Ayotte puts blame on Legislature, Banking Department


It was not the responsibility of the Attorney General's Office to stop Financial Resources Mortgage’s alleged Ponzi scheme before it collapsed, former Attorney General Kelly Ayotte told lawmakers Monday.Ayotte, testifying to a joint House and Senate committee looking into the FRM affair, said the Legislature was at fault for taking jurisdiction away from the AG's Consumer Protection Bureau out and giving “the responsibility” to other departments -- particularly” to the Banking Department.“You can’t tie the hands behind the back of the Department of Justice and expect it to roll up its sleeves and get to work on consumer matters,” said Ayotte, who as attorney general headed the DOJ from 2004 to 2009, when the department passed on the complaints and concerns about FRM to other agencies.The Banking Department had a “dual role” in regulating the industry, while only Consumer Protection Bureau looked out solely for the interests of consumers, she said. She urged that the Legislature return that power to the AG’s office.Ayotte, a candidate for the Republican nomination for U.S. Senate, said she had no personal knowledge of the FRM matter while serving as was attorney general. If she had, she told lawmakers, she would have “pursued it in the same aggressive matter that I’ve pursued other cases.” “As a leader, the buck stops at my desk” but she couldn't do anything if the “buck hasn’t reached my desk, and that didn’t happen here.”Ayotte – in contrast to current Attorney General Michael Delaney – did not admit to any “missed opportunities” or failures on the part of her former office, although Ayotte was careful not to take issue with the Delaney.Indeed, she defended her former office, even when legislators' questioned whether the office should have headed the investigation into the FRM matter. That investigation was led by Senior Assistant Attorney General Richard Head, who was in charge of Consumer Protection Bureau during the time when some of the complaints were passed on.Ayotte didn’t find fault with anyone in her office under her watch for not alerting her about FRM or for themselves pursuing the matter more aggressively. Instead, echoing other department heads involved in the affair, she repeatedly claimed that her Department of Justice had no jurisdiction.The problem, she said, was that in 2002, in response to a court decision, the Legislature – over the objection of the Attorney General's Office -- stripped the Consumer Protection Bureau of its jurisdiction when it came to anything regulated by the Banking and Insurance departments, the Securities Regulation Bureau and the Public Utilities Commission. It also took away the “private right of action” of consumers to sue on their own complaints." (The original legislation would have increased the AG’s jurisdiction, but the law that passed wound up doing the exact opposite.)Therefore, the AG's office passed on any “consumer complaints that involved banking and securities” to those departments.In the FRM case, five complaints -- including one from an employee who suggested the company lied to the authorities -- were referred to Banking.Ayotte noted that another law, passed in 2004 – gave exclusive authority on such matters to the Banking Department – and that the law eliminated the requirement that the department report back on the result of such complaints.But Ayotte did not mention, except on questioning from lawmakers, that the AG's office could act on criminal matters involving. Nor did she mention, until asked, that the a former white-collar prosecutor in the AG's office – then acting as a private attorney – alerted the Criminal Justice Bureau that FRM could be involved in a massive fraud both in 2005 and 2006.But, the AG's report on FRM reported that “based on available resources, the Bureau would be unlikely to have the ability to investigate and, if appropriate, prosecute the matter.” The matter was informally referred to the FBI, but there was no documentation, nor any apparent follow-up. (When NHBR later asked Ayotte whether it was true her office lacked resources to investigate such a matter, she said, “it wasn’t just a matter of resources,” and reiterated that the FBI referral had been the best way to handle the matter.)Ayotte also responded to House Counsel David Frydman's question about Banking Commissioner Peter Hildreth’s claim that his department had no jurisdiction over commercial mortgages. According to Frydman, since commercial mortgages did not fall within the banking department's jurisdiction, it was not exempt from the Consumer Protection Act.Ayotte responded that the legislation's language giving the Banking Department “exclusive authority” was broad, and that it was not really fair to expect the AG to “parse” out the exemptions, especially when it was handling 15,000 complaints on a broad range of issues. Delaney previously testified that many of those complaints were handled by volunteers.Ayotte said the office had enough staff to handle such complaints, though she did agree with a legislative recommendation that the three more attorneys should be added to the four or five already working in the Consumer Protection Bureau.(The Governor and Executive Council have asked for Hildreth to step down over the FRM matter. Hildreth has refused, and the council has begun procedures to remove him, while he has taken a paid leave of absence. The AG's office will be representing the state against Hildreth.)Peter Heed, Ayotte's predecessor from 2002 to 2004, echoed much of Ayotte’s testimony, even using the word “parse” when referring to whether the department was responsible for complaints about commercial mortgages.He said the Legislature was drawing a “bright line” between the AG's office and the Banking Department when it came to consumer protection complaints, and when you “parse it that thin it causes problems,” Heed said.Heed, like Ayotte, said he had no personal knowledge of the FRM matter, including a request from the Securities Bureau to freeze assets of the company to protected preferred investors in the company that was made under Heed’s tenure. The AG's office refused, saying that it did not have specific power to do so.“You think it should have come to you,” said Rep. Rip Holden, R-Goffstown.“What was known at that time, it was not something that would come to my desk,” Heed said. -- BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW
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