare to reconsider a bill that would establish a special state fund to compensate fraud victims of Financial Resources Mortgage, the Lakes Region investment firm that collapsed in 2009.
"I understand why the Banking Commission is gun-shy after the debacle of Financial Resources Mortgages," said Tamposi, "but this is very different."
Spill said regulators are keeping all options open.
"We intend to continue to investigate this matter and we may bring further actions in the future," he said.
According to Tamposi, UVCC has hired attorney Richard Samuels of the McLean law firm to represent the company in any litigation not connected to the bankruptcy.