The New Hampshire Bureau of Securities Regulation is not your typical layover on the road to the Democratic nomination for governor. But if anyone can make the case for a former financial watchdog in the corner office, it might be Mark Connolly.
He’s already written a book about it.
“Cover-Up: One Man’s Pursuit of the Truth Amid the Government’s Failure to End a Ponzi Scheme,” is Connolly’s account of the unseemly aftermath of the biggest financial fraud in state history. Over the course of years, and right under the noses of state regulators, Financial Resources Mortgage, Inc. stole $33 million from at least 150 people who thought their money was being used to finance real-estate projects.
Published in 2011, Connolly’s retelling of the scandal is entirely his own, a first-person narrative about an embattled government whistleblower at a time of crisis. He re-creates dozens of meetings, phone calls and passing conversations about the fraud, and by the book’s end, emerges as the only public official whose character and integrity are still in one piece.
But “Cover-Up” also ignores or skims past pieces of the FRM story that conflict with Connolly's version, including critical details of an investigation by the New Hampshire Attorney General and a special legislative panel that faulted the securities bureau for a lack of zeal. Those omissions, as much as what Connolly chose to include in the book, offer a few clues to how he might handle a similar scandal as governor.
Connolly was chief of the securities bureau when FRM collapsed in November 2009, which is where “Cover-Up” begins. It ends, two years and 234 pages later, with Connolly out of state government, but considering a series of proposed reforms that are now a cornerstone of his campaign for governor.
"My fear,” he said in a recent interview, “is that if we don’t address some of the things we saw, the next time the economy goes down we’re going to have these kinds of problems again.”
The conflict at the heart of “Cover-Up” is Connolly’s feud with Peter Hildreth, then-commissioner of the state Banking department. As the scope of FRM’s fraud came into focus, Connolly and Hildreth engaged in a contentious and very public battle over who was ultimately responsible for preventing the fraud from happening in the first place.
As Connolly saw it, Hildreth was part of a “cover-up” engineered by the administration of then-Gov. John Lynch to spread blame for the regulatory failure and minimize the potential for legal and political fallout.
Frustrated, Connolly resigned in protest as securities chief in May 2010, six months after FRM collapsed.
Two days after Connolly's resignation, the Attorney General’s office released the results of the official state inquiry into the scandal, led by Assistant Attorney General Richard Head. In his 60-page report, Head identified “significant failures” by both banking and securities regulators, as well as the AG’s office, that allowed FRM to operate outside the law for nearly a decade.
Connolly, who has never conceded mistakes in the securities bureau's handling of FRM, dismissed the report as a “political document.” He accused Head of a conflict of interest by playing down his former role as chief of the AG’s consumer bureau, which received at least six complaints about FRM that were never investigated.
“I don’t believe Richard Head should have written that report,” Connolly said in an interview. “He had been directly involved in reviewing the complaints, and he didn’t reveal that.”
Connolly also rejected findings by a joint legislative committee -- led by then-state Sen. Maggie Hassan -- that faulted securities regulators for not pursuing fraud allegations the bureau received in the mid-2000s. At the time, FRM was already in trouble with the bureau, which was preparing a settlement with the company for selling unregistered securities years earlier.
Chris Carter, a Concord attorney and a former senior assistant attorney general, represented several FRM victims. He said he raised alarms about the company with state banking and securities regulators and the Attorney General’s office, years before the fraud was discovered.
In 2005, two of his clients, Ron and Jackie Stone, contacted the securities bureau and accused FRM of trying to sell them an interest in a company that no longer existed. Under questioning by the joint committee, Connolly's deputy, Jeff Spill, said the couple never filed a formal complaint. Moreover, Skill testified, because the Stones were preparing to sue FRM, the bureau had limited authority to investigate.
Carter said that, given what was already known about the company’s questionable business model, the response was puzzling.
“I find it troubling that the reason they didn’t take action was because, in the isolated case of the Stones, they had engaged their own counsel to recover damages,” Carter said. “That overlooks the broader principle that this was a corrupt business that was preying on others besides the Stones.”
Connolly mentions none of this “Cover-Up.” And other than dismissing the findings as inaccurate or politically motivated, he ignores the AG and legislative committee reports as well.
He does, however, devote a chapter to an investigation commissioned by his boss at the time, Secretary of State Bill Gardner. It was led by bank executive and former state representative Charles Chandler, whose primary charge was to determine whether the securities bureau had any statutory responsibility to launch an investigation of FRM.
After 60 hours from testimony from 76 witnesses, including dozens of FRM’s victims, Chandler’s answer was, “no.”
In a recent interview, Chandler said FRM’s scheme was carried out with a degree of sophistication that confused financial regulators. “The size and complexity presented quite a shock to people in state government,” he said. “But instead of sitting down together and saying, ‘Let’s figure this out, regardless of whose jurisdiction it is,’ the finger pointing went along like kids in a schoolyard.”
Connolly's reluctance to sign onto the official version of the scandal made him a hero in the eyes of many of FRM's victims. So did his opposition to the Attorney General’s decision to allow FRM to file for bankruptcy, which transformed the victims into adversaries of the state. Ken Miller, who lost $750,000 to FRM’s scheme, said it also ended any chance they would get their money back.
“There were people in the state government who were impeding the progress of the investigation by blaming the Bureau of Securities Regulation for the entire problem,” Miller said. “But from our perspective, Mark was the only person who stood up and believed we were in the right.”
Back in the Game
Connolly said he briefly considered running for U.S. Senate before deciding to write “Cover-Up.” Last November, less than a month after Gov. Maggie Hassan made official her challenge to Sen. Kelly Ayotte, he announced his bid for the Democratic nomination for governor. “If you’re really going to effect change, you have to be part of the game,” he said.
While the FRM story inspired a book from Connolly, the story is missing from his campaign website. Instead, he highlights more clear-cut regulatory accomplishments, like the tens of millions of dollars in settlements secured from giant financial firms such as ING and UBS bank for financial wrongdoing.
If elected, Connolly said he'll use his FRM experience to propose significant reforms. He’d push the legislature to adopt new consumer protections, for example, and he wants an Inspector General-like office to pursue state officials who fail to serve the public interest.
“You can’t just run on something like financial reform,” said Connolly, who has also outlined strategies to improve education and to deal with the opioid crisis. “I really talk about where I see the state going in terms of education, economic development, about the need to step it up and be innovative.”
But, for Ken Miller, Connolly's handling of the FRM scandal is plenty enough to vote for him. A lifelong Republican, Miller even changed his party affiliation to undeclared so he could cast a ballot for Connolly in next week’s primary.
“Mark is a very honest, straight-forward guy,” Miller said, “and I would not feel bad at all at him becoming governor”