Richard Pierce wants you to believe three things.

He wants you to believe he built a $470 million student loan operation, using tax-free public bonds for the sole purpose of helping Maine students go to college.

He wants you to believe he built his operation with full legislative authority.

And he wants you to believe that it’s OK for him to use millions of dollars generated by the public bonds to finance two for-profit companies.

But an overwhelming body of evidence suggests otherwise. Ultimately, the Legislature, Gov. Angus King and the public will be the judges. They will decide whether the state’s honorable goal of helping Maine kids get an education has been twisted and turned into a massive, lucrative private business that today holds a near monopoly on the student loan market.

A SIMPLE BEGINNING

Maine entered the student loan market for the first time in 1983 when interest rates hovered around 18 percent and low-cost student loans were hard to get.

To encourage private lenders to make loans available to students and parents, the state created a private, nonprofit agency that had access to tax-free bonds. Any private lender that offered loans under the federal student loan program would be eligible to sell its loans to the new agency.

The benefit to the student: a low-interest loan. The benefit to the bank or credit union: It would receive a fee from the student, typically $100, to process the loan, it would be able to build a relationship with a new generation of borrowers, and it would get its money back almost immediately from the agency to loan out again.

Documents and interviews with policy makers indicate the state never intended for the new agency to use its access to tax-free bonds to compete with private banks and credit unions, but merely to buy student loans from those institutions. Nor did the state intend for the agency to use any revenue from its operations for anything other than buying more student loans.

Those distinctions have led to today’s uproar over Pierce’s complex operation and calls by critics for a full review of his student loan-related activities.

In June 1983, Gov. Joseph Brennan granted Pierce an exclusive privilege to use tax-free bonds for one purpose: to buy student loans from banks to ensure that Maine students, many of them poor and middle class, who dreamed of going to college could get they loans they needed to get there.

Pierce was a college financial aid director well known in Augusta for serving as a state senator and for his attempt at the GOP gubernatorial nomination in 1982. In authorizing the creation of the nonprofit Maine Education Loan Marketing Corp. by executive order, Brennan spelled out its purpose and intent in a letter to Pierce dated June 7, 1983. The letter confirmed that Pierce had already agreed to serve as president of the new enterprise.

“Pursuant to the authorization granted to me by the Legislature … I hereby request on behalf of the state of Maine that you organize a non-profit corporation … which will operate exclusively for the purpose of acquiring student loans notes … to satisfy the public purpose of increasing the availability of funds to benefit students,” Brennan wrote.

To carry out the governor’s wishes, the new company, known commonly as MELMAC, incorporated “as a public charity … (that) shall at all times operate exclusively for the benefit of, to perform the functions of, or to carry out the exclusively charitable and educational purposes” of encouraging private capital for student loans, according to its articles of incorporation on file with the Internal Revenue Service.

The incorporation papers, in numerous references, also limit the use of revenue from the operations to buying student loans.

“Any income of the corporation after payment of expenses, debt service and creation of reserves for the same shall be used to purchase additional loans,” the incorporation documents say.

“… The corporation will cause the proceeds of any bonds to be invested in eligible loans as rapidly as practicable and in no event shall bonds be issued in excess of the amount the corporation reasonably determines to be needed,” the documents state.

Pierce took the $8,000-a-year job, hired someone to answer the phone, borrowed $50,000 and started MELMAC. Over the next 17 few years, he would build an infant nonprofit into a conglomerate of five companies, including two that Pierce created as profit-making market ventures – all of which likely would not exist today without the tax-free money the state allowed MELMAC to use.

Pierce says he has saved Mainers millions in avoided interest payments by offering loans at a lower rate than anywhere else, but others charge that he used the tax-free bonds to manipulate and take over the market, shoving the very people he was supposed to work with out of business.

Moreover, critics, citing national statistics, say that the vast majority of Pierce’s student loan customers won’t even get the benefit of lower interest payments because they will fail to meet Pierce’s loan repayment guidelines. These critics allege the tax-free bonds have primarily helped Pierce compete with the private sector, rather than helping kids go to college.

