Regulators: N. Haverhill Finance Firm Unlicensed Since 1982
North Haverhill, N.H. — After a tip and investigation, state banking and securities regulators issued a cease and desist order to Upper Valley Commercial Corp. and its principals for operating without a license.
Four days later, the finance company, which has about $12 million in assets and owes $10.5 million in unsecured claims to investors, filed for Chapter 11 bankruptcy protection, according to the federal bankruptcy filings.
Upper Valley Commercial Corp. is the finance company affiliated with Patten’s Gas, a Haverhill-based propane supplier.
Although a number of people still need to be interviewed, it appears Upper Valley Commercial Corp. became an unlawful operation in 1982, after a change in the securities sale law, Jeff Spill, deputy director for the New Hampshire Bureau of Securities Regulation, said last week.
“They fell out of compliance when the law changed and were unlicensed,” said Spill.
No criminal charges have been filed, and the investigation is ongoing.
Spill declined to say week if any criminal charges are possible and if the the finance company’s principals knew they were operating unlawfully, as the state alleges.
On Dec. 27, the Bureau of Securities and New Hampshire Banking Department ordered Upper Valley Commercial Corp., its president David Patten and vice-president Alvin Fadden to stop selling securities without a license and from distributing unregistered securities.
The Banking Department alleges Upper Valley Commercial Corp., formed in December 1964, constituted an unlawful private bank in violation of state banking laws.
On Wednesday, Peter Tamposi, the attorney representing Upper Valley Commercial Corp., said the tip that led to the investigation was not about losses, and no one ever lost money through the bank.
The turn of events is unfortunate, he said, as the finance company was an important part of the community and in a part of the state where there aren’t many opportunities for investment and business.
“They were a powerful tool for pushing forward business in the community,” said Tamposi.
As operated, Upper Valley Commercial Corp. depositors were given either a promissory note or a demand deposit card, both of which are considered securities, according to Securities Bureau.
Upper Valley Commercial Corp. then used the money for several purposes, including daily operating expenses and making loans and lines of credit to third parties.
“The basis for the order is we believe these deposits and promissory notes they were accepting and issuing were unlicensed transactions,” said Spill.
According to its Chapter 11 filing, Upper Valley Commercial Corp.’s primary business had been to lend to retail and wholesale propane companies, such as Patten’s Gas, but it also lent money to other commercial businesses and individuals.
The business was started in the 1960s by the Patten, Fadden and Bruckner families and grew mainly from the contributions of those families, said Spill.
The bank was run by Edward Patten, father of David Patten, until Edward Patten’s death in May 2013.
Upper Valley Commercial Corp., not FDIC-insured, has upward of 200 creditors. Among the 20 largest are David Patten — at nearly $3 million invested — and several Patten family members, according to the bankruptcy filing.
On Dec. 27, Patten and Fadden signed a consent order without “admitting or denying the allegations.” Upper Valley Commercial Corp.’s alleged activities were uncovered from a tip that came during a routine examination of a different entity by William Masack, senior auditor of the Securities Bureau.
“If it wasn’t for the efforts of William Masack, it’s unlikely this conduct would have been uncovered,” said Spill. “A lot of the credit in this case goes to him.”
On Sept. 30, the Bureau of Securities advised Upper Valley Commercial Corp. it was being investigated for securities law violations and potential banking law violations.
Spill and staff attorney Eric Forcier launched the investigation and were soon joined by the Banking Department.
There remains a concern as to whether the unsecured investors will be paid back in full, said Spill.
“That’s the reason why we issued the cease and desist order — to stop the ongoing business,” he said. “Time will tell whether an unwinding of the business or a reorganization of the business will work for the benefit of paying all the unsecured creditors back. Obviously, that’s the goal.”
Tamposi said Upper Valley Commercial Corp. has many supporters and the backing of the community and has a strong plan going forward. Although the $12 million in assets is mostly payments due on outstanding loans, Tamposi said the bank has a strong operating record. “I’m very optimistic the investors will be paid back in full with interest,” he said.
The two agencies, represented in the case by the New Hampshire Attorney General’s Office, will monitor the bankruptcy proceedings and provide any assistance they can to investors and the court, said Spill.
In its bankruptcy filing, Upper Valley Commercial Corp. states that although it believes it can repay all of its creditors over time, it lacks sufficient liquidity to immediately unwind its activities and repay its creditors in full.
“Therefore, as part of an agreement with the New Hampshire Banking Department, (Upper Valley Commercial Corp.) plans to wind down its operations through a plan of liquidation,” according to the filing. “Because (Upper Valley Commercial Corp.’s) assets exceed its liabilities, (Upper Valley Commercial Corp.) will propose a plan to pay its debts in full.”
Upper Valley Commercial Corp. is managing its business as a debtor in possession and is paying monthly loan obligations and collecting loans owed to it, but is no longer accepting outside customers.
The bankruptcy filing, however, does not prevent the state from investigating further or from bringing additional actions, said Spill.
Robert Blechl can be reached at email@example.com, 802-748-8121 or www.caledonianrecord.com.