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Wednesday, June 16, 2010

Not much insight in Ayotte testimony

Telegraph Editorial

After much anticipation, former New Hampshire Attorney General Kelly Ayotte appeared before a joint House and Senate oversight committee Monday that’s investigating how a Lakes Region mortgage brokerage firm allegedly defrauded investors out of millions of dollars.

But if you were hoping to gain some new insight into how such an operation went undetected by state officials for so long, you no doubt were disappointed.

That’s because much of what she had to say already was painstakingly detailed in Attorney General Michael Delaney’s critical 58-page report that concluded the Banking Department, Bureau of Securities Regulation and his own office dropped the ball in providing oversight and regulation of Financial Resources Mortgage Inc.

The now defunct Meredith mortgage brokerage firm is accused of operating a Ponzi scheme that bilked more than 150 investors out of as much as $80 million over a nine-year period. FRM founder Scott Farah and mortgage associate Donald Dodge have been charged with wire fraud and are awaiting trial this fall in U.S. District Court in Concord.

During the past six weeks, current and former state officials have testified before a joint version of the House and Senate Commerce committees probing the collapse of the Lakes Region company last November, including embattled Banking Commissioner Peter Hildreth and Mark Connolly, who served as director of the securities bureau up until his resignation last month.

On Monday, Ayotte told the committee that she had no “personal knowledge” of the matter during the five years she served as the state’s attorney general from July 2004 and July 2009.

“I am, as a leader, all for the principle that the buck stops at my desk,” she said. “But in order for that to happen, the buck needs to reach my desk. And, unfortunately, that did not happen here.”

As one might suspect, Ayotte’s acknowledgement has opened herself up for criticism from those who believe she is either being less than candid or should have known what was going on in her own department – including her Republican and Democratic opponents for a U.S. Senate seat this fall.

For her part, Ayotte put much of the blame squarely on a change in state law back in 2002 that created exemptions to the state’s Consumer Protection Act – a change that was opposed by the attorney general’s office at the time.

Previously, the attorney general had the authority to investigate complaints related to banking or securities, but the new law placed them in the jurisdiction of their respective departments, in this case the Banking Department and the securities bureau. It also prohibited the attorney general’s office from seeking restitution for consumers under the Consumer Protection Act.

As a result, the five formal FRM complaints brought to the attention of the attorney general’s office were referred to the Banking Department, as originally detailed in Delaney’s May 12 report to the governor and the Executive Council.

While Ayotte was critical of the change in state law – “You can’t tie the hands of the Department of Justice behind its back and then expect it to roll up its sleeves and get to work,” she said – after reading Delaney’s report, we don’t have much confidence the outcome would have been much different.

The report is rife with examples of the attorney general’s office not only failing to adequately communicate with outside agencies, but also proving incapable of sharing or recording information within its own department.

We’re not sure where the committee’s work is going to lead, but given what we know at this point, we believe it would be wise for the 25 members to re-examine whether the exemptions to the Consumer Protection Act went too far and, if so, recommend changes in law that could be taken up during the next legislative session.