In other words, in many cases, students could actually save more with local lenders, many of whom offer a guaranteed discount.

A POLITICAL DEFEAT

Pierce worked quietly through the 1980s buying up student loans from private lenders and building a reputation as a student loan innovator and leader. He was popular in both college and banking circles in Maine and nationally, and was well respected in the GOP after serving six years in the state Senate and running unsuccessfully for governor in 1982.

But Pierce’s quiet work turned into noisy political debate in 1989 when Pierce, Republican Gov. John McKernan and Education Commissioner Eve Bither proposed a law that would give Pierce control over Maine’s entire student loan business without any direct oversight by the state.

Under the proposal, all of the student loan functions of the state’s Department of Education would be transferred to Pierce, including the administration of eight state scholarship programs and the guaranteeing of student loans.

In the end, however, the Legislature defeated the measure for two reasons: Pierce refused to give lawmakers financial information about MELMAC, saying it was privileged information of a private company; and lawmakers learned that 47 states maintained oversight of publicly backed student loan organizations, although Pierce had told them that the majority of states had turned over their student loan programs to private concerns.

That’s how former state Sen. Stephen Bost, now Brewer city manager, remembers it.

“The Legislature, through its Education Committee, made repeated attempts on a number of levels for what we thought was basic financial information to bring accountability to these student loan agencies and we ended up on dead-end roads every time,” Bost said.

It was Bost who asked then-Senate President Charlie Pray to appoint a legislative analysist to work full time surveying all 49 other states to determine how many retained some level of oversight of their student loan organizations. The task took weeks, Bost recalled, and concluded that nearly all states demanded public accountability over student loan operations.

That survey remains part of the bill’s legislative record, stored now in the archives of the Maine Legislative and Law Library.

Bost and three other Democrats on the Education Committee who led the opposition to the McKernan-Pierce bill became known as the “core-four.”

Former Sen. Stephen Estes, Senate chairman of the committee in 1989, was one of them.

“We all thought it was too secretive and potentially a deal cut behind closed doors, and we were not convinced it was in the best interest of the people of Maine, and particularly the students and parents who would be directly affected by it, Estes said.

As a school teacher, Estes said that stopping Pierce’s student loan expansion and shifting the responsibilities to the Finance Authority of Maine “was one of my major accomplishments” during six years in the Senate.

“We had committee members who were like puppets on strings through the whole process,” Estes said. “They did not want to dig beneath the surface and they couldn’t understand why we wanted more answers. Some of the information we were asking for they did not believe was any of our business.”

Although Pierce and others in the student aid field had begun developing the 1989 legislation in 1986, according to legislative records, McKernan did not submit the controversial bill to the Legislature until April of 1989, just weeks before adjournment – typically a time when lawmakers are rushing to complete their work.

Today’s debate over Pierce’s vast operation “is very intriguing,” Bost said. “Many of us predicted in 1989 that this would happen. The ingredients were all there, we simply didn’t know when the house of cards would begin to fall.”

CRITICAL MASS

When the political fight was over, Pierce had suffered his biggest defeat since losing the GOP nomination in 1982 and the expanded functions he wanted in 1989 were transferred to FAME, which continues today as the state’s guarantor of student loans.

“The Education Committee was told by Mr. Pierce that we could not examine his books, and that just frosted me,” said Nathaniel Crowley Sr. of Stockton Springs, House chairman of the committee in 1989 and another “core four” skeptic.

“That’s what turned me off completely,” he said. “Eve Bither and McKernan were pushing this bill just as hard as Dick Pierce and they got upset with me because I wasn’t going along. I was so happy to stop that from happening, but I couldn’t do anything about MELMAC.”

Former Lewiston state Sen. James Handy joined the other three lawmakers in derailing the bill. He recalls a bruising political fight that included charges by Pierce and McKernan that the committee did not care whether Maine students got a chance to go to college.

