The State Investment Council filed the lawsuit in 2008 in a bid to recover about $4 million it lost on the purchase of Region III bonds, but the action was put on hold pending the outcome of the criminal case.
Now, the SIC is faced with a decision on whether to move forward with the lawsuit. One question: even if it wins in court, whether the SIC would recover more than it would have to spend on attorney fees since it’s not clear what there is to recover.
“We might have to ask for forgiveness from the public if we spend more than we collect,” says SIC member Leonard Lee Rawson, a Republican former state senator from Las Cruces who is pushing for the SIC to proceed with the lawsuit.
Rawson says dropping the lawsuit would send the wrong signal. “We would just encourage further types of these activities,” he says.
Last month, the office of state Attorney General Gary King dismissed charges against the remaining three defendants in the Region III criminal case – an accountant and two lawyers who had done work for the authority.
Former Democratic state Rep. Vincent “Smiley” Gallegos, who served as executive director of Region III, previously had pleaded no contest to four misdemeanors in a deal with the AG’s Office. He wasn’t convicted on the condition that he successfully complete one year of probation.
The State Investment Council purchased the housing authority bonds in 2003 and 2004 for $5 million. Without ever paying a dime in principal, Region III defaulted in 2006. The Albuquerque-based authority was later abolished.
Region III was supposed to use the bond sale proceeds for the purchase and rehabilitation of homes, then pay off the bonds with money from selling the refurbished homes to low-income buyers.
The SIC lawsuit in state District Court in Albuquerque accuses Gallegos of providing false information to the agency and misspending much of the $5 million in bond proceeds.
An SIC investigation found about $870,000 in bond money was used to help pay Gallegos’ $158,000-a-year salary and to provide him with rich retirement benefits and a $300,000 loan. He later repaid the loan.
An investigation and audit by the State Auditor’s Office found Region III had misspent money on a private club membership, alcohol, improper expense payments to board members and more.
Region III also sold homes to a board member and two employees and let a state judge and a top aide to a powerful state legislator live rent-free in Region III homes.
Gallegos originally was charged with felony counts of fraud or embezzlement, money laundering and conspiracy. There was no order of restitution in his plea deal with the Attorney General’s Office. He and his three co-defendants were indicted by a grand jury in 2009.
In dismissing the charges against the three co-defendants, the AG’s Office said the cases had grown “stale” and it no longer believed it could win convictions at trial. Two witnesses had died, and others had grown uncertain of their recollection of events, the AG’s Office said.
Rawson, the State Investment Council member, says proceeding with the civil lawsuit against Gallegos also has been complicated by the passage of time. Gallegos could have spent or hidden assets, he says.
“It’s hard for us to get the justice that the public expects and deserves,” Rawson says.
Gallegos attorney Paul Kennedy says this about the possibility of the SIC proceeding with the lawsuit: “Whatever they want to do, we’re ready for it.”
Kennedy served on the state Supreme Court as an appointee of Gov. Susana Martinez and also has done legal work for the Governor’s Office. Martinez is the chairwoman of the State Investment Council.
The SIC purchased the Region III bonds as an investment with money from the Severance Tax Permanent Fund, a trust fund generated from taxes on certain natural resources extracted in New Mexico.
In addition to its loss on the bonds, the SIC has spent more than $400,000 on outside legal counsel as a result of the default, according to SIC spokesman Charles Wollmann.
The SIC has recovered about $900,000 from sales of properties that had been purchased with bond money by Region III.
As a result of complaints filed by the AG’s Office, judges reversed the sale of Region III homes to two of its one-time employees and a former authority board member.
But with public corruption cases, it’s not all about the money.
In July 2009, a month after Gallegos and the other defendants were indicted by a grand jury, an op-ed article written by Attorney General King was published in the Journal.
King, now a Democratic candidate for governor, wrote:
“As I have said before, public corruption poses the greatest single threat to the credibility of government institutions at all levels. It undermines good government, fundamentally distorts public policy and perception, leads to the misallocation of resources, fosters unethical behavior and ultimately harms all New Mexicans either directly or indirectly.”
“When our society no longer tolerates it, when people act as a community against it, corruption may finally disappear from the headlines in our daily news.”
UpFront is a daily front-page news and opinion column. Comment directly to Thom Cole at firstname.lastname@example.org or 505-992-6280 in Santa Fe. Go to abqjournal.com/letters/new to submit a letter to the editor.