New Mexico Governor Bill Richardson withdrew his name from consideration to be President-elect Barack Obama’s commerce secretary amid a federal investigation into how a political contributor won state financial business.
It’s too soon to say where the investigation might be heading. But as Bloomberg News reported last month, CDR Financial Products LLC of Beverly Hills, CA and its founder, David Rubin, have been scrutinized by multiple federal agencies in recent years, from the Securities and Exchange Commission to the Internal Revenue Service. Several of those probes are ongoing.
CDR, which also advised Jefferson County, AL, on bond deals that threaten to cause the biggest municipal bankruptcy in U.S. history, donated $100,000 to Richardson’s efforts to register Hispanic and American Indian voters and to pay for his expenses at the 2004 Democratic National Convention in Boston, where he was chairman. A short time later, it won two contracts to provide financial services to New Mexico that netted the company $1.48 million.
Investigators are looking at whether Richardson, a second-term governor who was Bill Clinton’s Energy Secretary, influenced the company’s hiring. The contracts were awarded by the New Mexico Finance Authority – a group that is essentially controlled by the governor who appoints five of its 12 directors, including the chairman. Five other directors are members of the governor’s cabinet.
That investigation is one front in a nationwide inquiry by U.S. prosecutors into so-called pay-to-play practices in the municipal-bond market. The probe is focused on banks and advisers who make political contributions or personal gifts to public officials in return for fee-paying financing assignments.
Richardson said yesterday that he expects to be vindicated. “I acted properly, and my administration acted properly,” he said at a news conference. “A fair and impartial review of the facts will bear that out.”
He said he declined the Commerce post only because the probe threatened to delay his confirmation, leaving the new president without a key player at a time when he was rushing to jumpstart the economy.
Bloomberg’s Martin Z. Braun reported last month that a federal grand jury in Albuquerque met in December to look at how CDR won work from the New Mexico Finance Authority in 2004. It quoted unnamed sources as saying that the FBI was asking officials of the state agency whether any of at least 30 people in the governor’s office influenced CDR’s hiring.
In a statement yesterday, CDR’s Rubin called Richardson “an exceptionally able and dedicated public official, who was highly deserving of the opportunity to hold a cabinet- level position in the new Obama administration.”
Rubin said his company underwent “a rigorous vetting process” and “has never practiced pay-for-play on any playing field where we do business.”
CDR advised the finance authority on the purchase of swaps from New York-based Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., JPMorgan Chase & Co., UBS AG of Zurich and Royal Bank of Canada in Toronto as part of Richardson’s $1.6 billion transportation proposal in 2003.
The New Mexico probe comes two years after the FBI searched CDR’s offices as part of a nationwide investigation into whether banks and advisers conspired to overcharge local governments on financing deals. That probe by the New York office of the U.S. Department of Justice’s Antitrust Division is ongoing, and CDR says it is cooperating.
In September 2007, CDR settled allegations by the SEC that it committed securities fraud for failing to disclose that it received secret fees on Florida bond deals from New York-based American International Group Inc. CDR and AIG neither admitted nor denied wrongdoing.
CDR also was paid $1.8 million to advise Jefferson County, Alabama, on more than $5 billion of interest-rate swaps, meant to lower borrowing costs on $3.2 billion of sewer bonds.
A combination of soaring rates on the bonds and interest-rate swaps is threatening the county with a bankruptcy that would exceed Orange County, California’s default in 1994. Jefferson County paid JPMorgan and a group of banks $120.2 million in fees for derivatives that were supposed to protect it from the risk of rising interest rates.
Those fees were about $100 million more than they should have been based on prevailing rates, according to James White, an adviser the county hired in 2007, after the SEC began investigating the deals.
CDR Aspokesman said the company stands by its pricing and said White’s estimates were incorrect because they didn’t take into account the county’s credit profile, collateral provisions between the county and the banks and the precise time of the derivative trades.
The firm was also a player in a federal corruption probe focused on the administration of then-Philadelphia mayor John Street.
A November, 2006 Bloomberg story provides the details:
In April 2001, CDR hired Ron White, a bond lawyer and chief fundraiser for Philadelphia Mayor John Street, as a consultant, paying him a $5,000 retainer to help the company win business with the city. Rubin donated $15,000 to Street between December 2000 and June 2003, according to Pennsylvania state filings.
In addition, CDR gave White three tickets to the 2003 Super Bowl in San Diego and provided a limo ride to the game. White brought along Philadelphia treasurer Corey Kemp, according to a federal criminal indictment brought against White and Kemp in 2004.
On Feb. 11, 16 days after the game, Kemp told White that city Finance Director Janice Davis agreed to “move fast forward” on a $150,000 swap advisory contract for CDR, according to transcripts of FBI wiretaps.
Banks paid CDR, which wasn’t accused of wrongdoing, at least $515,000 from profits they earned on transactions with the city, documents show.
CDR won its contract with the city without a competitive bidding process.
Click here to sign up for the Muckety Newsletter
1 Comments
#1. George F. Alexander 01.09.2009
The Java graphic leaves out several key players and donors to Richardson who either benefited from the GRIP bond financing or who may have gained in other ways like high-paying jobs, business referrals or state contracts.
Leave a Comment