Handy says he still gets angry when he remembers it.

“There’s no question that this was something Dick Pierce pulled together,” Handy said. “We knew there was critical mass behind him and that it was moving in a different direction away from accountability and with maximum speed.”

Handy agreed with Crowley and others that Pierce was a formidable opponent.

“He had amassed political connections and wealth, and he was very well connected to the McKernan administration. I don’t think you can understand the weight that carried. When you’re up against that kind of power, it’s overwhelming, and it almost was overwhelming.”

Estes said he’s still amazed when he thinks back to the debate that the “core four” were able to convince the Legislature to say “no” to Pierce and McKernan.

“It was almost like a miracle,” he said. “It was a magical thing. In the end, the result was something none of them could deny. They had to put on their smiley faces and say ‘This is the best thing for Maine and the people that would be affected by it.”

A LUCRATIVE LOOPHOLE

Perhaps the most important of the failed 1989 legislation would have allowed Pierce to run a “loan of last resort” program – a provision that would have allowed MELMAC to make direct loans in competition with private lenders.

Both the state law and IRS restrictions prohibited Pierce from becoming a direct lender to students. As the “secondary market,” MELMAC can only buy loans from direct lenders.

But after the legislative defeat, Pierce would effectively circumvent those restrictions by contracting with one bank to make the loans, which MELMAC would purchase within 24 hours.

In addition, he would make agreements with nearly 30 small lenders who pledged to stop making student loans and send their customers to Pierce instead. In a series of letters to bankers through the early 1990s, Pierce warned them that student loans would be increasingly unprofitable in the years ahead and that they should perhaps get out of the business altogether.

He also assured them that by sending their student loan customers directly to him, the banks could still help their customers find college financing without the headache of actually doing the complicated student loan work themselves.

For the students and parents, the loan transactions were seamless; they thought they were doing business directly with MELMAC and that the money came from MELMAC. In fact, in a 1992 annual report, MELMAC boasted that “all the loans are completed on MELMAC applications and funded with MELMAC capital.”

By 1994, Pierce took yet another step closer to originating loans and pushing private lenders out of the market. He began using another state agency he controlled, the Maine Education Loan Authority, to make more loans directly to students.

Unlike MELMAC, the smaller authority was authorized to make direct loans, but only for one purpose: supplemental loans – loans that close the gap between what families can borrow under the federal student loan program and the actual cost of their higher education. Pierce began using MELA to originate federal loans directly to students and parents.

Pierce first obtained a $2 million line of credit for a private company he created, Maine Education Services, best known to the public as MES. MES then lent money to MELA so that MELA could originate those federal loans to students and their families. MELA then sold the loans almost immediately to MELMAC, which can only buy loans on the secondary market.

The result was that MES, which at this point was administering MELA and MELMAC loans, could offer student loans at an interest rate lower than private lenders because of the two agencies’ exclusive access to tax-exempt bonds.

Pierce began cornering the student loan market. Today, an estimated 40,000 families have 160,000 outstanding loans that originated through MELA from 1994 through 1999. They are loans, critics say, that should have been issued by Maine banks and credit unions.

Walter Moulton, the unpaid executive director of MELA and one of Pierce’s closest confidants, said in a recent interview that MELA issues about $10 million a year in student loans.

However, information from FAME, which guarantees the loans, shows something else entirely.

The FAME annual reports indicate that MELA issued $53.7 million in student loans in 1994-95; just over $72 million in 1995-96; another $78 million in the following year; and $83.6 million in 1997-98.

As his loan holdings increased, so did the revenue and his momentum in capturing the market.

Pierce defends his activities, saying the result was to offer Maine students their cheapest college loan option, the Superloan.

That claim, also, is being questioned by Legislature today.

And although Pierce was not a direct lender in the legal sense, critics say the impressive marketing campaign he employed to promote Superloan and attract customers away from traditional lenders gave people the impression that he was.

