Scandalpalooza

I did a little round-up  in today's New Mexican of where New Mexico's major political scandals are standing at the moment.

These included the criminal cases against former Secretary of State Rebecca Vigil-Giron, former Region 3 Housing Director Vincent "Smiley" Gallegos, the now-dismissed indictment of Judge Mike Murphy and the State Investment Council civil suits.

You can find that story  HERE.

In the original version of the story I failed to note that the two cases filed in May by the State Investment Council have been boiled down to one case, which is in the state court system. Below is the amended complaint filed in June, which explains the allegations against Gary Bland, Guy Riordan, etc.
Amended SIC Complaint

Judge Tosses Conflict Claim Against AG

This just in from the Attorney General's Office: District Judge Stephen Pfeffer has ruled that allegations of conflict on the part of AG Gary King in the Vanderbilt Capital pay-to-play case can't be raised by attorney Victor Marshall because his client, Frank Foy, does not have legal standing.

Pfeffer's ruling said: "The AG’s duty of representation would run to the State Investment Council (“SIC”), the entity represented by the AG in the litigation pursued by the AG in other courts and, therefore, any alleged conflict of interest would be for the SIC to raise in the context of that litigation."

Pfeffer also ruled that King and others at the SIC did not have to give depositions.

King commented, "Judge Pfeffer's ruling is a huge step forward in clearing the air of Mr. Marshall's self-serving and spurious allegations of conflict. I believe the motion to disqualify my office has always been about preserving Mr. Marshall's legal fees at the expense of the best interests of the state."

I've asked Marshall if he wants to comment. I'll post that when it comes in. (Update: Marshall declined comment.)

Trip Jennings wrote about a legislative hearing about this issue that took place yesterday. You can read that HERE.

SIC Files Suits Against Gary Bland, The Correras, Guy Riordan and Others

The State Investment Council has filed two civil lawsuits alleging that the state was the victim of a pay-to-play scheme.

A suit filed in state district court names as defendants former state Investment Officer Gary Bland and Guy Riordan, a former broker and former friend of Gov. Bill Richardson.

"During Bland’s tenure, Governor Richardson’s supporters and senior members of his staff requested Bland to secure political contributions from investment management firms that had received fees in connection with investments made by the Public Trust Funds," the complaint says.

"During his tenure, Bland caused NMSIC to make alternative investments for the purpose of benefiting politically-connected individuals, rather than solely on the basis of the underlying merits of the alternative investments. Collectively these investments involved a commitment of more than ($2 billion) of the Public Trust Funds’ assets."

Bland told The Associated Press today that the lawsuit was "absurd." I left a message for Riordan, but haven't heard back.

The suit says Riordan "was paid substantial fees in connection with alternative investments made by NMSIC."

In a federal suit the defendants include Anthony Correra, described in one of the suits as "Gov. Richardson’s personal friend, fund raiser and confidante" who often purported to speak for the governor; his son Marc Correra, an investment broker who shared in $22 million in third-party marketing fees; and several figures from the New York investment scandals, including Saul Meyer; the Texas-based Aldus Equity Partners, which for years was the SIC's investment councilor, and Hank Morris, political advisor and fundraisier for former New York State Comptroller Alan Hevesi.

Hevesi is not named in the New Mexico suit, but his son Daniel is. Both Alan Hevesi and Morris were sentenced to prison this year in the New York scandals.

In a news release State Investment Officer Steve Moise said, “The State Investment Council takes this action today in hopes of recovering millions of dollars improperly taken from the citizens of New Mexico by those who violated their professional duties and the public trust, and their cronies who participated in and profited from such breaches of duty."

The same news release quotes Gov. Susana Martinez, who is chairwoman of the SIC, saying "As we wait for justice in the criminal courts, we must aggressively pursue legal action of our own. These efforts must continue until all responsible parties are held accountable for the abuses that occurred here in New Mexico.”

Martinez called upon the investment managers who entered into payment arrangements with third party placement agents to obtain SIC investment business to contact the Attorney General's Office and fully disclose the details of those arrangements “before the Attorney General knocks on their doors.”

Representing the SIC is the Attorney General's office and the Day Pitney law firm, which also represents the New York comptroller's office in trying to recover lost investments.

I called Richardson's office for comment, but a spokeswoman said he's traveling and couldn't immediately be reached. If I hear back, I'll update this.

