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NMFA’s fraudulent audit is a big deal

State Auditor Hector Balderas

State Auditor Hector Balderas

The New Mexico Finance Authority, which acts as a bank for government agencies, is at risk because it hasn’t been audited for fiscal year 2011. In addition, a former employee is alleged to have fraudulently made claims about the agency’s financial health. The question is, why?

There are more questions than answers right now about why the New Mexico Finance Authority’s controller allegedly created a fraudulent audit of the agency’s finances, but what’s clear is that it’s a big deal.

State Auditor Hector Balderas announced Thursday that his agency had uncovered the fraudulent audit. In a news release, his office announced that a special audit of NMFA’s books would be conducted.

NMFA quickly announced that it had retained a law firm “to conduct a thorough investigation to determine how the misrepresentation occurred and to recommend steps for strengthening financial reporting procedures,” and had hired an accounting firm to complete the agency’s fiscal year 2011 audit.

Balderas also turned the matter over to law enforcement.

“I am moving aggressively to determine the full extent of this fraud perpetrated against New Mexico’s taxpayers,” Balderas said. “I’m extremely concerned that a report was fraudulently created in order to misrepresent the authority’s financial condition to agencies, investors and the public.”

The public confirmation of the situation by the state auditor and NMFA came as KOB-TV’s Gadi Schwartz was preparing an investigative report on the matter. You can watch Schwartz explain why the matter is important here.

In short, Schwartz reported, the situation has the potential to affect the agency’s credit rating and its interest rates when it issues bonds to fund projects. That could cost taxpayers additional money.

In a news release, NMFA’s chief executive officer, Richard E. May, called the situation “deeply concerning,” but said it would “have no effect on NMFA’s ability to meet its financial obligations.”

“NMFA remains financially strong and has ample resources to meet all scheduled bond payments and other expenses,” he said.

Still, “under the circumstances,” the NMFA news release states that the agency has “delayed the planned offering of Series 2012B Senior Lien Public Project Revolving Fund Revenue Bonds until after the audit of its financial results has been completed.”

Agency points finger at former controller

The fraudulent audit means NMFA, which acts as a bank for government agencies in New Mexico and issued bonds that helped fund projects such as Spaceport America and the Rail Runner, hasn’t been audited for fiscal year 2011. That fiscal year covered the final six months of Bill Richardson’s tenure as governor and Susana Martinez’s first six months.


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So it’s possible that not even NMFA officials have a full picture of the agency’s current financial standing. In fiscal year 2010, NMFA’s total operating expenses were almost $128 million, and its total liabilities and net assets were more than $1.8 billion.

The fraudulent fiscal year 2011 audit was never submitted to Balderas’ office, which identified NMFA as being at risk for fraud, waste and abuse in May because the agency was so late in filing its required annual audit. That red flag ultimately led to the discovery of the fraudulent audit, which had apparently been released to Wall Street.

NMFA pointed the finger at its former controller. The agency’s news release said the former employee, who left in early June “before the issue was discovered,” had “provided financial statements for use with third parties that he falsely represented as ‘audited’ by NMFA’s outside auditing firm Clifton Gunderson LLP.”

The Maryland firm confirmed to Balderas’ office that the audit the controller was circulating is not its work. The NMFA did not name the controller in question, but NMPolitics.net has learned that his name is Greg Campbell.

In his news release, Balderas didn’t point the finger at any specific current or former NMFA official.

NMFA is familiar with scandal

This isn’t the first time NMFA has been at the center of scandal in recent years. The agency was caught up in the transportation-bond scandal that dogged Richardson’s tenure. Federal investigators were ultimately unsuccessful in efforts to bring a pay-to-play case against Richardson and others in that case, but the U.S. attorney said in 2009 that they should not consider themselves exonerated.

Here’s a reminder of NMFA’s role in that scandal from Bloomberg News:

“David Rubin, president and chief executive officer of Beverly Hills, California-based CDR Financial Products, one of the brokers raided by federal investigators, contributed a combined $100,000 to political action committees formed by New Mexico Governor Bill Richardson in 2003 and 2004. CDR made $951,566 advising the New Mexico Finance Authority on $420 million of interest-rate swaps in 2004.”

