CORRECTED-New Mexico finance officials arrested for faked audit

Fri Aug 10, 2012 4:41pm EDT

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(Corrects audit firm, clarifies Duff suspended with no pay)

By Zelie Pollon

SANTA FE, NEW MEXICO Aug 9 (Reuters) - The New Mexico Finance Authority, which issues debt to help local government with public works, suspended two executives on Thursday following the arrest of the agency's chief operating officer and a former controller, an official said.

Chief Operating Officer John T. Duff and former Controller Greg Campbell were arrested on Wednesday by State Securities Division officers among charges of submitting a fake audit, misrepresenting financial statements, and covering up $40 million in losses to the state, State Auditor Hector Balderas said.

The New Mexico Finance Authority announced the discovery of the falsified audit in July, after it was notified by the state's auditor that no audit was filed, Balderas said. An investigation by the authority then found the audit to be falsified.

According to the arrest warrant filed in Santa Fe District Court, the two men face felony charges on eight counts of securities fraud, one count of racketeering and one count of conspiracy to commit racketeering.

Alongside Duff, who was suspended without pay, Rick May, the finance authority's chief executive officer, was suspended with pay, pending the outcome of the investigation. Brett Woods has been appointed interim director, New Mexico Finance Authority Board Chairwoman Nann Winter said.

"Time is of the essence, but I don't want to sacrifice quality findings for time," she said.

PricewatershouseCooper will audit the authority's financial results.

Winter added that the authority has roughly $35 million to $37 million cash on hand and felt confident that with more stringent loan requirements, the agency could function comfortably for another 6 months.

A bond sale originally planned for July 26 was delayed. The Series 2012B Senior Lien Public project Revolving Fund Revenue Bonds has been postponed until after the new audit is completed.

"We're confident that we have enough to continue lending, based on our new loan policy," Winter said.

In July, Moody's Investors Service put the authority's Public Project Revolving Fund Aa1 Senior Lien and Aa2 Subordinate Lien ratings under review for downgrade, a move affecting $1.26 billion in outstanding total debt.

"The implications are higher costs to do business for taxpayers in New Mexico and a crisis in confidence to investors," Balderas said. "Ultimately this hurts small villages and governments and systems. We're a poor state, so it's essential we have access to capital. We need to get to the bottom of this crisis so we can stabilize NMFA." (Reporting by Zelie Pollon; Editing by Stacey Joyce)

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