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SANTA FE, N.M. (AP) — A New Mexico financial regulator is investigating possible violations of state securities laws by a fake New Mexico Finance Authority audit being distributed to investors.
The probe by the state Securities Division was announced Monday at a meeting of the governing board of the Finance Authority, which disclosed last week that a fake 2011 audit had been created and was sent to investors and creditors. Authority officials have blamed a former controller, who left in June, for misrepresenting that financial statements had been audited by an outside firm.
The Finance Authority issues bonds and provides low-cost financing to New Mexico governments for capital improvement projects.
State Auditor Hector Balderas told the board that his office is investigating the fraudulent audit and will report any criminal violations to law enforcement agencies. Moody's Investors Service has said it's considering whether to downgrade the ratings of nearly $1.3 billion in outstanding bonds issued by the authority.
The Securities Division is investigating whether there was fraud against investors, who may have made bought bonds based on false information that the authority's finances had been audited.
Finance Authority Richard May said the former controller, Greg Campbell, had assured authority officials earlier this year that financial statements had been audited and submitted to the State Auditor's Office, as required by state law. The Auditor's Office had alerted the authority that an annually required audit had not been filed, but May said the controller told authority officials the state auditor had made a mistake. May said the authority later determined that Campbell was incorrect after checking with its outside auditing firm.
At Monday's meeting, May and the authority's lawyers were reluctant to talk about details of the case because they were concerned that public disclosure of some information could hamper pending investigations.
However, the staff came under sharp questioning from several board members on why an outside law firm had been hired last week to investigate how the fake audit happened and what internal financial reporting procedures should be improved.
Tom Clifford, secretary of the Department of Finance and Administration, questioned whether the outside firm would provide a truly independent review. The firm, he said, will be paid by the authority and will report to it. He also suggested that the law firm's work could potentially interfere with pending investigations by the state auditor and the securities division.
Clifford said it was "ill advised" to hire the firm, which could earn up to $750,000 for its work, and the board will meet again on Wednesday to consider whether to keep the firm.
The NMFA is governed by a board of 12 directors, with 10 of them appointed by the governor. Under state law, four of the board members are state agency leaders who are part of Gov. Susana Martinez's cabinet.
May defended the hiring of the law firm, Steptoe and Johnson, which has offices in New York and internationally. He said it was important to send a quick signal to the financial markets and Wall Street firms that the authority was aggressively looking into the fake audit and will correct any problems.
After the meeting, May declined to speculate whether the audit was faked to cover possible embezzlement.
"We have no knowledge that any money is missing but we want to get to the bottom of whether money is missing and how it occurred," said May. "That's the purpose of bringing in an internationally recognized independent investigator to determine that for us."
Follow Barry Massey on Twitter at https://twitter.com/bmasseyAP