A state grand jury is investigating the workings of an Albuquerque-based housing district scandal that defaulted on payments on $5 million in bonds it sold to New Mexico, the Associated Press is reporting.

According to the wire service:

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 Lujan, D-Nambe. 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.”