Ayotte’s Ponzi alerts called faulty
Former Attorney General Kelly Ayotte failed to have internal procedures to alert her to “a series of criminal and civil complaints” about a Lakes Region Ponzi scheme, a draft legislative report concluded Tuesday.
Ayotte, a Republican candidate for U.S. Senate, denied any knowledge of this scandal involving Financial Resources Mortgage Inc. before FRM filed for bankruptcy protection in November.
“The attorney general must implement internal practices to ensure that he or she is briefed when a series of criminal and consumer complaints come to the office against a particular bad actor,” concludes the draft done for the House and Senate commerce committees investigating the FRM matter.
Federal prosecutors charged FRM’s co-founder with stealing up to $80 million in money that individuals lent to FRM to back up investments.
The 84-page report found state prosecutors, banking and security officials were jointly to blame for failing to follow through on 15 consumer complaints brought against FRM since 2000.
The report affirmed many findings of Attorney General Michael Delaney who said several months ago that lapses among the three state agencies contributed to FRM getting away with its practices.
This was the first report to fault the management style of Ayotte, who was attorney general from 2004 until July 2009.
Al McIlvane of Kittery Point, Maine, an FRM investor, said it relied too heavily on the attorney general’s earlier report, putting too much blame on the Office of Securities Regulation and not enough on banking regulators and state prosecutors.
“I think it’s just a starting point, not an end point,” McIlvane said.
Democratic U.S. Senate candidate Paul Hodes and GOP primary rival Bill Binnie have aired TV commercials attacking Ayotte’s performance in this case.
Ayotte’s response ads labeled the accusations “false.”
On Tuesday, her campaign claimed this latest report was politically motivated.
“You have to question the timing of a draft report issued by Democrats right before the election. There’s no new information here, but Kelly is glad to see that the Legislature is taking seriously the recommendation she made to restore jurisdiction over consumer complaints to the AG’s office,” said Ayotte spokesman Jeff Grappone.
“As she has made clear, when matters came to her desk, she dealt with them directly and resolved them. Unfortunately, the Legislature took away that opportunity here, and it should give the jurisdiction back to the AG’s office. She continues to believe that is critical to preventing this type of fraud from ever happening again.”
Binnie’s ad featured three investors who blamed Ayotte for falling down on the job.
“Once again Kelly Ayotte has been criticized for her handling of this Ponzi Scheme, the largest fraud in New Hampshire history,” Binnie said in a statement Tuesday.
“And once again the victims, many of whom lost their life savings, and the taxpayers of New Hampshire await a credible explanation of her failure to act. It’s time for answers.”
The two legislative committees meet over three weeks to review the report that suggests how to close gaps in jurisdiction that contributed to the state failures.
“This is a work in progress,” said state Sen. Maggie Hassan, D-Exeter, who co-chaired the panel.
State Rep. Edward Butler, D-Harts Location, said the committees should wrap up their work soon and let the next, elected Legislature and governor pursue changes in state law and regulation.
In testimony to these committees, Ayotte said lawmakers should not have exempted banks and security firms from the Consumer Protection Act in 2002. This exemption meant prosecutors could only pass consumer complaints on to the Banking Department, Ayotte said.
House legal counsel David Frydman reviewed several ways to rework this exemption and said lawmakers must decide the best fit for New Hampshire.
Banking Commissioner Peter Hildreth testified that examiners determined the investments at the heart of the alleged FRM fraud were securities and the Office of Securities Regulation should have gone after them.
Former OSR director Mark Connolly said his agency’s enforcement authority was too narrow to investigate the allegations.
The report urges the Legislature to clarify definitions of a loan and a security to address complex investments that can fall through the cracks of existing state laws.
Lawmakers should create a centralized database so citizens can look up substantiated complaints that run across state agencies, the report added.
And it urged lawmakers to approve Hildreth’s request for management consultants to help regulators identify bad actors in the marketplace.
Kevin Landrigan can be reached at 321-7040 or firstname.lastname@example.org.