Obama's commerce nominee withdraws

New Mexico Governor drops out amid scandal over campaign contributions
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Bill Richardson, the man chosen by President-elect Barack Obama to be America's next Commerce Secretary, has dropped out of the running pending the results of a corruption inquiry. When he named Mr Richardson, the Governor of New Mexico, as part of his incoming administration, Mr Obama said he wanted his cabinet to be among the most diverse ever.

Mr Richardson, who has Mexican ancestry, helped to deliver crucial Hispanic votes for Mr Obama in his tough nomination race against Hillary Clinton. Since August, a federal grand jury has been investigating contracts with New Mexico won by a company that contributed heavily to Mr Richardson's election. "Let me say unequivocally that I and my administration have acted properly in all matters and that this investigation will bear out that fact," said the 61-year-old, who intends to stay on as Governor.

His abrupt withdrawal is an unexpected setback for Mr Obama, who has enjoyed remarkably smooth transition to power. He has been building a cabinet in near-record time, until now without the dramas which damaged Bill Clinton's first administration.

Flying to Washington last night to join his family after their Hawaiian holiday, Mr Obama said he accepted Mr Richardson's decision "with deep regret". "Governor Richardson is an outstanding public servant and would have brought to the job of commerce secretary and our economic team great insights accumulated through an extraordinary career in federal and state office," Mr Obama added.

The setback comes as the "pay to play" Chicago political corruption scandal continues to swirl. Federal prosecutors allege that Rod Blagojevich, the Governor of Illinois, tried to sell Mr Obama's vacant Senate seat to the highest bidder. Instead of resigning, as Mr Obama and others demanded, Mr Blagojevich stayed in his job and appointed a replacement senator.

Mr Richardson's administration in New Mexico is alleged to have doled out hefty contracts to a California investor who made significant contributions to the Governor's re-election campaign.

Mr Richardson's Senate confirmation hearings were certain to attract penetrating questions about the financial contributions and tarnish Mr Obama's lofty commitment to maintain the highest ethical standards in his incoming administration.

Federal investigators have convened a grand jury to examine how CDR Financial Products won two contracts worth $1.4m (£950,000) in 2004 after contributing $100,000 to Mr Richardson's re-election campaign.