Pierce adamantly denies that MELMAC ever made direct loans, but consider:

• Pierce’s own Web site for MES says that in 1990 MELMAC began offering to both buy loans and make direct loans to students.
• His 1995 annual report, distributed to thousands of Mainers, states that “In 1990, at the request of a major lender, MELMAC expanded its services to include the funding, origination and servicing of student loan portfolios.”
• Pierce’s own auditors make many references to loan origination in multiple year audits from 1990 through the latest available audit for fiscal year 1998.
• Pierce, in a meeting with the Sun Journal editorial board on April 19, 1999, confirmed that he was making direct loans, saying that the word “acquire” in Brennan’s original executive order meant “originate,” allowing him to make direct loans.

INTENTS AND PURPOSES

What happened in the 1990s was significant: MELMAC’s loan volume began to outpace all other lenders as Pierce turned a relatively benign “secondary market” operation into a massive student loan empire that competed with the private sector and pushed scores of small banks and credit unions out of the market completely.

“For all intents and purposes, MELMAC became a direct lender in 1990 and it still operates that way today,” said Carol Sabasteanski, president of the Lewiston-based Financial Institutions Servicing Corp., which is owned by three banks and works for 70 banks and credit unions that offer student loan programs.

It was FISC that pushed legislation last year to allow private lenders access to the same tax-free bonds as MELMAC so they could compete fairly with the state-backed agency.

Pierce aggressively lobbied against the bill, but after a raucous debate, the measure passed.

The new law established a pilot program giving bankers access to $10 million in tax-free bonds, but required they prove to the Legislature that they pass on the benefits of the tax-free money to students and parents. Pierce is under no such obligation.

“The management of MELMAC, for whatever reason in 1990, decided that the secondary market was not enough,” Sabasteanski said. “They were very creative in figuring out a way to originate loans and drive private businesses out of the program. And if the state of Maine wanted its tax-exempt bonds to be used for those purposes, there should have been a public process and there never was.”

Timothy Agnew, a lawyer and former chief executive officer of FAME, noted, “I give Perce credit for coming up with this structure. He figured out a way to use a public resource to build a private organization and he did it quite successfully.”

State Rep. John Martin said he doesn’t think Brennan or the Legislature envisioned the student loan structure that exists today when they authorized the creation of MELMAC in 1983. “It’s a perfect example of what happens when you don’t have oversight,” he said.

And why has there been no oversight? “No one paid attention,” Martin said.

MES MOVES IN

Critical to Pierce’s growing operation was the period during which he and his wife, Scottie Higgins, signed over control of MELMAC and MELA to their new private foundation, MES.

Contracts provided recently to a study committee appointed by Gov. Angus King showed how Pierce and Higgins accomplished this transaction. As the leaders of both state-created entities and MES, they transferred control of MELA and MELMAC to themselves through contracts that took effect Oct. 7, 1992, and Jan. 1, 1993.

No legislation was passed authorizing MES to essentially absorb the two other entities.

Under the contracts, MES agreed to perform nearly all of the functions of the two authorities – and to move their small staffs to MES – charging the authorities an average of $3.05 million a year to do their work.

All told, MES has collected $27 million from MELMAC and MELA since the contracts took effect in 1993. The work has never been bid out.

The only function MES cannot perform for either state authority is to issue or sign for the tax-free bonds.

In recent legislative testimony, MES officials said the corporation gets nearly 80 percent of its revenue from the two state authorities. Officials at FISC, who have researched Pierce’s operations for a decade, claim that figure is actually 97 percent.

TAKEOVER COMPLETED

Although MES was incorporated in April 1987 – at the same time Pierce was developing the failed 1989 legislation – the company was not activated until Pierce and Higgins took control of the two state authorities, according to MES’s own audit reports and documents on file with the Secretary of State’s Office.

By moving the function of the two state-created authorities to MES, Pierce moved the operation into a private foundation with no connection to the state. He would begin marketing student loans like never before, hiring staff to develop new services and build momentum in transforming the market.

