WASHINGTON — President-elect Barack Obama was dealt a setback to his incoming Cabinet on Sunday when Commerce Secretary-designate and New Mexico Gov. Bill Richardson withdrew from consideration amid a federal investigation into how a political donor from Beverly Hills won a lucrative state contract.
Richardson, a former presidential candidate who was secretary of Energy and U.N. ambassador in the Clinton administration, said in a statement that he was withdrawing because "a pending investigation" would have "forced an untenable delay in the confirmation process." He said the investigation "promises to extend for several weeks or, perhaps, even months."
Obama, en route to Washington for pre-inaugural meetings, said in a statement that he accepted Richardson's withdrawal "with deep regret."
"It is a measure of his willingness to put the nation first that he has removed himself as a candidate for the Cabinet in order to avoid any delay in filling this important economic post at this critical time," Obama said.
A federal grand jury in Albuquerque is looking into whether CDR Financial Products in Beverly Hills received a contract with the New Mexico Finance Authority because of pressure from Richardson or other state employees.
The state contract came about a few months before CDR and its president, David Rubin, contributed more than $100,000 to two Richardson political committees, campaign finance records show.
CDR Financial Products acts as an investment middleman by helping government and nonprofit entities broker competitive bids from banks, insurance companies and others. It helped put together a complex bond financing deal for a $1.6-billion highway and transportation construction program for the New Mexico authority. The company collected $1.5 million in fees, state officials confirmed.
The federal probe heated up considerably last month, around the time Obama announced Richardson as his choice for secretary of Commerce, according to sources familiar with the investigation. New subpoenas were issued and testimony was scheduled from officials at J.P. Morgan Chase & Co., who worked for the state with CDR, and the director of Richardson's political action committees.
CDR's selection drew FBI interest because the firm was not included on an initial list of the most qualified bidders. The bidding was later reopened for review, and a state committee headed by one of Richardson's former top aides helped select CDR.
The inquiry is part of a national investigation of "pay-to-play" practices in the municipal bond market, in which financial companies make political donations to officeholders in order to be considered for public business.
Richardson said Sunday that he had "acted properly in all matters and that this investigation will bear out that fact." He intends to remain governor of New Mexico.
CDR spokesman Allan Ripp also denied that his company had done anything wrong.
"CDR stands by the work it performed for the New Mexico Finance Authority as well as the propriety of the selection process by which the firm was chosen to serve as the state's swaps and investment advisor in 2004," Ripp said.
James Pfiffner, a public policy professor at George Mason University in Fairfax, Va., and author of a book on presidential transitions, said the withdrawal suggested flaws in Obama's screening process.
"It shows that they didn't quite do enough vetting, and something came up that they didn't quite foresee," Pfiffner said.
Obama spokesman Robert Gibbs defended the incoming administration's screening of its Cabinet choices. "The totality of our picks, it's impressive, and I think our vetters have done a good job," said Gibbs, speaking to reporters traveling with Obama on a flight from Chicago to Washington.
With Richardson's withdrawal, Obama's administration loses its most prominent Latino member, a national figure who endorsed the Illinois senator over Sen. Hillary Rodham Clinton in the Democratic primaries and campaigned for him in the general election.
The federal investigation into Richardson's relationship with CDR Financial Products has been public knowledge since August, when it was reported by the Albuquerque Journal.
The Associated Press reported in 2004 that a political committee established by Richardson to pay costs for himself and his staff at that year's Democratic National Convention received more than two-thirds of its contributions from companies doing bond business with the state.
The largest donor to the group, with a $75,000 contribution, was CDR Financial Products. Other state contractors gave at least $55,000.
Sensitivity to allegations of "pay-to-play" politics has grown since the arrest last month of Illinois Gov. Rod R. Blagojevich, accused of trying to use his power to fill Obama's vacant Senate seat to extort money or jobs from interested candidates.
Neither Obama nor his advisors have been implicated in Blagojevich's alleged scheme, but the scandal has been a political distraction.