Ohio attorney general resigns in wake of scandal

COLUMBUS, Ohio Wed May 14, 2008 6:02pm EDT

COLUMBUS, Ohio (Reuters) - Ohio Attorney General Marc Dann, who led investigations into companies blamed for the state's subprime mortgage mess, resigned under a cloud on Wednesday after admitting to an affair with a female staff member.

"Unfortunately, it is now clear that the last step I must take to fix these problems is to resign as attorney general effective immediately," Dann told reporters.

In addition to Dann's relationship with a member of his staff, his office was roiled by sexual harassment claims.

Also, local media reported that authorities staged a raid on the attorney general's offices on Wednesday, carting away documents as part of an undisclosed investigation.

Dann said he did not want to be a distraction from "the great work done by this office."

Calls for Dann's resignation had come from Democrats including Gov. Ted Strickland and State Treasurer Richard Cordray as well as the Republican leaders in the state legislature.

Following Dann's resignation, Strickland told reporters the attorney general's top assistant would take over and that he had made no decision on a longer-term replacement for Dann, who was elected in 2006.

Dann had resisted calls for him to quit, but pressure mounted on Tuesday when House Democrats filed articles of impeachment against him. The legislature had authorized the state inspector general to investigate Dann's office.

In resigning, Dann said the state must continue to use bank regulations and consumer protection laws to "aggressively take on predatory lenders and their co-conspirators."

In January, Dann filed a lawsuit on behalf of a state pension fund against Freddie Mac, accusing the mortgage finance company of securities fraud for failing to disclose risks from its subprime mortgage-related investments.

Dann's office has also sent civil investigative subpoenas to a number of subprime mortgage companies as part of a probe of possible anti-trust and civil rights law violations, and violations of Ohio's consumer sales practices. His office has declined to name the companies.

Ohio has been hit hard by the subprime-mortgage crisis, ranking eighth among states in foreclosure rates in the first quarter of 2008, according to RealtyTrac.

(Reporting by Jim Leckrone, additional reporting by Karen Pierog in Chicago; Editing by Eric Walsh)