Though charges have never been brought against Richardson or others in that case – and he and others have always maintained that they did nothing illegal – recent testimony in a separate case involving CDR implicated Richardson in a pay-to-play scheme involving CDR and the NMFA contract.

The governor essentially controls NMFA. Its 12-member board includes four cabinet secretaries and six others the governor appoints.

At this point officials don’t know why the fraudulent audit was created or circulated on Wall Street and whether it was to cover up a crime. But the fact that the fraudulent audit covered the last six months of Richardson’s tenure – while the former governor and many others close to him prepared to vacate government jobs – is raising some eyebrows.

Another question: How did the fraudulent audit get all the way to Wall Street? Audits are required to be reviewed at an exit conference by multiple NMFA officials and a representative of the auditing firm. Was such an exit conference held?

Balderas hopes to learn the answers to these questions now that a special audit will be conducted.

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8 comments so far. Scroll down to submit your own comment.

  1. Heath reports: “Here’s a reminder of NMFA’s role in that scandal from Bloomberg News: …”  This is a 2006 article.  

    The conclusion of that investigation was the June conviction of three bit players in USA v. Carollo, where the big bosses got off by testifying against their underlings.  The June  21, 2012 article was written by Matt Taibbi and is titled “The Scam Wall Street Learned From the Mafia.”  Here’s a link:  
    http://www.rollingstone.com/politics/news/the-scam-wall-street-learned-from-the-mafia-20120620.

    Several paragraphs were devoted to Richardson, culminating with “What we get from this is that CDR paid Bill Richardson $100,000 in contributions [to the "Moving America Forward" PAC] and got $1.5 million in public money in return.  …
    “To grasp the full insanity of these revelations, one must step back and consider all this information together: the bribes, yes, but also the industrywide, anti-competitive bid-rigging scheme. It turns into a kind of unbroken Möbius strip of corruption – the banks pay middlemen to rig auctions, the middlemen bribe politicians to win business, then the politicians choose the middlemen to run the auctions, leading right back to the banks bribing the middlemen to rig the bids.”

     Gee, and I was so thrilled to receive a $1,000 donation from Big Bill when I first ran for the legislature in 2006…

  2. Good points, Skeptic. This is disgusting.

    One of the major points of the Progressive Movement, historically, has been the elimination of the Spoils System. For this to be successful we must have a strong and well led Civil Service that is supported by all parties. For those who are political appointees, we must also have high standards. [A strong, well led Civil Service, might actually lead to a smaller-sized government.]

    I was disappointed in Governor Richardson when, first upon taking office, he demanded the resignations of appointees from the previous administration whose terms had not expired, and, secondly, when he wanted a signed resignation letter in his pocket as a condition of appointment for new appointees. Bad Civics. I was pleased with Governor Richardson when he held the line against Redistricting out of sequence with the 10 Year Census, even though this likely would have helped my party, the Democrats. Good Civics.

    I am also disappointed when Representative Pearce calls career civil servants Talking Heads. This is insulting, especially in an environment where a civil servant may fear for his job if he crosses a powerful congressman. Bad Civics. I understand that Mr. Pearce and his office provide helpful constituent services, and that’s good Civics. [If you have time on your hands, search CSPAN for Mr. Pearce's behavior during Committee when Government Employees are trying to answer his questions. [You can be the judge; Good Civics or Bad Civics?]

    In general, Good Civics is Good Government. A measure of character is how well the party in power practices what they preached when they were the party out of power. We the People, need to support our elected leaders and help them do the right thing. We should save our serious arguments for serious matters. There are some important issues that cause us to divide into parties, but principle should trump party. Is 31 votes on the Health Care good civics, or theatrics?

    And, back to the specific question at hand; let’s all support and encourage the State Auditor in his efforts to do his duty in this matter of the NMFA.

