DALLAS - CDR Financial Products stepped up its defense of its role in a high-profile New Mexico bond program yesterday after Gov. Bill Richardson withdrew from consideration as secretary of commerce for Barack Obama, citing a grand jury investigation of the deal.
Calling Richardson "an exceptionally able and dedicated public official, who was highly deserving of the opportunity to hold a cabinet-level position," CDR founder and president David Rubin wrote in a statement that his company "has never practiced pay-for-play on any playing field where we do business."
"With respect to the work we did for the New Mexico Finance Authority, we underwent a rigorous vetting process that involved multiple steps to ensure that CDR was, in fact, qualified for the job of assisting the state in managing its interest rate swap transactions," Rubin said.
CDR worked as swap adviser on a 2004 bond deal for an ambitious transportation program known as Governor Richardson's Investment Partnership (GRIP) that invested $1.5 billion in rail, highway, and related transportation construction.
In Albuquerque, a federal grand jury is investigating whether Richardson's office urged a state agency to hire CDR as a result of contributions from the Beverly Hills, Calif., firm and its president to political action committees established by the governor.
In announcing his plan to withdraw from consideration as cabinet secretary, Richardson said he and his staff "have acted properly in all matters" and predicted that the investigation would clear him. But a lengthy investigation could delay his Senate approval, which he said would hinder the Obama administration's urgent mission to repair the nation's damaged economy.
"I want to emphasize that I acted properly and my administration acted appropriately, too," Richardson said at a press conference yesterday. "A fair and impartial review of the facts will bear that out."
"It was my idea to withdraw," he said. "I withdrew because I felt I didn't want a possible inquiry going on to delay the enormous progress we need to rebuild this economy."
Richardson declined comment on reports that he has hired a prominent Albuquerque attorney to represent him in the investigation. Peter Schoenburg's firm specializes in criminal defense, complex civil and commercial litigation, Indian law, and other issues. His hiring by Richardson was confirmed Monday to the Associated Press by a federal law enforcement official who asked to remain unidentified.
Obama said he accepted Richardson's decision with regret.
Rubin, meanwhile, acknowledges making campaign donations to Richardson and other New Mexico causes, adding that "that support was given with full compliance of state and federal laws."
"Anyone who knows me knows that I have been an unabashed supporter of Democratic causes and public figures, especially those like Gov. Richardson, who support a liberal, inclusive agenda," Rubin said. "As a former housing commissioner for the city of Los Angeles, I have been a longtime advocate for affordable public housing. Our firm was instrumental in developing the innovative Lease-to-Own program, enabling low-income families to purchase their own homes at low interest rates."
Lease to own bonds have been the subject of ongoing Internal Revenue and other federal investigations. The IRS has settled with several issuers to preserve the tax-exempt status of the lease-to-own bond deals in which CDR was involved. However, CDR has denied allegations of wrongdoing in the deals, arguing that the lease-to-own program was an innovative financing mechanism that helped many individuals become homeowners. It has pointed out that the program operated under guidelines developed by Freddie Mac and reviewed by several nationally known bond counsel firms.
While Rubin pointed to CDR's ability to save New Mexico money through its knowledge of swaps, one industry executive questioned why the small, largely low-income state was even involved in derivatives.
"The question is why were they entering into such a complex arrangement and how well have they done?" said the industry executive, who spoke on background.
The New Mexico probe has been ongoing since at least fall 2006 and involves dozens of banks, investment banks, advisory firms, and individuals. Grand jurors are reportedly focusing on the $1.5 million in fees CDR received from the New Mexico Finance Authority in 2004 after Rubin and the firm contributed about $100,000 to PACs run by Richardson.
A spokesman for the U.S. Justice Department in Albuquerque has declined comment.
CDR was swap adviser on derivatives issued in conjunction with a $1.6 billion bond transaction that was sold in two phases. First Southwest Co. was a financial adviser for the bond deal. CDR also served as investment adviser on the GRIP escrow fund.
The grand jury investigation follows a Federal Bureau of Investigation raid on CDR's Beverly Hills headquarters in November 2006, along with the offices of two other investment advisory firms - Investment Management Advisory Group Inc. in Pottstown, Pa., and Sound Capital Management Inc. in Eden Prairie, Minn.
The Justice Department is also looking into a 2002 bond sale for $97 million by the University of New Mexico as part of a probe into possible violations of securities laws, officials said.