UPDATED 5-10-11: Here's a copy of the federal suit as well as the complaint in state court.

Federal & State Lawsuits SIC

Some Miscellaneous Bill Action

I'm a political reporter, but I get tired of predictable political talking points that both sides fall into all too frequently. That's why I appreciated the debate on House Bill 644, which sets a minimum retirement age of 55 and reduces the cost-of-living adjustment for most public employees.

The bill, which was voted down on Sunday, was reconsidered by the House and eventually passed 37-32. But it was hardly a party-line vote. And you couldn't see any other frequent breaking lines such as rural vs. urban. Apparently all these representatives were thinking for themselves, and there were good arguments on both sides.

Here's some other bills that have passed today:

* HB368, sponsored by Reps. Nate Gentry and David Doyle, both R-Albuquerque, which would prevent state officials from sealing their records after they leave office. It passed unanimously This bill was inspired by the uproar early this year over Gov. Bill Richardson sealing his office's documents for eight years, as other governors have done before him. The attorney general ordered the state Archives to allow inspections of the Richardson documents, but this bill would set that into law. It goes on to the Senate.

* SB17, sponsored by Sens. Tim Keller, D-Albuquerque, and Steve Neville, R-Aztec, which would remove the governor from the State Investment Council. Under the bill, which already cleared the Senate, Gov. Susana Martinez could stay on the council for the next two years, until July 1, 2013. The House passed it 50-18. It goes now to Martinez for signature.

* SB11, sponsored by Sen. Peter Wirth, D-Santa Fe. In case you thought this bill had gone to the dogs, think again. This landmark legislation, which would allow restaurants to allow dogs in outdoor eating areas, passed the House 50-17.

I was just disappointed that nobody brought a snake to the floor as Sen. Bill Sharer, R-Farmington did in the Senate last week.

UPDATE: 7:03 p.m. The bill number for SB 17 has been corrected.

Keller Calls For More Investment Reforms

State Sen. Tim Keller, D-Albuquerque, who was one of the sponsors of bills to reform the troubled State Investment Council early this year, says the Legislature needs to "finish the job."

Thus he's proposing a new package of investment reforms, which is scheduled to be considered Wednesday by the Legislative Investment Oversight Committee.

Keller's top suggestion is removing the governor completely from the SIC. Last year Keller backed legislation that reduced the governor's influence on the board. But now that there's going to be a Republican governor I wonder how many GOP lawmakers will jump on this bandwagon.

Here's all of Keller's proposals from his news release this morning:

• Remove Governor from the SIC: The number one recommendation made by the Ennis Knupp research, which was completed in 2010, was to remove the Governor as chair of the SIC. SB 18 in 2010 attempted this but was amended at late stages in the legislative process to keep the Governor on the board. This bill would remove that seat entirely, yet would acknowledge and ratify the executive branch responsibility via several executive appointed seats and representation from the Secretary of the Department of Finance and Administration. As previously mentioned, New Mexico is currently the only state in the country with a Governor personally residing on the state's investment fund board and directly responsible for investment decisions.

• Investment Fraud Accountability: Appealing provisions that give the Attorney General investigative authority for securities fraud. Currently the authority rests within the executive branch (inside the licensing and regulations department) creating a structural conflict of interest. This bill also broadens the threshold for prosecution of fraud (N.Y. Gen. Bus. Law Art. 23-A (McKinney)), thus enabling the recovery of a percentage of the estimated $1.3 billion currently under litigation throughout the nation.

• Educational Retirement Board (ERB) and Public Employees Retirement Association (PERA) Governance Reform: Enabling the implementation of several necessary governance and best practice changes from the 2009 Ennis Knupp study including: open meetings act, fiduciary duty, transparency and accountability measures. The bill would also address concerns regarding financial expertise by creating a new seat which would require the elected board member to posses a minimum of ten years of professional investing experience.

• Economic Targeted Investment Oversight: Proposing the establishment of a formal structure and performance metrics for all the Economic Targeted Investments (ETI) (NM private equity, film fund, etc) to be managed separately by the SIC. Utilizing the current statutory Private Investment Advisory committee (PIAC) structure, the newly established board (SIC PIAC) would be specifically responsible for effective oversight regarding ETI funding as well as any merit based recommendations presented to the SIC. In addition, the bill would separate performance tracking in order to prevent the co-mingling of ETIs with “endowment” funding.