Documents provided to King’s study committee show the order of events in late 1992 that have made MES the largest and most powerful student loan operation in Maine.

The records include copies of the contracts signed by Pierce and Higgins, and financial information and analysis provided by Baker Newman & Noyes, which also declined to be interviewed by the Sun Journal.

• On Oct. 7, 1992, Pierce, then executive director of MELA, signed a contract transferring all of MELA’s rights, responsibilities and work to MELMAC. At that time, Pierce also served as president of MELMAC; Higgins was secretary.
• Two months later, on Dec. 9, 1992, MELMAC transferred all of its rights, responsibilities and work to MES, along with the MELA contract it acquired on Oct. 7.
• By Dec. 9, Pierce and Higgins had traded corporate places at MELMAC: Higgins was now president and Pierce was secretary. Therefore, Higgins, as president of MELMAC, signed over all functions of both state authorities to her husband, who signed the contract as president of MES.
• Three weeks later, on Jan. 1, 1993, the couple launched the “formal operation” of their new company, absorbing both MELMAC and MELA in the process.

Further, financial records show that MELMAC posted a $2.3 million gain in 1992, the year before MES took control of the agency, but in 1993 registered a loss of $2.3 million – a $4.6 million shift in revenues from one year to the next.

For that same year’s period, MELMAC paid $4.7 million to MES to do it’s work, financial records show.

MES would then contract with Florida and Colorado companies to do most of the loan servicing work, concentrating on its own efforts essentially on marketing and promotion of its growing business.

Once a student or family gets a loan through MES, they generally never hear from the Maine firm again about their  loan; all contact regarding the outstanding loan is made by the servicing company.

Under the terms of the contract between MES and the two state authorities, MES can terminate its contract with 120 days’ notice, while the two state agencies must give MES a year’s notice.

STUDENTS FIRST?

Although Pierce maintains that his operation is geared toward only one goal – helping kids get to college – there is evidence that seems to contradict that.

In the letters he wrote throughout the 1990s encouraging banks to get out of the student loan business or asking them to partner with him, Pierce promised at least one banker, “One thing I can assure you, your student loan portfolio can make you more money than it is now and you can better protect your bank’s future interests.”

Even more upsetting to some people was Pierce’s marketing of the Superloan program that promises students and parents “the lowest cost student loan in the nation.”

But there’s a catch – customers get the much-publicized 3 percent discount below the going rate only if they make the first 36 payments on time. National surveys by Key Bank and other student loan lenders have shown that about 80 percent of customers will never see the discount because they will miss the monthly payment deadline at some point during the first three years.

Agnew, who ran FAME until getting tangled in last year’s legislative fight, recalled last week that Pierce boasted to him in a meeting in 1998 that MELMAC would actually make more money on the 3 percent discounted Superloan program than the first Superloan program that offered only a 1 percent discount.

“I can still remember where he was sitting and where I was sitting when he said that,” Agnew said. “… It just so happened that something that looked better for the public was actually worse for the public in the aggregate. We won’t know for years how many students are going to get the discount and how many are going to blow it, but even if you’re very optimistic it’s hard to believe that more than 30 or 40 percent are going to get the discount, which would be double what other states have experienced.”

During last year’s political debate over the FISC bill, Pierce admitted that students were not told in writing about the 36-month rule. King demanded that Pierce make full disclosure to his clients, which he did. Pierce also forgave the few students who had started repaying their loans and had already missed a payment deadline.

Another of Pierce’s close confidants, Bennett Katz, said the MES board knew about the repayment terms of the Superloan. But he could not recall whether the board was told that national surveys showed that the vast majority of students would never get the discount.

He also defended the use of MELA as a pass-through direct lender to make the Superloan program possible, saying “very, very clearly the Legislature indicated that they wanted the best possible student loan program and they got it and they’ve still got it.”

