Former Region III Housing Authority Director Vincent "Smiley" Gallegos
Bloomberg reporter delves deep into a bond deal involving players under indictment in separate scandals
“Vincent ‘Smiley’ Gallegos, who ran a state housing agency out of an office next to a used-car lot in Albuquerque, New Mexico, should have known better when he borrowed $27.7 million, the Internal Revenue Service said.”
So begins the second of two articles published today that are the result of months of investigation by Bloomberg’s Elliot Blair Smith into CDR Financial Products.
Confused? Wondering if I’m getting my New Mexico political scandals mixed up? I’m not. This article involves both CDR – the company at the center of the now-defunct GRIPgate scandal that cost Gov. Bill Richardson the U.S. commerce secretary post – and Gallegos – the man at the center of the state’s housing authority scandal.
CDR, the company’s founder David Rubin and two other employees were indicted last week in an unrelated probe into bid rigging in the nation’s municipal bond market.
Gallegos and three others are currently under indictment in the housing authority case. Gallegos and two others are facing felony charges including fraud and money laundering related to the misuse of bond money. A fourth defendant is charged with tampering with evidence.
Today’s reports by Smith don’t deal directly with either scandal. Instead, they’re an in-depth look at the way CDR has done business across the nation for some time. The second article focuses on more than $27 million in bonds the Region III Housing Authority in Albuquerque sold in 2003 “with the help of” CDR.
“At the time the authority issued the bonds, there was ample evidence that the program would not be successful,” the IRS said after investigating the deal, according to Bloomberg. “A prudent person would not have taken the same actions.”
Thinking that’s more of the same from an affordable housing agency that collapsed in 2006 after it defaulted on more than $5 million in bonds it owed the state? You’re probably not the only one.
From the Bloomberg article:
“Two months later, federal tax authorities revoked the bonds’ tax exemption. The IRS found that one of the agency’s banks, Paris-based Societe Generale SA, would earn as much as $1.5 million on a program for low-income and first-time homebuyers that lent only about $2.6 million. Tax authorities also found that CDR was collecting more than $50,000 a year from Societe Generale in fees not disclosed in public bond documents.”
And the context:
“The unraveling of Region III investments shows how municipal financing arranged in the dark costs as much as $6 billion a year through lack of disclosure, officials’ mistakes and public corruption, according to data compiled by Bloomberg. It also reveals how financial professionals may enrich themselves by taking advantage of a tax benefit worth $36 billion a year to state and local governments and non-profit agencies that borrow.”
There’s a lot of good stuff in this article, which you can read by clicking here, and the other Smith report about CDR, which you can read here.