New Mexico financial regulators learned their lesson the hard way after discovering in early 2017 that millions of dollars had been embezzled from clients at the small nonprofit Desert State Life Management.
The state Financial Institutions Division of the state’s Regulation and Licensing Department headed to the Roundhouse in Santa Fe this year to seek new laws to help prevent another such criminal scheme, which went undetected for years.
“Unfortunately, it was a reactive response. But we’re hoping now it’s a proactive response and that there are checks and balances in place,” said Christopher Moya, acting director of the state Financial Institutions Division.
In 2017, regulators by law had to give Desert State CEO Paul Donisthorpe at least 60 days to remedy the situation after first finding the company in an unsafe and unsound condition. The new law permits regulators to take immediate action and freeze assets when big red flags appear.
Moya said his agency can now seek restraining orders in court to protect client funds and go so far as to change the locks on the firm’s doors if necessary.
State examiners discovered money missing from Desert State client accounts in late March 2017 but by law had to wait until late May 2017 to seek legal action.
In the interim, Donisthorpe and/or his then-wife paid off thousands of dollars in tax liens and sold other property.
His now ex-wife, criminal defense attorney Liane Kerr, also filed for a divorce from her husband. Kerr, through her attorney, has denied any involvement in Desert State or knowledge of the criminal activity.
Moya’s agency has also increased the number of staff who perform financial examinations of trust companies.
Desert State’s books, which hadn’t been examined since 2008, were scheduled for state examination in 2014. But Donisthorpe was able to put off regulators until Moya balked at further delay after becoming acting director in fall 2016.
Other fixes include requiring higher bonds to cover a firm’s assets in cases of losses, and tightening the definition of a nonprofit trust.