Katz said MES has done nothing wrong. He blamed “the pious bankers who didn’t want to be in the market in the first place” for MES’s problems today.

“There wasn’t any hanky-panky, under-the-table stuff going on,” said Katz., a retired lawyer respected for his long commitment to education in Maine and across the country.

“If you’re looking for improprieties, there simply are none,” he said.

Ed Williams, senior vice president of Coastal Bank of Portland, one of the three owners of the Lewiston-based FISC, said his company doesn’t want to run Pierce out of business. Bankers simply want fair competition and a chance to operate in the market, he said.

“What (Perce) has done is put together a pretty vertically integrated system where everything flows up from the state-created agencies,” William said. “I think the state has lost control or knowledge about the value that has come from this very desirable public service, to a situation where they really can’t measure whether they’re getting full value for that.”

FROM PUBLIC TO PRIVATE VENTURES

By 1995, Pierce and Higgins were ready to embark on new challenges by taking part of the proceeds from their student loan operation to buy the for-profit Sylvan Learning Systems franchises in Maine and New Hampshire. The venture lost $750,000, absorbed by MES, before turning a profit last year, according to Pierce and financial documents.

Higgins left MES that year to become president of the new for-profit operation. Her salary at Sylvan has not been disclosed, but she earned $134,714 from MES in 1995, according to IRS tax returns.

Last year, Pierce incorporated a second for-profit company, Intelligent Learning Corp., to create the state’s first Internet college. He used almost $300,000 from the student loan operation to develop the Portland College Web site and then gave the new company a $1.3 million contract to market the college and all of the student loan programs created with the tax-free bond money of MELMAC and MELA.

MES also guaranteed a $1 million line of credit for the new firm and transferred all of MES’s marketing staff to the new Internet operation headquartered in Portland.

All that despite the articles of incorporation of MELMAC, which stipulate that all revenue generated by the tax-free bonds, after expenses are paid and reserves are funded, must be used solely to buy student loans from banks and credit unions.

The Legislature must approve the online college, for which Pierce has already set up shop at 2 City Center in Portland, projecting sales in its first year of $20 million, according to the firm’s early estimates on file with Dun and Bradstreet.

Lawmakers, however, have stalled a decision on Portland College until they can learn more about the entire MES financial structure and whether it’s appropriate for MES to use proceeds from the tax-free bond operations to finance for-profit enterprises.

“This is really big money we’re talking about here and not having any check on that money doesn’t make any sense to me,” said Crowley, the former House chairman of the Education Committee.

“It’s a good thing I’m not in the Legislature now,” he said. “Allowing Mr. Pierce to use money from the student loan authorities for his for-profit companies is a ridiculous idea.”

Handy, Lewiston’s former state senator, goes even further.

“Dick Pierce was building a fiefdom. That was apparent to us right from the start,” Handy said. “He walked around like he owned the joint, and nothing has changed since then. But Dick Pierce forgets that the empire he’s built doesn’t belong to him. It belongs to the public. And hopefully after these investigations are through, the empire will strike back.

CIRCLE OF FRIENDS

Critics of MES want to know how the state could allow Pierce to build such an elaborate tax-free bond operation without any direct oversight.

There appears to be a variety of reasons: He enjoyed a political clout in the Republican Party and was respected by many in both parties. He ran a complex operation dealing with an even more complex student loan system, easily confusing and confounding people. He knew the system unlike anyone else. And he sold his operation to the public and lawmakers as unparalleled service to Maine students and parents.

Pierce’s empire-building over 17 years features a lot of the same faces: Pierce’s personal friends from his days as financial aid director at Thomas College and as an administrator for United Student Aid Funds (one of the nation’s largest student loan agencies) and political friends from his days in the state Senate and his unsuccessful bid for governor in 1982.

For example, when Pierce organized MELMAC after Brennen authorized it in 1983, he named three out-of-state business colleagues as the first executives:

J. Wilmer Mirandon of New York City, as president and chief operating officer. Mirandon was president of United Student Aid Funds.

