Wednesday, August 8, 2012

Two Arrested in Audit Scandal

The state Regulations & Licensing Department this morning announced the arrest of  the former controller and the current chief operating officer for the New Mexico Finance Authority in connection with the forged audit scandal.

John Duff's booking shot

I haven't seen the actual criminal complaint yet, but according to the news release, Gregory M. Campbell, the former controller for NMFA, has been charged with eight counts of securities fraud, four counts of forgery and one count each of racketeering and conspiracy to commit racketeering.

Campbell's name has been out there for awhile. But also arrested this morning was John Duff, the current chief operating officer for NMFA, who was the immediate supervisor of Campbell.

Duff is charged as an accessory on eight counts of securities fraud and racketeering. Duff, also is 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.

“These two corporate officials had strong accounting backgrounds yet they cooked the books to make their financial statements looks stronger than they actually were,"   Daniel S. Tanaka, Director of the Securities Division said in the news release. "Accurate disclosure of the true financial condition of a company is crucial to ensure that all investors have the information they are entitled to by law,” said Tanaka.

The arrests come one week after investigators from the state Securities Division seized documents, computers, compact discs and other items from the Finance Authority's office in downtown Santa Fe.
Greg Campbell

Campbell and Duff were booked into Santa Fe County Jail and are subject to 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.

The news release, referring to the criminal complaint, says that  Campbell admitted to forging the 2011 audit report. “Campbell stated he obtained the audit reports from the fiscal year 2010 audit and ‘copied and pasted’ the letterhead and signatures onto a printed copy of the PDF file. Campbell stated he then copied the entire report and scanned it into a PDF file in order to disseminate copies of the financial statements and forged reports to external and internal recipients” as the 2011 audit report, the complaint alleges.

The independent auditors, hired by NMFA to perform that function, told investigators that they never completed an audit of the 2011 financial statements and there was no exit conference held to go over the audit results.

The criminal complaint also alleges that Campbell, with the explicit knowledge and permission of Duff, misrepresented approximately $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.

According to the complaint, "...Campbell represented that the decision to reclassify the reduction in appropriations revenue as 'grant expense' was in fact a misrepresentation of the fiscal year 2011 financial statements as it did not reflect the true financial condition of the NMFA. Campbell accepted the characterization that the action to fraudulently misrepresent the financial statements was in fact 'cooking the books' of the NMFA."

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

Tanaka added, "Today we took swift and appropriate action, making significant progress towards the ultimate resolution of this case. These arrests send a clear signal to Wall Street, the investing public, and the citizens of New Mexico that we will not tolerate fraud in our financial institutions. ...The investigation will bring to light the extent of the wrongdoing and at the end of the day we will make our findings known and will work with all stake holders to restore confidence in the NMFA. The investigation continues. ”

Here are the criminal complaints:

NMFA criminal complaint