The New Mexico Securities Division has arrested the Chief Operating Officer and former controller of the New Mexico Finance Authority on multiple charges including racketeering.  Here is the press release.  We’ll have more to report later.

For Immediate Release

August 8, 2012

Former Controller and Current COO of New Mexico Finance Authority Arrested in Connection With Fake Audit

SANTA FE – The former controller and the current chief operating officer for the New Mexico Finance Authority have been arrested today in connection with submitting a forged audit and misrepresenting financial statements for the fiscal year 2011.

Gregory M. Campbell, the former controller for NMFA, has been charged with eight counts of securities fraud, four counts of forgery and one count each of racketeering and conspiracy to commit racketeering, according to a criminal complaint filed by the Securities Division of the New Mexico Regulation and Licensing Department.

John Duff, the current chief operating officer for NMFA, has been charged as an accessory on eight counts of securities fraud and racketeering. Duff, who was the immediate supervisor of Campbell, also has been charged with allegedly conspiring to engage in a pattern of racketeering activity by fraudulently misrepresenting the financial statements of the NMFA to ratings agencies, investors, bond buyers, and the State of New Mexico, according to the criminal complaint.

“The action of these two individuals has risked the credit rating of New Mexico. We want to send a clear and strong message to the Wall Street, rating agencies, bond purchasers and investors that we will get to the bottom of this as quickly as possible to once again restore their confidence in our state,” said J. Dee Dennis Jr., Superintendent of the State Regulation and Licensing Department.

The Securities Division, last week, executed a search warrant at the Santa Fe offices of the NMFA and examined thousands of pages of documents, emails, and electronic evidence relevant to this case. Investigators for the Division also interviewed numerous current and former NMFA employees, including Campbell and Duff.

“Today we took swift and appropriate action, making significant progress towards the ultimate resolution of this case. These arrests send a clear signal to Wall Street, the investing public, and the citizens of New Mexico that we will not tolerate fraud in our financial institutions.” said Daniel S. Tanaka, Director of the Securities Division. ”We are deeply committed to public integrity, fiscal soundness, and fair financial markets. The investigation will bring to light the extent of the wrongdoing and at the end of the day we will make our findings known and will work with all stake holders to restore confidence in the NMFA. The investigation continues. ”

According to the criminal complaint, Campbell admitted to forging the 2011 audit report. “Campbell stated he obtained the audit reports from the fiscal year 2010 audit and ‘copied and pasted’ the letterhead and signatures onto a printed copy of the PDF file. Campbell stated he then copied the entire report and scanned it into a PDF file in order to disseminate copies of the financial statements and forged reports to external and internal recipients” as the 2011 audit report, the complaint alleges.

The independent auditors, hired by NMFA to perform that function, told investigators that they never completed an audit of the 2011 financial statements and there was no exit conference held to go over the audit results.

The criminal complaint also alleges that Campbell, with the explicit knowledge and permission of Duff, misrepresented approximately $40 million in the financial statements for NMFA for 2010 and 2011. Instead of reporting a loss of $40 million in revenues, they are accused of concealing that loss by fraudulently reporting it under grant expenses.  According to the complaint, “…Campbell represented that the decision to reclassify the reduction in appropriations revenue as ‘grant expense’ was in fact a misrepresentation of the fiscal year 2011 financial statements as it did not reflect the true financial condition of the NMFA. Campbell accepted the characterization that the action to fraudulently misrepresent the financial statements was in fact ‘cooking the books’ of the NMFA.”

“These two corporate officials had strong accounting backgrounds yet they cooked the books to make their financial statements looks stronger than they actually were,”  Tanaka alleged. ”Accurate disclosure of the true financial condition of a company is crucial to ensure that all investors have the information they are entitled to by law,” said Tanaka.

Campbell and Duff were booked into Santa Fe County Jail and are subject to a $20,000 cash or surety bond. A date for an arraignment at the First Judicial District Court in Santa Fe has not yet been set.

Previous stories from New Mexico Watchdog:

NMFA Fake Audit Mess Gets Worse for CEO Rick May

The Cheap Forgery That Could Cost New Mexico Millions

Greg Campbell:  The Man the NMFA Blames for Its Fake Audit

New Mexico Finance Authority Has History of Noncompliance With Audit Deadlines

$1.26 Billion in  New Mexico Bonds Face Downgrade After Discovery of Fraudulent NMFA Audit

NMFA Moves Forward on Investigations and Projects, But Big-Ticket Items Put on Hold