DALLAS — A federal investigation of pay-to-play allegations in New Mexico’s largest bond program has cleared Gov. Bill Richardson and his top aides, according to sources quoted by the Associated Press.

“It’s over. There’s nothing. It was killed in Washington,” a source told the AP.

A spokesman for Richardson, who was on a trade mission in Cuba yesterday, could not be reached for comment. A spokesman for the U.S. attorney’s office in Albuquerque declined comment.

After the findings of the grand jury were sent to the Justice Department, officials there chose to take no further action. A previous agreement to extend the statute of limitations in the case expired on Wednesday, according to three sources contacted by the Washington Post.  The inaction in Washington meant that indictments were no longer possible, according to those sources.

News of the federal grand jury probe forced Richardson to abandon his appointment as Commerce secretary in the new Obama administration in January.  The allegations indirectly involved fundraising in Richardson’s own failed bid for the presidency in 2008.

Grand jurors have been investigating whether California-based CDR Financial Products won a contract as swaps adviser on the $1.7 billion transportation bond program known as Governor Richardson’s Investment Partnership in 2004.

As swap and escrow adviser, CDR earned $1.5 million for its work on the 2004 GRIP bonds that were used to finance highways, intermodal transportation hubs and the Rail Runner commuter line that opened this year.  The bond issue through the New Mexico Finance Authority was the state’s largest and the first to use interest rate swaps.

The collapsing swaps market later led the authority to refinance $450 million of the variable rate-bonds.

CDR and its founder, David Rubin, donated $120,000 to Richardson’s political committees between 2003 and 2005.  The largest of those contributions, $75,000, was made less than a week before CDR was selected as escrow adviser in June 2004. But Rubin has denied any pay-to-play relationship between CDR’s work on GRIP and its contributions to Richardson’s committees.

The federal grand jury was reportedly also looking into whether Richardson’s former chief of staff, David Contarino, played a role in the hiring of CDR.

Another Richardson aide, David Harris, and a close political adviser, Michael Stratton, were also under scrutiny.

Harris was deputy chief of staff and then became executive director of the New Mexico Finance Authority, which hired CDR.  Stratton, a Denver-based political consultant, was senior adviser to Richardson’s 2008 presidential campaign and a consultant to CDR and another financial firm when the NFMA prepared to issue the bonds in 2004.

The authority’s 12-member board is made up mostly of executive branch department administrators and gubernatorial appointees.

The grand jury investigation has had a broad impact on the state’s major institutions, with records subpoenaed from state universities, as well as the governor’s office.

Allegations of corruption have taken center stage in the race to replace Richardson as governor after eight years. Lieut. Gov. Diane Denish, a fellow Democrat and the only declared candidate for governor in 2010, is seeking to distance herself from the Richardson probe and other Democrats facing similar investigations.

Denish has sought credit for reform efforts in public housing after several officials with the New Mexico Housing Authority’s Region III were indicted in the misuse of bond money for the benefit of regional director Vincent “Smiley” Gallego and others.

Also indicted in that investigation were Albuquerque bond attorney Robert Strumor and former Region III employees David Hernandez and Dennis Kennedy.

Republicans have attacked Denish’s image in a television commercial featuring a slot machine in the “Richardson-Denish game of pay-to-play.”

While the New Mexico grand jury’s probe may have ended, Richardson and his associates could still be exposed to a wider investigation and civil litigation looking into pay-to-play scenarios related to pension-investment management in several states.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.