DALLAS — The New Mexico Finance Authority board held another emergency meeting Thursday after its chief operating officer and former controller were arrested in connection with a fake audit that brought agency debt issuance to a halt.
COO John Duff and former controller Gregory M. Campbell each were released on $20,000 bond after their arrests in Santa Fe Wednesday.
The NMFA emergency meeting Thursday was to decide Duff’s employment status. Campbell left the agency in June.
Campbell was 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.
Duff was charged as an accessory on eight counts of securities fraud and racketeering. Duff, who was Campbell’s immediate supervisor, 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 rating agencies, investors, bond buyers and the state, 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 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 Regulation and Licensing Department, in a prepared statement.
According to the criminal complaint, Campbell admitted to forging the 2011 audit report.
“Campbell stated that 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,” the complaint said. “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 criminal complaint also alleges that Campbell, with Duff’s knowledge, misrepresented about $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.
“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,” the complaint said. “Campbell accepted the characterization that the action to fraudulently misrepresent the financial statements was in fact ‘cooking the books’ of the NMFA.”
The investigation of the audit scandal and the lack of a valid audit for the agency has halted issuance by the NMFA on behalf of local governments. The fake audit was used in an official statement for a $23 million issue earlier this year.
Investigators said the audit became a problem when the NMFA was asked to give back $40 million to help balance the state budgets for fiscal 2010 and 2011.
Investigators said that misrepresented information might have benefited NMFA’s rating. The agency’s AAA from Standard & Poor’s and Aa1 from Moody’s Investors Service are both on watch for possible downgrade.