Nothing better captures the truth of New Mexico state government under Bill Richardson than the details of the state’s investment in Earthstone International. It doesn’t involve the most money lost on a lousy bet. It did not receive the most attention. But it distills and concentrates so much of “what has been going on” we have to put this story at the top of our list.

Our investigation of the Earthstone investment by the SIC has taken over twelve months. In this report we disclose what we found in the Governor’s own files. It took a not so subtle threat of litigation to leverage a response to our public record request. At the end of this post, we’ll tell you what we unearthed. It says a lot about how Bill Richardson has cared for the taxpayer’s precious dollars and how he has used the powers of his office.

The Earthstone story is a $9 million loan that was a bad bet from the beginning, and only got worse once the taxpayer’s money was thrown down the rabbit hole. We rolled out our investigation in three parts (Links to Part I, Part II, and Part III). For anyone, particularly legislators, who really wants to know how Richardson’s SIC has been caring for our money, these installments make invaluable reading. They provide much more factual detail than we summarize here.

This toilet bowl scrubber is one of Earthstone’s products. Never heard of it? Now you have. We’ll leave the metaphors and allegories to you.

It started this way in 2003. Earthstone wanted a bunch of money. At least $9 million. Higher numbers were tossed around. They threatened to take their business elsewhere if New Mexico didn’t pony up. But the SIC’s career civil servants weren’t stampeded. The SIC’s veteran investment professionals conducted background investigations on the founders and owners of Earthstone, two Santa Fe trust-funders who are also financial supporters of the Governor and the New Mexico Democratic Party. The SIC’s due diligence team plowed through the company’s books and took a microscope to its business model. They caught wild exaggerations in the company’s projected revenues. Other red flags led them in August 2003 to issue a “no deal, no thanks” to Earthstone’s request for buckets of taxpayer cash.

But then the Governor stepped in, after Earthstone made an end-run around the gatekeepers at the SIC. Richardson simply overruled the conclusions of the SIC’s professionals. He can do that. He controls every vote on the SIC, except for the Land Commissioner (Republican Pat Lyons) and possibly the State Treasurer. At the time, the State Treasurer was the felon Robert Vigil. By January 2004, Richardson was publicly claiming credit for getting Earthstone a $9 million loan from the SIC. He said he was “encouraged by their pledge” to build a factory in Santa Teresa, in Dona Ana County, that would create 200 high-paying jobs. Earthstone’s CEO also boasted they would construct an R&D center in Las Cruces.

Even though the company’s owners are very wealthy in their own right, the loan was not guaranteed by their considerable assets. It was a sweetheart loan: non-recourse, no collateral required. Earthstone got the cash clean and easy, $5 million up front, and another $4 million once Earthstone met a pegged gross revenue target.

Earthstone was and is co-owned by a Richardson insider, Gay Dillingham, heir to a large Hawaii ranching fortune and Richardson’s appointee to head the Environmental Improvement Board. She no longer chairs the EIB, but still holds a seat on the Board. Richardson essentially directed the SIC to give a sweetheart loan to one of his political appointees, who would then be indebted to him in the execution of her duties as chair of the Environmental Improvement Board. (Her e-mails refer to Richardson as “the boss.”) The other co-owner and founder of Earthstone is Andrew Ungerleider, heir to the Gottesman paper and pulp commodities trading fortune. Together, they have donated over $25,000 to Richardson and New Mexico Democrats.

The bloom started coming off the rose soon after Earthstone got is first five million from the SIC. Earthstone failed to pay the first interest payment, a tidy sum of $125,000. Then it was discovered they had misrepresented their intellectual property. Then the chief financial officer of Earthstone blew the whistle on, shall we say, highly aggressive reporting of their revenues to meet the target required for Earthstone to qualify for the second tranche of the loan. Indeed, he raised concerns about criminal activity. The FBI and a federal grand jury got interested, and subpoenaed the SIC’s original loan documents. Much to its chagrin, the SIC had to admit it could not find them. But Earthstone was determined by its own and the SIC’s auditors to have been inflating its revenue figures, not criminally, but inflating them nonetheless.

To make a detailed story short, Earthstone simply did not meet its obligations in order to require the SIC to extend the remaining $4 million. In fact, Earthstone was in default of its loan agreement, freeing the SIC from its obligations completely. The SIC could have called the loan. Instead, the loan was forgiven. It was converted into equity, meaning taxpayers relieved Earthstone of any repayment obligation and instead became investors in a company that had not met revenue targets, had misrepresented its assets, and had failed to pay interest.

