Richardson, Obama Teams Trade Blame

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/05/AR2009010503047.html
By Carol D. Leonnig and Michael D. Shear
Washington Post Staff Writers
Tuesday, January 6, 2009; Page A01

Weeks before President-elect Barack Obama chose New Mexico Gov. Bill Richardson to head the Commerce Department, a small group of volunteers with ethics, tax and investigative expertise -- most of them lawyers -- scoured his background looking for embarrassing facts or political problems.

But the team underestimated a potential time bomb -- a grand jury investigation that had been focusing on Richardson's gubernatorial office. The investigation had been widely reported, but Richardson seemed convinced that the probe, which involved a campaign donor, was not likely to thwart his Senate confirmation.

Yesterday, however, Richardson abruptly withdrew from consideration. In the preceding weeks, the extent to which he had underestimated the seriousness of the FBI investigation became obvious both to Obama's vetting team and to Richardson's own staff.

Sources within the transition and the Justice Department said that Richardson had played down the importance of the probe and did not reveal that his office and staff could be at risk. The seriousness of the matter became apparent after the FBI began its own background check on Dec. 2. But Richardson's longtime aides defended his disclosures, noting that subjects under examination by a grand jury are rarely aware of its secret deliberations.

"This was out there, and he told them," said a senior Richardson aide, speaking on the condition of anonymity because of the ongoing investigation. "I feel that they just missed the boat on it. The FBI or the campaign or something. I don't think it's fair that this is being portrayed as him holding anything back."

Yesterday, Richardson hired a prominent white-collar lawyer to represent him in the investigation, which centers on a California financial services firm that won a lucrative contract from the New Mexico Finance Authority after donating to political committees linked to the governor.

In a brief news conference yesterday in Santa Fe, the governor declined to comment on the ongoing probe.

"As you might expect, I'm disappointed in the turn of events," Richardson said. "There were a lot of ways in which I thought I could help this country in a time of financial crisis. Sometimes your own dreams and plans must take a back seat to what is best for the nation."

A Richardson aide said the governor did "nothing wrong" and noted that New Mexico news outlets had reported on the federal grand jury probe starting in August, when officials at the Finance Authority were first interviewed by the FBI about the agency's selection of CDR Financial and its president, David Rubin, a Richardson donor.

But a source with the Obama transition said Richardson's disclosures to the team were incomplete.

A Justice Department source also said Richardson neglected to mention the ongoing investigation on a background-check questionnaire.

FBI agents assigned to comb his background learned independently that an inquiry was underway in New Mexico, the source said. Staff members in the deputy attorney general's office relayed the existence of a "significant" probe -- but no details of the investigation -- to senior members of the transition team.

Justice Department spokeswoman Laura Sweeney declined to comment yesterday on the probe, or on any conversations that may have occurred between the department and the transition team.

Obama's aides also declined to comment yesterday. Obama press secretary Robert Gibbs defended the process, saying: "The totality of our Cabinet picks, it's impressive, and I think our vetters have done a good job."

In New Mexico, the probe of CDR Financial evolved from a larger, nationwide investigation into allegations that investment firms were giving bribes and gifts to local officials to win lucrative work advising local governments on bonds.

The FBI became interested in the New Mexico finance agency, legal sources said, because CDR and its founder had donated $100,000 to two political action committees headed by the governor. The donations, in 2003 and 2004, were made near the time that the authority awarded two contracts to CDR.

In bidding for the first contract, state records show, CDR was not ranked as the most qualified firm to do the work. But the staff for the authority recommended splitting the work and awarding CDR a portion of it. The authority's executive director at the time of that recommendation was David Harris, the governor's former deputy chief of staff, who had gotten the job with Richardson's help.

Steve Flance, board chairman of the Finance Authority, said yesterday that he was interviewed by the FBI in August along with other board members, and that his office has provided numerous boxes of transactions to help federal investigators. He said he does not think the probe will find any wrongdoing by the governor or by state officials.

"I realize the FBI may have other information I am not aware of," Flance said. "But I believe in the end that it will be determined there has been no criminal activity by anyone in the state."

The investigation into CDR was not limited to New Mexico. Authorities have investigated the firm's actions and gifts to public officials in Charlotte; Philadelphia; Jefferson County, Ala.; and Florida.

CDR attorney Richard Beckler said the company has not been charged in any of these cases and has worked to cooperate with government investigations. He said the company has also helped local governments make millions of dollars in investments.

"CDR has always abided by the law and complied with these rules," he said. "There's no direct pay-to-play quid pro quo in any of this."

Pendleton James, who led the vetting process for President Ronald Reagan's nominees, called the situation "astounding." "Come on, they just found this out yesterday?" he asked. "If this was some misdemeanor, I could understand, but . . . a grand jury investigation anywhere near a sitting governor?"