Last fall, Florida Office of Financial Regulation Commissioner Tom Grady praised an investigator in the agency's Pensacola office who helped crack a $3 million mortgage fraud scheme.
"Thanks to (her) leadership,'' Grady said, "the OFR is doing its part to put bad guys behind bars.''
Even as he touted that success, Grady was paving the way to close the Pensacola office and three others — half of OFR's regional offices.
The closings, which took effect this month, were part of Grady's mission to slash costs at the state agency that oversees mortgage brokers, banks and securities firms. The moves come even as a new report shows Florida continues to lead the nation in mortgage fraud.
Grady, now back in the private sector, defended the office closures. He insisted resources devoted to financial investigations actually increased while he cut back in areas already handled by other agencies.
In his six months running OFR, the Naples millionaire and friend of Gov. Rick Scott proved a study in contrasts — a fiscal conservative who embraced Scott's cost-cutting ethos yet a liberal spender who:
• Charged the state more than $800 to go to Atlanta for a two-day banking conference, but skipped the second day when he left for a week's vacation in Utah.
• Spent more than $6,000 on in-state travel, including $296 for a night at the Ritz-Carlton in Sarasota and $240 for a night at the Grand Hyatt Tampa Bay.
• Sought reimbursement for more than $10,000 worth of office furniture, including a $2,482 leather sofa and a $563 floor lamp.
It was a pattern that continued in March when Grady, 54, became interim president of Citizens Property Insurance, charged with drastically shrinking the state-run company. At Citizens, Grady spent more than $10,000 on travel in just two months before losing the permanent job to a Maryland insurance executive, the Tampa Bay Times detailed in a recent story.
Unlike the case at Citizens, though, state accountants challenged several of Grady's OFR reimbursement requests. Among the items questioned: gas and taxi charges for which he said he had lost receipts, and tips that exceeded the state's allowable limits.
"(State) policy is to use state funds in the most cost-effective way,'' one accountant wrote in an email questioning Grady's use of a car service in lieu of taxis.
Ken Thomas, an independent banking analyst in Miami, said spending on upscale hotel rooms and other perks can be justified if it improves a chief executive's performance. But Thomas said he was not impressed by Grady's performance and drastic budget reductions at the Office of Financial Regulation.
"There's such a thing as cutting fat but then you start cutting into meat and this is cutting into bone,'' said Thomas, noting that Fort Lauderdale, where the agency also closed an office, has been home to so many scamsters it is known as "Fraud Lauderdale.''
A report last week by LexisNexis Risk Solutions found that Florida still has the highest rate of mortgage fraud investigations, and that many other regulators outside Florida are increasing scrutiny.
"I think (Florida's shutdown of regional offices) goes against the grain," said Jennifer Butts of LexisNexis. "It's understandable with the economy being what it is. It's just unfortunate that's an area that has to be cut back."
Grady said he shifted emphasis away from mortgage fraud because the number of companies writing mortgage loans has fallen significantly in the economic downturn.
Shaking things up
Last August, Scott and the Cabinet tapped Grady, who had served in the Florida House from 2008 to 2010, to run the Office of Financial Regulation. Scott, whose home in Naples is down the street from Grady's, said at the time that his friend "has demonstrated a high standard of integrity in all he has done.''
The new agency chief didn't take long to shake things up in his $133,000-a-year job.
Grady, a longtime securities attorney, pushed an alternative law enforcement vision: an all-volunteer panel of securities attorneys to act as the state's "eyes and ears'' in detecting securities fraud.
He tried, unsuccessfully, to move the regulation of mortgage brokers and loan originators out of his office and into another state agency.
He replaced a veteran division director with fellow Naples resident Greg Hila, a chiropractor-turned-real estate agent who played golf with Scott. Hila's lack of securities experience meant he would not be qualified to take over as commissioner under state law.
Grady also traveled around Florida to make speeches and visit regional offices.
On Halloween, Grady and three OFR employees left for a two-day banking conference in Atlanta sponsored by the FDIC. The employees drove together in a rental car from Tallahassee. Grady, who had been at his $4.2 million home in Naples, flew to Atlanta.
On the expense form he later submitted, Grady said he checked into a Marriott Residence Inn in midtown Atlanta only to find "the hotel did not have heat.'' So he moved to a $389-a-night room at the Ritz-Carlton several miles away.
Grady sought, and received, state reimbursement for $189 for the Ritz on the grounds it was the government rate for Atlanta hotels. The other OFR employees remained at the Residence Inn, where they paid $132 a night.
That hotel also was within walking distance of the FDIC conference. By moving to the Ritz, Grady needed transportation and hired a car service for $120.
