Former N.M. Regulator Loses Federal Appeal of Corruption Conviction

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January 4, 2010 Monday 02:55 PM EST

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Former N.M. Regulator Loses Federal Appeal of Corruption Conviction

Sean P Carr

ALBUQUERQUE, N.M.

The 10th Circuit Court of Appeals upheld the conviction of former New Mexico insurance regulator Joe Ruiz on multiple corruption charges.

In 2008, the former deputy insurance superintendent was sentenced to four years in prison and ordered to pay $105,000 in restitution and fees for his role in a scheme to reduce regulatory fines against insurers in exchange for payments to charities linked to Ruiz and his boss, then-Insurance Commissioner Eric Serna (BestWire, July 16, 2008). The 30 counts included mail fraud, wire fraud, corrupt solicitation by an agent of an organization, and Hobbs Act extortion in a plan to benefit Con Alma Health Foundation, a nonprofit where Serna was president. The payments also benefited the Southwestern Arts Institute, a private nonprofit charity that began as a children's choir. Consisting of one individual, the institute's primary activity consisted of receiving donations toward the purchase of bilingual books for children -- almost all of which were written by Ruiz, according to court records.

Ruiz's appeal rested on "a flawed and unreasonable interpretation of New Mexico law," Judge Deanell Reece Tacha wrote in the opinion affirming the conviction. "Contrary to Mr. Ruiz's claims, the New Mexico insurance code does not permit a deputy insurance superintendent to solicit donations to charities in which he and his superior have personal interests instead of collecting fines for the state," she wrote.

As detailed in Tacha's opinion, Ruiz claimed the superintendent has "unfettered authority to impose fines, settle claims, or forgive violations." In supporting the conviction, Tacha referenced a ruling in a New Mexico Court of Appeals case that determined a court may not order a defendant to contribute money to a sheriff's department fund in lieu of paying a fine.

According to Ruiz's prosecutors, the former deputy would allege that an insurance company improperly used adjusters not licensed in New Mexico to process New Mexico insurance claims. Ruiz would also allege that a company itself was improperly licensed or registered in New Mexico. Ruiz would often initiate his contact with an insurance company by informing the company he believed either the company or some of its employees were improperly licensed or registered in New Mexico (BestWire, July 16, 2008).

In one case cited by federal prosecutors, in September 2003, Ruiz advised a representative of Ohio Casualty Group via e-mail that it faced a $400,000 fine and asked the representative to call him to discuss alternatives to the fine. In a meeting, Ruiz offered the option of paying $30,000 to Con Alma and $5,000 to SAI in lieu of the fine. The company declined and negotiated for a $25,000 fine and a $15,000 suspended penalty.

"Policyholders in New Mexico need to know that their regulators are following the law and this decision sends a message that the prosecutors were right," said current New Mexico Insurance Superintendent Morris Chavez. "Hopefully now we can put this issue to bed once and for all."

Serna resigned as commissioner in May 2006 as part of an agreement with the state Public Regulation Commission, which oversees the Division of Insurance. Serna had been placed on administrative leave at the recommendation of then-state Attorney General Patricia Madrid after a review by her office revealed similarities between overpayments by Serna's department to a local bank and adverse audit findings of the agency by the state Legislative Finance Office (BestWire, May 19, 2006). In March 2006, Serna stepped down as president of Con Alma, which had received more than $100,000 as a result of the custodial contract with Century Bank. The bank, since 2003, managed roughly $365 million in insurance department deposits from insurance companies.

Attempts to reach Ruiz's attorney, Todd Hotchkiss of Frechette & Associates, PC in Albuquerque, were not immediately successful.

(By Sean P. Carr, Washington Correspondent: [email protected])

January 5, 2010

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