Sunday, October 30, 2005
Treasurer's Office Has a Corrupt Past
By Colleen Heild
Journal Investigative Reporter
Trouble in the New Mexico Treasurer's Office: What else is new?
Robert Vigil, who resigned as state treasurer last week, isn't the first treasurer official to face charges of political corruption.
Over the past 30 years, two New Mexico state treasurers and a deputy treasurer have been convicted of crimes related to their jobs or political campaigns.
In addition, a treasurer's employee was tried on a bribery charge but was acquitted. He claimed his boss solicited a payoff.
This year's allegations involving Vigil and former state Treasurer Michael Montoya, Vigil's predecessor, are by far the most egregious.
Both face federal extortion charges in what the FBI has described as a kickback scheme that spanned more than a decade and involved the investment of millions of dollars of public money.
Vigil, who has pleaded not guilty, resigned last Wednesday just as a state legislative subcommittee began considering whether there was evidence to warrant his impeachment.
The latest scandal has prompted calls for reform.
Some want to make the state treasurer an appointed office (no one, including the governor, could fire Vigil because he is an elected official). Others say more oversight is needed.
The Legislature is expected to look into the issue when it convenes for its next regular session in January.
New Mexico's reputation in the U.S. financial arena could be at stake, especially if it appears there is a pattern and practice of misconduct in the office, one national financial expert testified last week.
"The best firms are not going to want to work in that environment if people believe you have to pay to do business with the state," said Robert Doty, a Sacramento, Calif., financial adviser in videotaped testimony presented to a legislative subcommittee that had been considering Vigil's possible impeachment.
Doty testified he and others in municipal securities circles were shocked to hear of the federal indictment.
"How could this have ever transpired?" Doty said, recalling his reaction at the time. "And what's going on in New Mexico?
The treasurer is essentially the state's banker, disbursing public money, maintaining accounts and investing billions of dollars of state funds, sometimes overnight or in the short term.
In New Mexico, the Treasurer's Office is historically a political stronghold for Democrats.
The Democratic voter registration majorities that have prevailed in the state since the New Deal have made it nearly impossible for Republican candidates to succeed in races for low-profile state offices appearing farther down the ballot.
Only five Republicans have served as state treasurer since New Mexico statehood and two of them were appointed. The last one, Merrill B. Johns Jr., appointed by Republican Gov. David Cargo in 1968, served for one year.
The investment portfolio managed by the treasurer currently totals nearly $5 billion. And there are various private bankers, brokers and advisers who want a piece of the action, say former Treasurer's Office officials.
In Vigil's case, prosecutors allege he, acting in concert with others, obtained more than $260,000 in payments from an outside investment adviser in exchange for steering state treasurer's business to the adviser.
Vigil's attorney has said the payments were legal campaign contributions.
His case is similar to those of previous Treasurer's Office scandals: No embezzlement of state funds was involved in the alleged moneymaking schemes, but the accused allegedly used their government positions to benefit themselves or a political campaign.
Campaign donations helped contribute to the political downfall of former state Treasurer Jesse D. Kornegay in the 1970s.
Kornegay, who served two terms as state treasurer, had been accused of lying to a federal grand jury investigating whether, as state treasurer, he obtained a political contribution or other financial assistance from a New Mexico bank in exchange for depositing state funds with the bank.
The grand jury also looked into whether he failed to report campaign contributions he received.
In August 1975, Kornegay pleaded guilty to perjury related to his payoff of a $5,000 loan he received from an Albuquerque bank. He served nine months of a two-year federal prison sentence.
Six years earlier, while state treasurer, Kornegay was accused of soliciting money from banks in New Mexico to mount a campaign against proposed revision of the state constitution.
The Treasurer's Office allegedly withdrew $750,000 in state funds from a Las Cruces bank that refused to contribute to the effort.
A different approach
The constitutional change Kornegay fought would have abolished the elected office of state treasurer and made the treasurer a gubernatorial appointee.
Voters defeated the proposed new constitution in December 1969.
Although the goal for the change back then was to shorten the election ballot, there have been arguments in the Legislature over the years that putting the treasurer's job under the governor would provide more oversight and accountability.
Former Speaker of the House Raymond Sanchez, now a member of the University of New Mexico Board of Regents, was involved in the effort to revise the constitution.
"That was the hot point during the debate of whether to pass the constitution or not," Sanchez said.
Opponents maintained the change, which would also have affected the offices of secretary of state and attorney general, would take away "people's right to elect those individuals to public office," he added.
Sanchez still supports the idea, but said current events at the national level show appointees are also capable of misconduct.
"If someone's going to do something criminal, whether they're appointed or elected isn't going to change their makeup and their character and the values they have," Sanchez said.
He believes another approach would be for the Legislature to consider a constitutional amendment requiring the treasurer "to be more responsive somehow in terms of disclosure" to a state board or legislative committee.
"My understanding and my recollection is that at different times the state treasurer has told other agencies, 'I don't have to report to you, I'm an elected official and there's nothing in here that says that I need to give you the information you're asking for.' ''
Prison and a pardon
A decade after Kornegay was prosecuted, New Mexico treasurer Earl Hartley pleaded guilty to malfeasance in office.
