A state grand jury is investigating the operations of an Albuquerque-based regional housing authority that defaulted on payments for $5 million in bonds it sold to New Mexico.

Witnesses have been subpoenaed to appear in early February, according to a person familiar with the criminal investigation who asked not to be named because of the confidential nature of the proceedings.

Attorney General Gary King's office has been investigating the Region III Housing Authority, which the State Investment Council concluded in a 2006 report had misused bond proceeds to pay salaries and benefits, make loans and buy vehicles.

The investment council in May filed a separate civil action against the agency's former executive director, Vincent "Smiley" Gallegos, and an Albuquerque bond attorney, Robert Strumor, in an effort to recover the $5 million in taxpayer money. That lawsuit is pending.

Gallegos, a former legislator and lobbyist is a longtime friend of House Speaker Ben Luján, D-Nambé. For years he was known to frequent the speaker's office when the Legislature was in session.

The authority is one of seven in New Mexico created to provide affordable housing.

A spokesman for King, Phil Sisneros, would say only that the investigation is "ongoing." He said he had no information about a grand jury.

Albuquerque lawyer Paul Kennedy confirmed he is representing Gallegos, but declined on Thursday to comment further.

Staff in the State Investment Council office have "spoken at length many times in the past year" with representatives of the attorney general's civil and criminal divisions, as well as with the state auditor's office, according to spokesman Charles Wollmann.

Wollmann said because of the pending civil lawsuit it would be inappropriate to comment further.

State Auditor Hector Balderas said that his office — which has been cooperating with the investigation — is preparing to release a report next week on the state's troubled regional housing authorities, including Region III.

"I'm hopeful that this report will provide a clear financial view of what happened to these regions," Balderas said.

The auditor wouldn't comment in advance of the report's release on what his office had learned about Region III.

"I've directed my auditors to cooperate and provide any documentation that might be helpful to the attorney general's office," Balderas said.

Gallegos, a former state legislator from Clovis, resigned in 2006 as the executive director of the agency, which covers Bernalillo, Sandoval, Torrance and Valencia counties.

According to a 2006 State Investment Council report, about $870,000 in bond money went to Gallegos as salary, benefits and a loan.

That report also said the housing authority sold homes to people who were not qualified because they had a relationship to the authority or were not low-income.

The civil lawsuit alleges that Gallegos defrauded and deceived the State Investment Council and misused bond proceeds to benefit himself and other employees.

With Region III mired in scandal two years ago, the administration of Gov. Bill Richardson said only two of the state's seven regional housing authorities were doing the job they were created to do, and an overhaul was needed.

The Legislature passed a bill that severely restricted their autonomy, removing their ability to issue bonds and providing closer scrutiny by the Mortgage Finance Authority and the state Department of Finance and Administration.

In 2006, Gallegos made the news when it was revealed that Bernalillo County Metro Judge Theresa Gomez and Speaker Luján's secretary lived rent-free for several months in homes owned by Region III. Both were told by Lawrence Rael, who at that time was in charge of Region III, to pay back rent.

New Mexican staff writer Steve Terrell contributed to this report.