* Mario Villanueva faces drug, money laundering charges
* Case has ties to failed Lehman Brothers investment bank
By Basil Katz
NEW YORK, May 10 A former Mexican state governor pleaded not guilty in a New York court on Monday to charges of trafficking cocaine into the United States and laundering millions of dollars through Lehman Brothers bank.
Mario Villanueva, governor of Quintana Roo state from 1993 to 1999, was extradited to the United States on Saturday after serving a six-year sentence in Mexico for money laundering. The state is home to the famous seaside resort city of Cancun.
If convicted in the United States, Villanueva faces up to life in prison on the drug charges and up to 20 years on the money laundering counts.
The money transfers were administered by Consuelo Marquez, a Lehman investment representative who pleaded guilty to money laundering charges in 2005.
Villanueva "turned the Mexican state of Quintana Roo into a virtual narco-state, selling its infrastructure and even its police to one of the world's most dangerous mafia enterprises," Manhattan U.S. Attorney Preet Bharara said in a statement.
Almost all of the cocaine consumed in the United States is smuggled through Mexico. In recent years, the lucrative drug trade has fueled a bloody war in Mexico as cartels vie for control of smuggling routes.
Villanueva is accused of receiving more than $19 million from the powerful Juarez cartel in return for providing protection in his state. He is charged with laundering the funds through accounts at Lehman from 1993 to 2001, long before the collapse of the investment bank in 2008.
Still, the Villanueva case and its ties to Lehman put more attention on Wall Street as the big banks fight plans for tighter regulation and try to improve their battered public images in the wake of the 2008-2009 global financial crisis.
Prosecutors said the money received by Villanueva was funneled to and from a series of third-party accounts and offshore corporations, ultimately ending up in the accounts at Lehman Brothers Holdings Inc LEHMQ.PK.
A spokesman for Lehman could not immediately comment on Villanueva's extradition.
Villanueva was arraigned by U.S. District Judge Naomi Buchwald. His attorney did not ask for bail but said that, due to Villanueva's respiratory difficulties, he should be held in a facility equipped to provide medical attention.
More than 22,000 people have died in Mexico's drug violence since President Felipe Calderon took office in December 2006 and launched an army-backed offensive against the smuggling cartels with strong support from the United States. (Additional reporting by Grant McCool; Editing by Michelle Nichols and John O'Callaghan)