Outgoing NH securities director testifies about investigation into failed mortgage firm

NH securities head testifies on failed firm

CONCORD, N.H. — New Hampshire’s outgoing Securities Bureau director said Friday his agency had no jurisdiction over the investigation into a failed mortgage firm accused of swindling investors out of at least $80 million.

Mark Connolly announced last month that he is resigning as the state’s top securities regulator so he can speak “more bluntly” about government mismanagement over the investigation into Financial Resources Mortgage, which abruptly closed in November. Friday was his last day.

“After today, I no longer have a regulatory stake in this matter,” Connolly said. “I have never had a political stake.”

Connolly told a joint legislative committee hearing that his agency does not have independent rights “to go kicking down doors” in investigating such companies. He said the responsibility lies with the Banking Department and the Attorney General’s office.

Connolly’s testimony came two days after state Attorney General Michael Delaney released a report faulting his office, the Bureau of Securities Regulation and the Banking Department for not doing a better job investigating investors’ complaints against the firm.

Delaney said the agencies missed opportunities to protect investors and expose fraud and called the relationship between the Banking Department and Securities Bureau “toxic.” He denied Connolly’s allegations of a government cover-up.

“I really don’t believe we should be in the position we are today,” Connolly said at the hearing.

Banking Commissioner Peter Hildreth told the committee he felt Delaney’s report was fair. Hildreth recused himself from the case soon after he became commissioner in 2002 and learned his brother was an investor in Financial Resources. But Hildreth acknowledged Friday that he never put it in writing and later signed a subpoena related to the case and handled some memos on it. He said he did not think any of his actions favored the company, and his department is establishing a formal recusal policy.

The Attorney General’s office is scheduled to testify before the committee next week.

Since Meredith-based Financial Resources Mortgage closed, dozens of former investors have sued the company, and federal authorities have brought criminal wire fraud charges against its former president, Scott Farah.

Last month, a grand jury indicted Farah on mail fraud and wire fraud charges. Donald Dodge, who ran the associated servicing company CL&M, was indicted on wire fraud charges. The two face trial in June.

Jeffrey Spill, the Security Bureau’s deputy director of enforcement, testified before the legislators Friday that the bureau received an investor complaint made in 2000 against Financial Resources Mortgage. He said that mortgage companies did not fall under the agency’s jurisdiction. He said the complaint was eventually dropped and a settlement was reached.

The bureau had learned that Financial Resources had significant debt, and eventually held a hearing in 2003 to address paying back investors, Spill said. The hearing officer did not issue a formal ruling against the company; he decided that the investors would be better off if the company offered to pay them over time, and a payment plan was reached.

Before the hearing, Spill said he sought guidance from the attorney general’s office and the Banking Department but never got any.

“We did ask for information to put all of the pieces of the puzzle together, to have the full array of financial data, and I felt there were barriers there,” Spill said. He said when he asked the Banking Department for audits and other records from Financial Resources, he was told they were confidential. He said the attorney general’s office never got back to him about freezing the assets of Financial Resources.

It wasn’t until 2005, that Spill said he was aware of another complaint against Financial Resources. He said the man’s attorney also had contacted the Attorney General’s office. Spill said he was not aware until later that other consumer complaints about the company were made to the attorney general’s office.

Hildreth said after Financial Resources Mortgage closed and he determined he no longer had a conflict he visited the firm and reviewed its files and asked Connolly to look at them as well.

“I was surprised at Mr. Connolly’s response, it was more like I was bothering him,” Hildreth said. “He asked me, ‘What makes you sure there’s some securities up there?’”

Hildreth, who formerly headed the Bureau of Securities, said he faxed documents to Connolly showing the assignment of mortgages, pay-outs and who was getting a certain percentage of the interest each month.

“In my mind, these were securities,” Hildreth said.