NM Finance Authority COO, ex-controller arrested


SANTA FE, N.M. (AP) — The current chief operating officer and a former controller at the New Mexico Finance Authority were arrested Wednesday for state securities violations related to a fake financial audit that was distributed to investors earlier this year.

New Mexico Regulation and Licensing Department's Securities Division announced the arrests Wednesday of Chief Operating Officer John Duff and former controller Greg Campbell, who left the agency in June.

The Finance Authority issues bonds and provides low-cost financing for capital projects by certain state agencies, cities, counties, schools and other New Mexico governmental organizations.

According to the criminal complaint, Campbell is facing securities fraud, forgery and racketeering charges. Investigators say Campbell has admitted to forging the agency's 2011 audit report that provides financial statements about the agency and falsely claiming that it had been audited by an outside firm.

Duff was charged as an accessory on eight counts of securities fraud and racketeering. Duff, who was the immediate supervisor of Campbell, also has been charged with allegedly conspiring to engage in a pattern of racketeering by misrepresenting NMFA's financial statements to ratings agencies, investors that buy the agency's bonds and the state.

An arrest warrant affidavit by a state securities regulator said Campbell, with the knowledge and permission of Duff, misrepresented about $40 million in NMFA's financial statements after the agency agreed to provide that amount of revenue in 2010 and 2011 to state government to plug shortfalls in New Mexico's operating budget for schools and general government programs.

Instead of reporting a $40 million revenue decline, the officials are accused of concealing that by fraudulently reporting it under grant expenses.

"These two corporate officials had strong accounting backgrounds yet they cooked the books to make their financial statements look stronger than they actually were," said Daniel Tanaka, director of the Securities Division.

Campbell and Duff were booked into Santa Fe County Jail and are subject to a $20,000 cash or surety bond.

A date for an arraignment at the First Judicial District Court in Santa Fe has not yet been set. It was unclear if either had attorneys.

"The action of these two individuals has risked the credit rating of New Mexico," said J. Dee Dennis Jr., Superintendent of the State Regulation and Licensing Department. "We want to send a clear and strong message to the Wall Street, rating agencies, bond purchasers and investors that we will get to the bottom of this as quickly as possible to once again restore their confidence in our state."

National credit rating agencies have said they're considering whether to downgrade the authority's bond ratings because of concerns about a lack of financial oversight within the organization. A drop in bond ratings will increase the cost to New Mexico taxpayers for governments to finance capital improvement projects.

Without audited financial statements, the authority is unable to issue new bonds and its governing board had decided to temporarily scale back lending to local governments while the agency resolves problems stemming from a fake financial audit.

The authority's governing board voted Wednesday to limit low-cost loans that it provides to cities, counties and other local governments for projects such as sewers, government buildings, water rights acquisition and equipment including fire trucks.

The authority can make loans using $37 million in cash reserves and the board is imposing a $5 million limit on loans for new projects.

The authority has more than $1 billion in outstanding loans.

The authority was created by the Legislature and receives a share of tax revenues for its financing. The authority's workers and management are not state employees, but there is government oversight of its operations. The authority is governed by a 12-member board and a majority of the members are the governor's appointees and members of the governor's administration.


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