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By SUSAN M. COVER
Staff Writer 11/28/2007

The Republicans formally requested that legislative leaders investigate a $20 million investment in what turned out to be a fund backed by subprime mortgage assets.

Republican leaders Sen. Carol Weston of Montville and Sen. Richard Rosen of Bucksport wrote in the request sent to the House speaker and Senate president that the state's credibility is in question.

They also wrote that "the Legislature must take positive action to replace the treasurer" if he can't explain what happened and assure them it won't happen again.

In August, the state invested $20 million in a fund called Mainsail II for what was supposed to be a 23-day period. But midway through the month, the assets were frozen after the Bank of New York reviewed the fund.

The following day, Standard and Poor's downgraded Mainsail from A1+, the highest possible rating, to B, which is junk status.

Lemoine said that, prior to the downgrade, there was no reason to suspect that Mainsail was anything but a good investment from a trusted broker at Merrill Lynch.

He said he believes the state will be paid back the $20 million, plus interest -- but that it's impossible to know when.

"The state has not yet lost a penny," Lemoine said. "We need patience to let this thing resolve."

Rosen said Republicans want the chance to ask Lemoine about the investment but haven't jumped to any conclusions about his fitness for the job.

"We're not taking a position that he has to be replaced at this point," he said. "But the situation is serious enough to warrant taking this unusual step of having him appear before the Legislative Council."

Lemoine said he's already scheduled to appear before the Appropriations Committee next month and is willing to talk to legislative leaders who make up the Legislative Council, whenever they ask him.

Council member House Speaker Glenn Cummings, D-Portland, said Lemoine's done a good job as treasurer.

"He is conscientious, he is thoughtful, he is bipartisan," he said. "He is a very smart man."

Cummings said Lemoine followed all the guidelines in place when he approved the investment.

It had high ratings and met other state requirements.

"David did exactly what virtually any investor would do, which is listen very carefully to the broker, Merrill Lynch," Cummings said.

If there's a flaw with the investment guidelines set by the Legislature, it's up to lawmakers to make changes, he said.

Yet Republicans are raising questions about the investment and say they should have learned about it sooner.

Sen. Karl Turner, R-Cumberland, a registered investment adviser, said many smart people have gotten caught up in bad investments recently.

"I would want to have answers to a lot more questions before I start to say is this guy qualified," he said. "Lots of people can be treasurer, and I think David is as qualified as anybody."

Neither state statute nor the Maine Constitution outlines qualifications for treasurer.

Maine is one of four states that requires its Legislature to elect the state treasurer. In other states, the treasurer is either appointed or elected by the people, according to the National Conference of State Legislatures.

The position has been filled by those chosen by the majority party. In recent years, that has been Democrats.

At the time he was picked for the job, Lemoine had just finished his sixth year as a Democratic state representative from Old Orchard Beach. Former Treasurer Dale McCormick of Augusta had just completed her eighth year as treasurer and was not allowed to run again because of term limits.

A lawyer, Lemoine is a Waterville native with a degree in government from Colby College and a law degree from the University of Southern Maine.

His law practice, which included work with corporate clients, began in 1988 and continued until he took the full-time position as treasurer in January 2005.

Lemoine's salary as state treasurer as of December 2006 was $71,302. He said a background in finance or economics is not compulsory for the post.

"I think it's a mistake to think that's the necessary skill set," he said. "The ability that's needed is to manage the professionals and relate their world to the policy makers."

Republicans are suggesting Lemoine should have done more homework before investing the money.

House Minority Leader Josh Tardy, R-Newport, said it's not enough to listen to a trusted adviser.

"I would like to know more about what went in to that decision to make that investment at that time," Tardy said.

"I respect David Lemoine. He's a friend of mine, but I view his explanation as completely inadequate for someone who assumed the responsibility as a constitutional officer."

Tardy said he wants to give Lemoine the chance to offer a more full explanation before making any judgments about his performance on the job.

"Before I rush to judgment, I'm willing to give the treasurer the benefit of an opportunity to explain," he said.

Susan Cover -- 623-1056

scover@centralmaine.com

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