While his colleagues attended both days of the conference, Grady left for Salt Lake City at the end of the first day. For the next seven days, he "went off state business'' and didn't return to Tallahassee until Nov. 8.
"Several questions again,'' began an email from a state accountant seeking explanations for some of Grady's expenses related to the Atlanta trip.
In the end, the state reimbursed him $40 for a taxi ride from the Tallahassee airport, although he did not have a receipt as required.
It also granted his request for an $80 per diem — the amount state employees get for meals when traveling — for Nov. 8 even though he was not on state business that day.
And it reimbursed him $120 for the car service, which he said was cheaper than taking taxis.
Total cost for Grady to attend one day of the Atlanta conference: $814.
In an email response to the Times on Friday, Grady said he went to the Ritz because that was the closest Marriott-owned hotel with rooms available. He said he left the conference early because most other states were represented by only one person, and it was "embarrassing'' to have four people from Florida.
"The trip for me was relationship building with state and federal regulators,'' he wrote. "I did that. I saw no need to continue to spend taxpayer money under these circumstances.''
Less than a month later, Grady's spending again raised eyebrows.
On the Saturday before Thanksgiving, Grady and his wife went to Suz-Anne's, a Tallahassee store, and bought $11,094 in furniture for his office. Among the purchases: a $2,658 console, a $2,660 bookcase, a $2,482 black leather sofa, a $925 mirror and a $563 floor lamp.
Grady paid Suz-Anne's, then submitted the entire bill to the state for reimbursement.
A flurry of emails ensued between Grady's staff and state accountants. They wrangled over what to do about furniture that far exceeded the allowable limits on cost and did not follow state purchasing procedures. One email said "the commissioner prefers to be reimbursed for whatever he can get.''
The state determined it could not legally pay any more than $3,864. At that point, Grady decided "he will not seek reimbursement and will take the furniture with him when he leaves,'' an assistant wrote in an email.
Grady told the Times he sought reimbursement only because his budget director encouraged him to do so.
"I had decided in any event that it would be solely my expenditure and responsibility,'' he said.
In Grady's final two months at the agency, lawmakers approved his proposal to cut the budget by $3.5 million and close offices in Fort Myers, Jacksonville, Pensacola and Fort Lauderdale.
The new budget also eliminated 81 positions, including some investigators, but Grady came up with his novel plan to fight securities fraud. He created the "all-volunteer" advisory council made up of securities lawyers.
Council members, Grady said in a news release, would be "our eyes and ears throughout the state … to help put bad guys behind bars and help good guys succeed.''
For co-chairmen, Grady named Peter King, a Tampa attorney, and Scott Link, a partner in a West Palm Beach law firm that Grady has worked with. As Link told the Times, "we're not regulators'' and could only refer matters to state regulators — not investigate, subpoena or arrest anyone.
According to emails obtained by the Times through a public records request, Grady delegated much responsibility to Link and King to decide who should be on the council.
"Scott is assembling that team now,'' Grady emailed one person. When an OFR staffer suggested a certain candidate, Grady replied: "Great idea. Please run by Scott and Peter.''
Grady, however, thought the proposed name — Commissioner's Advisory Council — was "boring.''
"How about brainstorming, a bit, something to catch the media's attention,'' he emailed, suggesting "Fraud Posse'' or "Scam Suppressors.''
"Commissioner's Advisory Council'' won out, and on March 2 Grady announced the 14 members — no blacks and just two women. The panel has held conference calls but has yet to meet in person.
Thomas, the Miami banking analyst, called the idea of a securities advisory council "unbelievable.''
The OFR commissioner "is going to use lawyers to be his eyes and ears on the ground?'' Thomas said. "What do you do if one of his eyes and ears is representing Rothstein, Madoff or Stanford'' — convicted fraudsters Scott Rothstein, Bernard Madoff and Allen Stanford.
Thomas noted that a lawyer could get in serious trouble with the Florida Bar for giving investigators information about a client or even a potential client.
"It's not in the public interest to have attorneys who represent private interests representing the public interest,'' Thomas continued. "This is all in the way of trying to rationalize (budget) cuts.''
Grady said he came up with the idea of an advisory council after hearing complaints that OFR had ignored securities fraud.
"I wanted to change that and create real enforcement capability following real detection capability,'' Grady said. "If you are a plaintiff lawyer, you see before anyone, and well before OFR, schemes as they are happening, and as a result are in a position to detect and refer early.''
On March 6, just a few days after Grady revealed the new advisory group, the Citizens board named him interim president of the state-run insurer. He resigned as OFR commissioner on a Friday and started at Citizens the following Monday.
He took his furniture with him.