Ex-investment officer claims NM wasted $90 million

ALBUQUERQUE, N.M. (AP) -- A former investment officer for the state's educational pension program claims New Mexico taxpayers lost more than $90 million in an alleged "pay-to-play" scheme in which political contributions to Gov. Bill Richardson influenced the awarding of investment business.

Frank Foy says in a lawsuit that the Educational Retirement Board made a $40 million investment through Chicago-based Vanderbilt Capital Advisors and Vanderbilt Financial because of pressure from a Richardson appointee who served as chairman of the pension system's governing board. The investment went bust, as did another for $50 million made through Vanderbilt by the state Investment Council that Foy also claims was the result of political influence.

Foy, chief investment officer at the Educational Retirement Board from 1996-2006, claims Vanderbilt executives later contributed at least $15,100 to Gov. Bill Richardson's failed presidential campaign.

The whistleblower lawsuit was filed in July on behalf of the state under a 2007 law but had been sealed until this week. Plaintiff's attorney Victor Marshall said at a news conference Wednesday that damages could total more than $300 million. Defendants include two of the governor's appointees, Vanderbilt and several of its employees, but the governor himself is not named.

"The reason I came forward was not to inflict harm on the state of New Mexico," said Foy, who contends he was forced to retire from state government last year. "My hope is to help the state recover more than $300 million that is owed to taxpayers and teachers."

Gilbert Gallegos, a spokesman for Richardson, said the governor "is confident that the state agencies named in this lawsuit acted properly and in the best interest of New Mexicans.

"This lawsuit, filed by a disgruntled former employee who was accused of serious misconduct during his time as a state employee, makes absurd claims against state agencies," Gallegos said. "The state will vigorously defend those agencies."

The lawsuit adds to the cloud gathering over Richardson because of pay-to-play allegations. Foy is the first high-ranking state employee to go to court and publicly allege Richardson political appointees helped steer state business to the Democratic governor's campaign contributors.

In announcing his decision to withdraw his nomination as U.S. commerce secretary this month, Richardson expressed concern that the investigation was dragging on and could become an unnecessary distraction to President-elect Barack Obama's economic initiatives.

The governor has denied any wrongdoing in the federal case.

The investments at issue in Foy's lawsuit are collateralized debt obligations - securities backed by pools of mortgages or other assets. CDOs have sharply dropped in value since a credit crisis erupted more than a year ago as investors abandoned all but the safest forms of debt.

The lawsuit characterizes the investments as "liars' loans, lethal leverage and toxic waste."

The $90 million investment was wired to Vanderbilt in August 2006 but was worthless when the funds collapsed four months later, Foy said. Contributions to Richardson's campaign were made by several Vanderbilt employees in February, June and December 2007.

A spokesman for Pioneer Investments, Vanderbilt's parent company, didn't return messages seeking comment.

Foy said he actively opposed the Vanderbilt transactions and was targeted for retaliation by Education Retirement Board members who acted on instructions from Bruce Malott, the board's chairman and a Richardson appointee, and from a defendant identified as "John Doe No. 2," whose identity remains under seal.

The lawsuit said Malott "insisted that the ERB invest in this particular product from this particular vendor."

Malott, who served as treasurer of Richardson's 2006 gubernatorial re-election campaign, called the lawsuit baseless.

"I simply lost faith in Mr. Foy's appropriateness for the position," Malott said.

Foy was the retirement board's chief investment officer for a decade until he says he "was forced to protect himself" and took a demotion to deputy chief in 2006, a position that protected him from firing without cause.

According to the lawsuit, Foy continued to speak out against "pay-to-play" operations until he retired. He was accused of sexual harassment in December 2007, an allegation the lawsuit contends was "contrived" to force Foy into retirement.

Jan Goodwin, executive director of the Educational Retirement Board, said managers concluded the complaint against Foy had merit "and we took appropriate action."

The lawsuit also alleges that another Richardson appointee, State Investment Officer Gary Bland, and others at the State Investment Council "carried out instructions from John Doe #2 and perhaps others to invest state money in exchange for political contributions or other illegal or improper inducements."

"The state investment officer has not participated in any wrongdoing and will vigorously fight the reckless allegations made today," said Charlie Wollman, a spokesman for Bland.

Foy's lawsuit was brought under a state law that allows private citizens to sue on behalf of the government for claims of fraud against taxpayers. Plaintiffs can receive a share of monetary damages that might be awarded.

Such lawsuits are initially sealed after being filed. Damages can be tripled, which is how Foy arrived at the $300 million figure.

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