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Sunday, September 25, 2005

Richardson Donor Handled $1.2 Billion in Investments From Treasurer's Office

By Thomas J. Cole
Journal Investigative Reporter
    A broker with close ties to Gov. Bill Richardson conducted $1.2 billion in investment business with the state Treasurer's Office in the last budget year.
    The business with Wachovia Securities represented one-third of all Treasurer's Office purchases of federal agency bonds, corporate bonds and commercial paper. The remaining two-thirds went to 12 other brokers, according to Treasurer's Office monthly reports.
    Wachovia Securities' contact with the Treasurer's Office is Guy Riordan, a managing director for the company in Albuquerque.
    He has contributed at least $28,000 to Richardson's campaign fund and helped raise other money for the governor. He was appointed by Richardson in January 2003 to the state Game Commission, which Riordan has chaired.
    Riordan and Richardson have also attended boxing matches together and been shooting at Riordan's game preserve near Socorro.
    It isn't possible to tell from the Treasurer's Office monthly reports how much Wachovia Securities or Riordan made on the investment business. The broker's compensation was generally included in the costs of the investment products.
    The Richardson administration could request that Wachovia Securities disclose how much it made in markups or other fees.
    Riordan did not return a call seeking comment.
    Treasurer's Office investments are subject to the advice and consent of the state Board of Finance, which Richardson chairs and controls. The board also sets investment policy for the treasurer.
    Richardson spokesman Pahl Shipley said the governor played no role in the Treasurer's Office investment business with Wachovia Securities.
    Treasurer Robert Vigil and his predecessor, Michael Montoya, were arrested Sept. 16 on federal charges of extorting kickbacks from investment advisers in exchange for Treasurer's Office business. They have pleaded not guilty.
    The charges center on the purchase of a type of investment known as repurchase agreements and aren't connected to the bond and commercial paper investments made through Wachovia Securities and other brokers.
    Richardson, in response to the charges against Vigil and Montoya, has ordered a "full examination of the policies and practices of the state treasurer."
    Shipley said the administration would show no favor to any broker in the review of the Treasurer's Office.
    "The governor wants full transparency," he said.
   
Competitive bids
    The Treasurer's Office is required to seek at least three competitive bids on most investments purchased through brokers. But purchases of some fixed-price investments are supposed to be rotated among brokers on an approved list.
    James Jimenez, secretary of the Department of Finance and Administration, said Wachovia Securities could have received a large part of the Treasurer's Office investment business because it is a national firm capable of handling large investments and offers competitive prices.
    Jimenez said the large percentage of business Wachovia Securities did with the Treasurer's Office doesn't mean procedures for competitive bids weren't followed.
    "We will certainly try to validate that" bids from other brokers were sought, the secretary said.
    Riordan has been doing business with the Treasurer's Office since before Richardson took office in January 2003. He also served on the board of the New Mexico Mortgage Finance Authority in the 1990s under Gov. Bruce King and has been a contributor to Vigil's campaign.
    The treasurer has a seat on the Board of Finance and makes a monthly report to the board on investment activity.
    Another member of the board, Albuquerque businessman Paul Blanchard, said the treasurer doesn't need the board's approval to make purchases.
    "He doesn't come to us and ask us (for approval) to make any investment," said Blanchard, who has also been hunting and shooting with Riordan.
    "We don't vote on any item of the treasurer," he added.
   
Like a bank
    The Treasurer's Office acts much like a bank, collecting and disbursing money. It also invests money temporarily when it isn't needed immediately by government agencies and local governments.
    The repurchase agreements at the center of the charges against Vigil and Montoya represent only about one-third of the investments of the Treasurer's Office.
    As of July 31, the office's investment portfolio totaled $5 billion, with $1.6 billion in repurchase agreements.
    In the 12 months ended June 30, the Treasurer's Office made $3.5 billion in purchases of federal agency bonds, corporate bonds and commercial paper, which is short-term corporate debt.
    Wachovia Securities handled nearly $1.2 billion of those purchases.
    Of the 12 brokers that received the other two-thirds of the Treasurer's Office business in the year ended June 30, Merrill Lynch led the pack with $809 million, followed by LPL Financial Services with $600.4 million, according to the monthly reports.
    A Journal examination of Richardson's campaign finance reports couldn't identify contributions from Merrill Lynch or LPL Financial.
    The Treasurer's Office has nearly as much money invested in federal agency bonds as it has in repurchase agreements.
    The issuers of the bonds— such as the Federal National Mortgage Association, or Fannie Mae— pay the state interest until the bonds mature or are called.
    The Treasurer's Office monthly reports show $2.1 billion in federal agency bond purchases in the year ended June 30, with Wachovia Securities doing $655 million, or about 31 percent, of the business.
    Nine other brokers split the remaining business, with Merrill Lynch handling $420.5 million in purchases and LPL Financial $276.9 million.
    An audit of the Treasurer's Office released in 1999 said documents weren't available on whether competitive bids were sought on some transactions.
    Scott Stovall, director of the Board of Finance, said a board examination of investment transactions in 2003 found competitive bids were sought.
   
Rotating purchases
    The Treasurer's Office buys some of the federal agency bonds through primary fixed-price offerings. That means the cost to the state is the same regardless of which broker it uses.
    Because of the fixed price, the Treasurer's Office is required by the investment policy set by the Board of Finance to rotate such purchases among the brokers approved for use by the treasurer.
    The monthly reports show a total of $845 million in apparent purchases of primary fixed-price offerings in the year ended June 30, with $510 million going to Wachovia Securities. LPL was second with $90 million.
    Jimenez said Treasurer's Office records would have to be examined to determine whether the broker rotation policy for the primary fixed-price offerings was followed.
    The Board of Finance in 2002, before Richardson took office, and the Legislature's budget committee in 2003, shortly after he took office, raised concerns that some Treasurer's Office brokers were getting a disproportionate share of business.
    Jimenez said the board hasn't in recent years asked staff to provide compliance information on broker rotation for primary fixed-price agency offerings.
    The FBI and state agents searched the Treasurer's Office and the homes of Vigil and Montoya on Sept. 23 in what the U.S. attorney said was an effort to gather evidence to support additional charges.
    A spokesman for the U.S. Attorney's Office said he couldn't comment on the scope of the investigation, including whether it goes beyond investments in repurchase agreements.