Sunday, April 05, 2009
CDR Probe Widens
By Mike Gallagher And Colleen Heild
Copyright © 2009 Albuquerque Journal
Journal Investigative Reporters
Securities regulators have been brought into the federal investigation into New Mexico's $1.6 billion GRIP transportation bond program.
Staff from the Securities and Exchange Commission's Denver regional office joined the probe earlier this year, and SEC enforcement division attorney Allison Lee was deputized by federal prosecutors here, according to attorneys familiar with the investigation.
The U.S. Attorney's Office is not commenting, but SEC involvement would indicate investigators have widened their scope to include possible securities fraud as well as the widely reported pay-to-play allegations.
Supporters of Gov. Bill Richardson, including some with direct knowledge of the grand jury investigation, have characterized the probe as politically motivated.
Richardson cited the ongoing investigation in withdrawing his name from consideration as Commerce secretary. He has said he is confident his administration conducted itself properly.
His supporters contend the inquiry has dragged out over two grand juries in an attempt by federal prosecutors to manipulate the process, although it is not unusual for public corruption investigations to be long-running.
Lee was part of the SEC enforcement team that successfully brought civil charges against former Richardson insider and state Game Commission Chairman Guy Riordan.
Riordan was barred from the securities industry and ordered to repay the state $2.2 million for paying bribes to former state Treasurer Michael Montoya to get state investment business.
The case against Riordan was a civil proceeding, and he was never charged with a crime. Montoya pleaded guilty in connection with other kickback allegations and is in a federal prison.
Riordan said publicly during the SEC hearing that he believed the case against him was really a "witch hunt" aimed at Richardson, who fired Riordan from the Game Commission when he was implicated by Montoya's testimony in the trial of another former treasurer, Robert Vigil.
The SEC proceedings followed.
When the GRIP bond investigation began last summer, federal investigators were focused on how CDR Financial Products, a Beverly Hills financial advisory firm, was selected as an adviser on the bond issue.
The SEC involvement indicates that what CDR did and how much it was paid for its work on the GRIP (Governor Richardson's Investment Partnership) bonds is also of interest to federal investigators.
According to attorneys and witnesses familiar with the case, the pace of the investigation has been picking up in recent weeks.
The bulk of the bonds were sold five years ago this month.
Federal white-collar crimes normally have a statute of limitations of five years, but it is not unusual for potential defendants in securities or tax cases to waive the statute of limitations to gain time to develop arguments that the activities in question were legitimate.
Barring waivers, charges stemming from the GRIP bond investigation would have to be brought by the end of April.
CDR was selected by the New Mexico Finance Authority, a quasistate agency that handles the issuance of bonds for state and local projects.
William Sisneros, who subsequently became executive director of the authority, said finance authority officials are still not sure about every aspect of the deal.
"There are former employees we can't talk to because of the investigation," Sisneros said in an interview late last month.
CDR was not the top ranked advisory firm among those competing for the work, and the Journal reported last fall that there were questions surrounding the bid scoring documents that led to CDR's hiring.
The company was selected in March 2004 to oversee $420 million in interest rate swaps, a complex area of bond finance the authority had never been involved in before or has since.
In June 2004, CDR also received a sole-source, no-bid contract to manage the escrow accounts created to hold funds the state received from the bond sale. During the time it was getting the bond work, CDR donated $100,000 to Richardson political committees.
The FBI and federal prosecutors have been looking into the connection between the contributions and CDR's hiring.
Sisneros' predecessor, David Harris, and two of Harris' top aides, Keith Mellor and Joseph Gosline, have been interviewed by the FBI. Neither Harris nor Mellor will comment.
Gosline has said his only involvement was related to participating in preselection interviews of CDR and other vendors, and then scoring the proposals.
Gosline he was surprised by a memo showing CDR came in second in the final tally because the company was ranked fourth when he helped score the proposals.
Sisneros said the NMFA board members are concerned now about whether they received good advice on the decision to stretch the dollars available to the GRIP program by using variable rate bonds and swaps.
Last fall, a federal grand jury subpoena was served on Richardson's office seeking all correspondence and other communications between Richardson's staff and senior officers of CDR.
After winning the swap business from the state, CDR officials paid for dinner and Lakers basketball tickets for Harris and Richardson confidant and former chief of staff David Contarino in Los Angeles.
'One good thing'
CDR was paid $950,000 for its swap work, according to the finance authority, but the state never wrote the company a check.
Instead, the money was paid by financial firms on the other side of the interest rate swaps. Those firms earn their fees by betting interest rates won't go up.
What exactly CDR did for its money is unclear to current New Mexico Finance Authority officials.
"These derivative investment deals are complicated," Sisneros said. "The one good thing was that there was a limit to the amount of the bonds that went into this area."
Several states are investigating whether banks and financial advisers conspired to overcharge governments for swaps.
And the U.S. Justice Department is investigating whether banks and advisers rigged bids or fixed prices on these financial contracts.
CDR also got $444,000 for work on the GRIP bond escrow accounts.
The company was hired on a sole-source no-bid contract a few weeks after making a $75,000 contribution to Sí Se Puede! Boston 2004, a Richardson political committee formed to pay the expenses of his staff at the Democratic National Convention, which Richardson chaired.
Sisneros was hired as executive director of the finance authority in June 2004 before his agency issued the no-bid contract.
He recalled there was pressure to meet with CDR from the company's consultant, Stratton and Associates of Denver, because of the concern that the Internal Revenue Service was about to change how local governments managed bond escrow accounts.
The change would have done away with CDR's strategy on how to manage the account.
The consulting company is headed by Michael Stratton, a longtime friend of Richardson's who served as a senior adviser in Richardson's campaign for the Democratic presidential nomination. He didn't return a phone message seeking comment.
Sisneros said no one from Richardson's office ever contacted him about meeting with CDR.
In the escrow deal, CDR was paid a straight percentage of how much more the state earned than if the money was left in federal government securities.
Overall the state earned about $8 million in the escrow deals.
"This was idle money," Sisneros said. "We were looking to earn a little more."