Earthstone’s revenues are 30 times lower than it projected when seeking the SIC loan.

Oh, yeah. And it never built the factory it had promised to build with the state’s money. Earthstone never even broke ground on the celebrated Dona Ana plant that would create 200 high-paying jobs. Instead, New Mexico Watchdog discovered Earthstone exported jobs to Juarez, Mexico and Bentonville, Arkansas. Where Earthstone once employed over thirty New Mexicans at its facility in Santa Fe, it reduced its payroll to less than a dozen full-time workers. As for that Las Cruces R&D center, “fuggedaboutit.”

Pretty bad track record, right? Not for Bill Richardon’s SIC. Earthstone got the other $4 million from the original $9 million loan. That money came as an injection of equity, instead of loan. Furthermore, Earthstone has continued to receive a hundred thousand here, and hundred thousand there. And then another million or so has been poured into a company that has never created jobs, never paid dividends and never paid capital gains to New Mexico’s taxpayers. Earthstone and its affiliates have now received nearly $11 million from the State of New Mexico, none of which Earthstone has any obligation to repay.

While I was in the SIC’s offices reviewing thousands of pages of documents produced in response to a public records request I was graced with the presence of Gary Bland, who, at the time was the State Investment Officer. A man upon whose shoulders rested the burden of caring for $13 billion dollars, at a time of scary market turbulence, hovered at the door to the conference room where I was reading reams of tedious documentation. My interest in a $9 million loan drew him away from all his other concerns and worries. I was flattered by his interest in my interest in the SIC’s Earthstone investment. But didn’t he have better things to do, or was my curiousity in the Earthstone investment making him nervous?

We saved the best for last. Our final public records request went to the Governor’s office. We asked to see every document, every scrap of paper that contained any information at all about Earthstone International. What was in the Governor’s files that convinced him to jettison the seasoned judgment of the SIC’s career civil servants and pressure the SIC to give Earthstone International a cool $9 million loan?

We initially got stiff-armed by the Governor’s office. Our document request was dragged out with one excuse after another. We were eventually told we needed to refer to our request to Gilbert Gallegos, the Governor’s spokesperson, instead of the woman who is the custodian of the Governor’s records. (That’s not how the Inspection of Public Records Acts works–it’s the custodian of records who is the proper recipient of the request). Only after we raised a tactless threat of litigation did we receive a response to our document request for everything in the Governor’s files concerning or containing information about Earthstone.

What we got was both anti-climactic and a revelation. The Governor’s files contained no due diligence whatsoever into Earthstone’s bona fides, its business model, the skill of its managers, the market for its products, or the kind of competitors it would face. Earthstone had once boasted it foresaw knocking Clorox, Unilever and 3M off their roosts. But there was nothing in the Governor’s files to back that braggadocio.

In fact, there wasn’t a single piece of paper in the Governor’s files about Earthstone dated prior to the time he pressured the SIC to give them $9 million. Certainly, the possibility exists that the Governor’s office broke the law and did not comply with Inspection of Public Records Act by withholding documents that should have been produced. But no executive or other privileges were raised as a basis for withholding documents. We were given no index of documents withheld on grounds of privilege. The representation was that we were given everything responsive to our request. Rather than accuse the Governor of breaking the law, we will rely upon his assurance that all in his files has been made available for public review. So what does the utter absence of any documentation supporting his decision to spend millions of public dollars reveal about how he has cared for the taxpayer’s resources and conducted business as the Governor of the State of New Mexico?

The lesson is this, reduced to six letters: FOB, OPM. Friends of Bill and Other People’s Money. What has mattered under Governor Richardson has not been the public interest, prudent care for the taxpayer’s treasure–produced by their hard work over many years, or the considered research and conclusions of dedicated public servants. What has mattered has been only the Governor’s whims and agenda in how he spends other people’s–the taxpayers’–money, with that agenda determined by whom he considers friend and ally. He has been reckless and profligate with the public’s money. Nearly $11 million has disappeared into the company of his political supporters, without any benefit to the taxpayers. No accountability, no consequences, and no questions asked…except by New Mexico Watchdog.

But now you also know the story. The facts we have reported have never been refuted. We’ve done our part. It’s up to you to take it from here.