Wednesday, January 14, 2009


There's a breaking new scandal involving Gov. Bill Richardson’s administration and another allegation of pay to play.

A lawsuit unsealed in State District Court this morning alleges that state taxpayers were defrauded of $90 million by a host of financial companies and two state officials. Among the defendants are State Investment Office and Educational Retirement Board officials, including Gary Bland, who is appointed by Richardson and Bruce Malott, chairman of the ERB board.

The lawsuit, filed by Frank Foy, the former chief investment officer at the ERB, alleges that Bland and Malott were instructed by an unnamed “John Doe # 2” to invest statement in exchange for political contributions from employees of Vanderbilt Financial and associated companies. According to federal campaign finance records, Vanderbilt and its employees and their families contributed more than $15,000 to Richardson’s presidential campaign.

“John Doe # 2”’s identity has not been released. It isn’t clear why his name is being kept secret. The lawsuit was filed in July of last year.
Gary Bland
At the heart of the suit is an allegation that the state invested in $90 million with Vanderbilt companies. The state received dividends from the investment totaling about $3.7 million. But sometime since May 2007, “Vanderbilt has informed the ERB and the SIC not to expect any more from its investment.” The ERB invested $40 million and the SIC invested $50 million.

“The defendants sold the state of New Mexico a worthless combination of liar’s loans, lethal leverage and toxic waste,” according to the complaint, referring to industry terms for types of bad investments.

Foy, who eventually was demoted and, he says, was forced to retire, was the subject of a sexual harassment suit in 2007. His suit claims, “These accusations ... clearly contrived to force Mr. Foy to retire.”
Bruce Malott
“It was my job at the Educational Retirement Board to act as a prudent fiduciary to protect schoolteachers’ retirement money,” Foy said in a statement Wednesday. “But teachers and taxpayers have lost millions due to pay-to-play practices that benefited Governor Richardson and his campaigns. Our primary goal is to restore the lost funds to their respective owners: taxpayers, teachers, and retired educators here in New Mexico.”

According to the lawsuit, “Beginning in 2003, the ERB was pressured to award contracts and make investments with persons or entities based upon political considerations. These pressures were exerted by Bruce Malott on instructions from John Doe #2 (and perhaps others). This was a plain violation of the fiduciary duties owed by the ERB to its members.” Richardson became governor in 2003.

According to the suit, in early 2006 Patrick Livney of Vanderbilt began to call Foy and Malott, pressuring Foy and his staff to invest with Vanderbilt. Foy said the type of investments offered by Vanderbilt “was not a good investment, and it did not fit in ERB’s portfolio.” Foy “vigorously resisted,” as did other staffers, the suit says, but Malott insisted.

In May 2006 the ERB board voted 4-2 to invest in Vanderbilt. “The directors selected by public school teachers voted against the investment. The directors who voted for the investment were swayed by improper considerations,” According to the suit, those members “voted for the Vanderbilt investment on instructions from Malott and/or John Doe #2 (and perhaps others).”

The lawsuit says there were other instances in which Malott “pressured the ERB to hire investment managers who were not the best qualified candidates, or to make investments.” The suit doesn’t specify these cases.

“Malott’s actions were intended to gain business and political favor for himself and Meyners, as part of Meyners’ efforts to develop its accounting business,” the lawsuit says, referring to Malott’s Albuquerque accounting firm. “Malott’s actions were a deliberate breach of the strict fiduciary duties which he owed to the ERB and ERB retirees. Malott’s actions were not within the scope of his duties as an ERB board member; those duties do not include raising political contributions and developing business for his CPA firm.”

The suit says that on several occasions after the State invested in Vanderbilt, “the defendants knowingly made false statements about the investment and the underlying assets and liabilities. These false statements were designed to conceal and misrepresent the fact that the State’s investment was virtually worthless ...”

Foy started at the ERB in 1996 and retired in 2007.

Bland was appointed to the SIC by Richardson at the outset of his first administration. He makes more the $300,000 a year.

Malott, a CPA, served as chairman of a Richardson task force to look at shortfalls in the state’s education retirement fund and was named by Richardson to the task force to find an interim state treasurer in 2005 when Treasurer Robert Vigil resigned over a kickback scandal.

Vanderbilt is a subsidiary of Pioneer Investments of Boston, which in turn is owned by Unicredito Italiana, a large European Bank.

Watch this blog and The New Mexican for more details to come.

UPDATE 4:05 p.m.: Richardson spokesman Gilbert Gallegos just commented on the lawsuit:

The Governor is confident that the state agencies named in this
lawsuitacted 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. The state will vigorously defend those agencies."

Earlier , State Investment Council spokesman Charles Wollmann said Bland has done nothing wrong: “The state investment officer has not participated in any wrong doing and will vigorously fight the reckless allegations made today."

UPDATE: You can see the complaint itself HERE