May.10, 2010, 8:15 PM EDT

May 10 (Bloomberg) -- A former Mexican governor pleaded not guilty today in federal court in New York to drug-trafficking and money-laundering charges using a Lehman Brothers Holdings Inc. account.

Mario Ernesto Villanueva Madrid, the former governor of the state of Quintana Roo, was charged in two indictments, one that accused him of conspiring to import “hundreds of tons” of cocaine into the U.S. and a second alleging he laundered almost $19 million through accounts at Lehman Brothers, said Yusill Scribner, a spokeswoman for the office of Manhattan U.S. Attorney Preet Bharara.

Villanueva accepted millions of dollars in bribes from the Juarez Cartel, a drug organization in Mexico, in exchange for assisting in the importation of more than 200 tons of cocaine, prosecutors said. A federal judge ordered that Villanueva be evaluated by doctors at a state jail in Valhalla, New York, after his lawyer said Villanueva suffers from lung disease.

“He will go to Valhalla for evaluation and they we can decide whether his condition is one that can be treated” at federal jails in Manhattan or Brooklyn, New York, U.S. District Judge Naomi Buchwald said. “I am ordering that the defendant be remanded.”

Villanueva, who arrived in New York yesterday in the custody of the U.S. Drug Enforcement Agency, allegedly used accounts in Lehman in New York and elsewhere, Scribner said. New York-based Lehman wasn’t accused of wrongdoing in the case.

Speed Boats

The Juarez Cartel, which has operated for more than 20 years, was responsible for the importation of Columbian cocaine via Mexico into the Southwestern U.S., including Texas and Arizona, prosecutors said.

In an arrangement with Villanueva, the cartel established operations in Quintana Roo, using speedboats with armed crews that rendezvoused off Central America’s Atlantic Coast, laden with cocaine shipments, the U.S. said. The cocaine was later transported to Quintana Roo port cities, including the resort of Cancun, Calderitas and the state’s capital of Chetumal.

Villanueva was paid $400,000 to $500,000 for each shipment transported through the state from 1994 through 1999, the U.S. alleged in court papers.

State government airplane hangars were used by the drug organization to store the shipments that arrived via plane from Belize, prosecutors said, while drug organization members were given state police identification.

Drug Proceeds Funneled

Consuelo Marquez, a former Lehman Brothers broker, admitted in 2005 that she funneled about $11 million in drug proceeds through Lehman accounts for Villanueva. She said she helped Villanueva launder drug proceeds by establishing Lehman accounts in the British Virgin Islands.

Authorities said that by late 1995, Villanueva had accrued millions of dollars in drug proceeds and to hide the funds, began transferring the money to bank and brokerage accounts in the U.S., Switzerland, the Bahamas, Panama and Mexico. Some of the funds were also in the names of British Virgin island shell corporations and at Lehman Brothers.

While under investigation, Villanueva fled Mexico shortly after his term expired in March 1999 and was a fugitive. He was arrested two years later by Mexican authorities and served six years in a Mexican prison on charges of protecting drug smugglers and money laundering.

Held in Mexico

Villanueva was located by Mexican authorities in 2001 and arrested. He had grown a long beard and shoulder-length hair and was hiding in a remote area of Mexico’s Yucatan peninsula, aided by criminal associates, prosecutors said.

He has since been held on the U.S. extradition request, Mexico’s Attorney General said in a May 8 e-mailed statement. All of Villanueva’s illicit funds at Lehman and other U.S. accounts, totaling more than $19 million, were seized, the U.S. said, and have been forfeited.

He faces as long as life imprisonment if convicted of the narcotics charges, prosecutors said, and as long as 20 years in prison if convicted of each of the 14 money-laundering charges.

U.S. Ambassador to Mexico Carlos Pascual described the extradition of Villanueva as “a major milestone in our efforts to address the widespread corruption the drug cartels generate on both sides of our shared border,” according to a statement issued today.

Wire Transfers

In the months surrounding Villanueva’s flight, Marquez helped liquidate the Lehman accounts with a series of wire transfers, prosecutors said. More than $7 million was transferred by Marquez into a Lehman Brothers account she opened in the name of a nonexistent Mexican family, authorities said during Marquez’s trial in a U.S. District Court in New York.

Marquez said during her August 2005 guilty plea that she had seen articles about the investigation of Villanueva and avoided looking into the matter or informing her superiors at Lehman, prosecutors said.

Marquez was sentenced to probation and a year of home confinement in 2006.

David Segal, a lawyer for Villanueva, declined comment after court.