NM Finance Authority COO, ex-controller arrested

SANTA FE, N.M. (AP) - The current chief operating officer and a former controller at the New Mexico Finance Authority were arrested Wednesday by a state securities regulator for securities violations related to a fake financial audit.

New Mexico Regulation and Licensing Department's Securities Division announced the arrests Wednesday of Chief Operating Officer John Duff and former controller Greg Campbell, who left the agency in June and has been blamed for falsifying the audit.

According to the criminal complaint, Campbell faces securities fraud, forgery and racketeering charges. Campbell acknowledged forging the 2011 audit report, the complaint said.

The complaint also says Duff is charged as an accessory on eight counts of securities fraud and racketeering. Duff, who was Campbell's immediate supervisor, also has been charged with 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 criminal complaint also alleges that Campbell, with the explicit knowledge and permission of Duff, misrepresented around $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.

"The action of these two individuals has risked the credit rating of New Mexico," said J. Dee Dennis Jr., Superintendent of the State Regulation and Licensing Department. "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."

Campbell and Duff were each booked into Santa Fe County Jail on 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.

It was unclear if either had attorneys.

The New Mexico Finance Authority is considering a proposal to temporarily scale back lending to local governments while the agency resolves problems stemming from the fake audit.

The authority's governing board meets Wednesday in Santa Fe and is expected to vote on limiting low-cost loans to cities, counties and other local governments for projects such as sewers, government buildings, water rights acquisition and equipment like fire trucks.

The authority is unable to issue new bonds until it straightens out the fake audit.

However, the authority can make loans using $37 million in cash reserves, and the board is considering a $5 million limit on loans for new projects.

The authority has more than $1 billion in outstanding loans.

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