Thomas P. Zminkowski of Indianapolis, Ind., as assistant treasurer. Zminkowski was regional vice president for United Student Aid Funds.

Wayne E. Batcheler of New York City, as assistant secretary, Batcheler was the attorney who drew up the incorporation papers.

Pierce, in addition to his role as executive director, also served as the new authority’s secretary-treasurer.

The original MELMAC board of directors included former Republican state legislator Sylvia Lund of Augusta, John Gleason of New York City as chairman, as well as Mirandon and Pierce.

MELMAC also received a $50,000 start-up loan from United Student Aid Funds.

Meanwhile, the MES board today, which controls all of the other entities either directly or indirectly, includes, among others, former Gov. Kenneth Curtis; Moulton, the longtime and now retired Bowdoin College financial aid director; and Katz of Augusta – another close Pierce confident who has been at Pierce’s side since 1983.

RIGHT TO KNOW

The Legislature today is looking for answers, particularly whether students have reaped the full benefits of the tax-free money, or whether it’s being misplaced in for-profit enterprises even more removed from public accountability than MES.

Also in question are the big salaries Pierce and his wife have earned from the tax-free bond operations; they drew salaries totaling $1.5 million from 1993 to 1998 alone, according to IRS documents.

Pierce’s salary in 1998 was $244,000, the latest figures available.

Lawmakers are also now investigating Pierce’s latest move, shifting the entire marketing staff of MES to the for-profit Intelligent Learning, along with an exclusive $1.3 million contract to market the loan programs and services of the two state authorities.

There remain more questions than answers.

“The big issues are who’s accountable for the (tax-free bonds) and where’s the money going, and those issues have just gotten worse and worse as more information comes out,” said Agnew, FAME’s former CEO.

Answers are not forthcoming; all current board members except for Moulton and Katz have declined to be interviewed by the Sun journal.

McKernan, meanwhile, resigned from the MES board last December, saying he no longer had time to serve because of the demands of his own private businesses. He declined to be interviewed for this story.

Duane “Buzz” Fitzgerald, former president of Bath Iron Works, resigned from the MES board last fall. He cited two reasons: He was battling cancer and he was opposed to the creation of Intelligent Learning, which he said was initially presented to the board last spring as a non-profit venture.

Fitzgerald has said he regretted that the controversy over MES has overshadowed the good work the firm has done.

“I think they should have been a lot more open,” he said. “Their refusal to do so has quite naturally raised questions and unfortunately I think they harmed their case in doing so. I think the public has an absolute right to know what’s going on and shouldn’t have to fight to find out.”

Moulton said MES has spun off the two for-profit companies because “they’re going to make money, and we’re restricted by non-profit regulations from making a profit.”

Actually, by law, non-profits are not restricted from making money, as long as the revenues are plowed back into the company for its stated charitable purposes. Non-profits are banned from using the revenue to benefit any private interests.

In a recent about-face, Pierce now admits there should be more accountability. He also says now, after fighting the banks so hard last year, that he favors opening up the tax free market to private lenders. And he’s agreed that MES should have to compete with others to perform the work of the two state-created loan agencies.

Until recently, a majority of the MELMAC board members served on the MES board. Meanwhile, the MELA board of directors, appointed by the governor, share only Moulton with its sister organizations.

MELA directors are not allowed to see financial information from either MES or MELMAC – including State Treasurer Dale McCormick, who has served on the board for three years.

“There’s been a very appropriate legislative role for us to be asking questions, because the issue is one of public accountability,” said state Sen. Carol Kontos, D-Windham, who has led the recent call for an investigation into MES and its related enterprises, including a full audit of the operation.

Kontos began questioning Pierce’s operation long before the FISC bill, when a man called her to complain that his daughter had lost her loan discount.

“My interest is to assure the public that student borrowers and their families receive the full benefit” of the tax-free bonds, Kontos said. “Without the financial information we need, we don’t have those assurances.”

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