NMFA audit scandal leads to arrests

SANTA FE (KRQE) - A former and current executive working for the New Mexico Finance Authority were both arrested Wednesday accused of cooking the books in a growing scandal over a faked audit.

State investigators allege the NMFA's former controller produced the bogus audit and used it to misrepresent the authority's finances with the explicit approval of current Chief Operating Officer John Duff.

Police arrested Duff in front of the NMFA office in Santa Fe Wednesday morning before handcuffing him and placing him in an unmarked car.

Also arrested was Greg Campbell, the former controller who resigned in June shortly before the fabricated audit for 2011 fiscal year became public.

The NMFA is the go-to place when counties, cities and school districts need a low cost loan The agency itself borrows hundreds of millions of dollars a year by issuing bonds rated by independent companies and bought by investors, all of who rely on a proper audit.

As far as is known now, no money is actually missing. The alleged crime is in misrepresenting financial facts NMFA reported publicly.

According to investigators, the trouble stems from the state's budget crunch when the NMFA was asked to give back $40 million to help balance the state budgets for the 2010 and 2011 fiscal years.

The finance authority was supposed to slash that money off of its reported revenues. But instead of showing a revenue loss, the $40 million was disguised as grant expenses, according to the criminal complaints.

Investigators say that information could have allowed the NMFA to get a better credit rating and be more attractive to investors.

"There's been numerous instances throughout the country and throughout the world of corporate officers who have made the decision to mischaracterize, falsely represent the financial condition of their company to investors, to the public to make the company appear healthier than it in fact is," Securities Division Director Daniel Tanaka said.

Both Duff and Campbell are charged with more than a dozen criminal counts including securities fraud and racketeering.

"On behalf of every member of the management team, on behalf of every staff member, I want to say we are committed to working with [auditors] in every way possible to get to the bottom of this," said NMFA Chief Executive Officer Rick May.

Until a valid audit is submitted, the NMFA can't sell bonds to investors, meaning it only has $37 million on hand to lend out. That also means hundreds of millions in requested loans are on hold.

Gov. Susana Martinez praised investigators and said a quick  investigation is necessary to restore faith in the NMFA.

"Being able to do the investigation and continue it as swiftly as thoroughly as possible is going to allow us to regain the confidence and be able to go back on the status of giving the funding that is necessary," Martinez said.

The investigation is far from over.

The State Auditor's Office is conducting a forensic audit of the authority's finances to see if there's been any money embezzled or misappropriated.

On Wednesday the agency announced a temporary plan to makes loans of not more than $5 million for smaller infrastructure projects. The NMFA board in approving the plan encouraged entities with access to capital markets to float their own bonds.

The NMFA was originally set up to allow local governments and fire districts to raise money by pooling their needs with the agency to reduce bond expenses and get lower interest rates.

Both Duff and Campbell are out of jail on $20,000 bonds. The NMFA is holding an emergency board meeting Thursday morning to discuss Duff's employment.