Hartley admitted diverting to his personal use more than $4,000 in excess funds raised for a regional treasurer's conference held in Santa Fe.
Hartley, then 71, spent the money on various hotel and resort charges, airplane tickets, food, lodging, car rentals and clothing, court documents stated.
Documents that implicated Hartley were discovered in a search of the office desk of Hartley's then-deputy, Ken Johnson, shortly after Johnson was arrested in December 1984.
Johnson and State Investment Officer Phil Troutman were accused of pressuring officials from a New York bank to contribute to the state Democratic Party.
They were found guilty in May 1985 of conspiring to extort a $2,000 contribution from a bank seeking a state contract to act as a repository of state securities.
An FBI affidavit filed in December 1984 stated that Troutman, Johnson and "others got together and agreed to solicit payments of money in the form of political contributions and other donations from banks, brokerage houses, and others seeking to do business with the state."
Both officials were sentenced to two years in prison.
A year after Hartley resigned, then-Gov. Toney Anaya pardoned him. Anaya noted, according to news articles at the time, that there had been no public monies involved or "ever in jeopardy."
In issuing the pardon, Anaya cited Hartley's age and public service and "the knowledge that other public servants will undoubtedly learn from your mistake."
Former state Attorney General Paul Bardacke, who helped prosecute the Troutman and Johnson case, is a proponent of appointing the state treasurer.
Among other benefits, removing the treasurer from the political arena eliminates the need to raise campaign funds for re-election, Bardacke said.
Increasing the annual salary might also be something to consider, he added.
"I think it's very difficult when you elect someone to become the state treasurer whose job it is to invest $5 billion and you pay them $80,000 a year."
No legislated reform would offer an absolute protection, Bardacke and others conceded.
"I don't want to pass judgment (in the pending case)," Bardacke said. "But short of getting honest, decent people, I don't think you can regulate away the possibility of corruption."
An ethical distance
Anaya appointed Democrat James Lewis to take the reins of the Treasurer's Office after Hartley resigned.
Lewis served the final year remaining in Hartley's term, and won a four-year term of his own in 1986.
"My thoughts were when I went into the treasury that you had to be above reproach," Lewis said. "Ethics is something we keep talking about in this country with elected officials, but we really don't respond until we have an incident or a situation like this."
Under Lewis, the agency provided more detailed reports to the state Board of Finance, a statutory board on which the governor and lieutenant governor serve. The board oversees many of the treasurer's investments and sets investment policy.
Lewis said, as treasurer, he would get various requests from bankers, brokers and others in the private sector interested in talking to him about how to win the state's business.
But Lewis wanted to maintain his distance. He set up the office so the treasurer would review the investments not make them himself.
"You should not be in the middle of investments on a day-to-day basis," he said. "That's why you hire a competent investment officer."
Lewis said the scandals of the past don't point to systemic problems in the way the office is set up.
"I think this (Vigil prosecution) is sort of an exception as opposed to the rule."
No escaping troubles
David King, now a commissioner on the state Public Regulation Commission, was deputy treasurer under Lewis.
He said the scandals in the Treasurer's Office aren't a coincidence. "I think it's a higher stress and a higher-energy office" with a lot of responsibility, he said.
King, a former Democrat who is now a Republican, succeeded Lewis as treasurer from 1991 to 1994.
But he didn't escape Treasurer's Office troubles.
King became a key prosecution witness against Joseph O. Garcia, a former division manager in the Treasurer's Office.
Garcia, who was fired by King in 1993, was charged with one count of bribery of a public officer after allegedly offering King money to go along with an investment plan by an Arizona firm.
Garcia's defense attacked King's reputation and said he solicited a bribe.
King vehemently denied Garcia's accusations, but Garcia was ultimately acquitted.
King said he believes state law should be changed to make it illegal for state treasurers to accept campaign contributions from vendors or other people who do business with the Treasurer's Office.
"James (Lewis) and I had that code," King said. "We decided not to ever visit with them (prospective vendors) except at the office. They would try to catch you where you are eating. They would catch you wherever you were going."
King said there also needs to be constant vigilance from the state Board of Finance, which King said was decreased in staff under Gov. Gary Johnson, who served two terms, from 1995 through 2002.
"In the Johnson years, they cut the state Board of Finance down so much that they weren't really monitoring like they should," King said.
King lost his bid for re-election in the 1994 Democratic primary to Michael Montoya, who won two terms in office.
During that time, according to the federal indictment against him, Montoya received more than $600,000 in kickbacks.
"You deal with me and want my business, you give a cut," the FBI quotes Montoya as saying. During his eight years in office, Montoya extorted kickbacks from at least four investment advisers, an FBI affidavit states.
The kickback scheme allegedly included Vigil, who was Montoya's deputy treasurer.
Vigil won the top treasurer's job in 2002, defeating Democrats Jan Goodwin and Ken Sanchez in the primary. No Republican ran that year.
"I guess the people liked the work I did. A lot of people know what we're made of," said Vigil, a former state auditor, after the election.
Once in the top treasurer's job, Vigil continued the illegal kickback practice, the FBI maintains.
"Like Montoya," an FBI affidavit states, "Vigil extracted payments or campaign contributions as a condition of doing business."
Journal investigative reporter Mike Gallagher contributed to this story.