    Michael J. Flynn

     

  3. My only concern with Balderas is that Big Bill did appoint/annoint him to Auditor back in 2006…so there is some good ‘ol fashioned NM political patronage factors that will be difficult for him to transcend as he seeks higher office.

  4. This is truly disgusting.

    The Abq Journal of Saturday has a good rundown.

    Despicable fraud number 2 by Richardson campaign contributor.

    Now the question is again whether quid pro quo is prosecutable.

    One can’t blame Democrats for Richardson’s acts, but it does go to philosophy -
    the more government programs there are, the more opportunity for people in governornment to
    be corrupted by the powers they have.

    I’m hoping there’s more outrage once people understand, but if the defrauding of
    $90 million from the state in the retirement fund scandal didn’t get people upset,
    I’m not sure the $100 or $200 ( who knows how much more at this point )  is going to matter.

    But it should, of course. When the big banks entered into unfathomable credit default swaps,
    and later cost society, people were outraged. Now that our own state government has done
    the same thing – where is the outrage?
     
    One thing that’s clear to me is that ALL the agencies and entities set up to avoid the legislature
    should once again be accountable to the legislature. That means the NMFA is dissolved and
    the SIC reverts back to the way it was.

    #@$!$$$! !!
     

  5. Hats off to Mr. Balderas for pursuing this….if he prevails I may actually be convinced to vote for him for governor (especially if emailgate continues it’s downward spiral against Susana).

    “Harris is still Executive VP of Finance and Administration at UNM with a very lucrative compensation package. Under Harris and former President, Schmidley, UNM has had its own share of controversy and scandal.”

    I completely agree with GFA…Harris needs to be investigated and put out to pasture once and for all.  He selfishly engineered his lofty feathered nest at UNM by concocting questionable tax payer funded mega-deals for Big Bill to position Richardson’s run for prez.  We all know where that one went…

  6. Your mention of the NMFA’s history of scandal prompted my search for this item that appeared in a Feb. 2, 2009 article in the Albuquerque Journal on the NMFA:
     
    “J.P. Morgan, UBS and RBC were chosen in 2003 from among nine firms that had been prequalified by the New Mexico Finance Authority to handle bond underwriting for the state. The finance authority, which issues bonds for state and local projects, was headed at the time by David Harris, who previously served as Richardson’s deputy chief of staff. Harris organized the team of GRIP bond underwriters and advisers after the Legislature approved GRIP at a special session in November 2003, according to NMFA board meeting minutes. Harris also helped plan the financing for GRIP and shepherded the transportation package through the Legislature. Harris, who left the NMFA after the GRIP financing details were approved to become a University of New Mexico vice president, has declined comment. His lawyer says his client denies any wrongdoing. Harris’ successor, Bill Sisneros, said the nine firms in the NMFA underwriting pool had gone through a competitive process well in advance of the GRIP project and had been “ranked.” J.P. Morgan, UBS and RBC shared $5 million in underwriting fees with a fourth firm after GRIP bonds were sold in April 2004. In addition to underwriting, J.P. Morgan, UBS and RBC were among the five investment banks that entered into interest rate swaps with the state for $421 million of the GRIP financing package. CDR received $1.4 million for advising the state on the swap contracts and for handling related escrow services.”
     
    Harris is still Executive VP of Finance and Administration at UNM with a very lucrative compensation package. Under Harris and former President, Schmidley, UNM has had its own share of controversy and scandal.

  7. NMFA quickly announced that it had retained a law firm “to conduct a thorough investigation…

    and acting in whose interests, the people or the NMFA leadership.
     
    Why in the world would we waste hundreds of thousands of dollars on their self-investigation.  We’re already paying for the Auditor’s Office to investigate, and we will pay for the Attorney General to investigate; there’s no need for another (biased) investigation.

  8. The State Auditor is also at fault here.  He goes out and audits all the Republicans, like Pat Lyons, but never audited Old Bill’s play-toys like the NMFA.  He should have been regularly auditing that, one of the largest and most prone to corruption departments in state government.  Where have you been all these years Hector?  Running for Senate?  Trying to politic your way to the next job?  Right.

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