• SBIC Governance Reform: The small business investment council (SBIC) is a subsidiary of the SIC that invests an estimated $45 million in New Mexico small businesses. This program has been successful in creating jobs and providing financing to small businesses around the state. However, there is a need to depoliticize the appointment of the SBIC board to ensure that investment principles are prioritized before politics. By incorporating appointees from the legislature the bill would diffuse any one person's potential influence over investment choices and would ensure altruistic decision making.

NM 3rd Party Marketer Pleads Guilty in NY Case.

A former Democratic Party consultant turned "third party marketer" for investments pled guilty today to fraud in New York.

From The New York Times.

"I intentionally engaged in fraud, deception (and) concealment," Henry "Hank" Morris said, his voice low but steady as he admitted being at the fulcrum of the pay-to-play scheme at the $125 billion retirement pool, one of the world's largest government pension funds.


Morris acknowledged using his ties to former state Comptroller Alan Hevesi to get millions of dollars in payouts for himself, to channel money to cronies and to solicit campaign contributions for Hevesi from firms seeking state business.

But neither The Times nor the New York Daily News, at least in initial stories on the plea, mentioned Morris' dealings in New Mexico, where a company he was afiliated with was paid 150,000 in third-party marketing fees secure a $20 million investment in a fund from our State Investment Council.

Morris has not been charged with any wrongdoing for his dealings with New Mexico.

Last year Saul Meyer, co-founder of Dallas-based Aldus Equity Partners, pled guilty in the New York pay-to-play scandal. Aldus was contracted as the adviser to the New Mexico SIC and this state's Educational Retirement Board.

In his plea statement to a New York court, Meyer said he recommended investments in New Mexico because of political pressures, saying, "contrary to my fiduciary duty, I ensured that Aldus recommended certain proposed investments that were pushed on me by politically connected individuals in New Mexico. I did this knowing that these politically connected individuals or their associates stood to benefit financially or politically from the investments and that the investments were not necessarily in the best economic interest of New Mexico."

Shortly after that statement, SIC director Gary Bland retired.

New SIC Members All Richardson Contributors

Gov. Bill Richardson today appointed his new members of the troubled State Investment Council. They are former interim state Treasurer Doug Brown — who Richardson appointed in 2005 to replace Robert Vigil who resigned in the face of a kickback scandal — and Santa Fe banker Catherine Allen will become the “public members” appointed by the governor.

Richardson re-appointed David Harris, currently a vice president at the University of New Mexico, to represent higher education on the council.

One thing all three appointments have in common: According to records kept by Followthemoney.org and OpenSecrets.org, all three have contributed thousand of dollars to Richardson’s campaigns, both gubernatorial and presidential.

Allen has contributed more than $17,000 to Richardson’s gubernatorial races, plus $4,600 to his 2008 presidential campaign. ($2,300 of that, which was earmarked for the general election, was refunded, as is the law for contributions to candidates who don’t make it past the primaries.)

Brown also gave the governor more than $17,000 for his two state races and $4,600 to Richardson ‘08 campaign, $2,300 of which was refunded.

Harris gave Richardson’s 2006 campaign $2,500 and his presidential campaign $2,300.

Allen and Brown also have contributed thousands to Lt. Gov. Diane Denish’s campaigns through the years. Allen has contributed more than $10,600 to Denish, who is running for governor this year. Brown has contributed $1,500 to Denish.

Asked about the contributions, Richardson spokesman Gilbert Gallegos said Wednesday, “They all have stellar reputations in the community and extensive financial experience that make them ideal for a seat on the State Investment Council. In addition, both Brown (who is a Republican) and Harris have served the state in various ways with distinction. Harris, of course, has served in Democratic and Republican administrations.”

More on the appointments in Thursday's New Mexican.

The Latest in the Foy Suit

Former Education Retirement Board investment officer Frank Foy filed an amended version of his whistle-blower lawsuit this week in state district court.

In it, he claims state Finance Secretary Katherine Miller pressured members of the State Investment Council to keep SIC director Gary Bland last October in the days before Bland resigned.

Miller on Tuesday denied the accusation. But backing her up was state Land Commissioner Pat Lyons, a member of the SIC who was actively pushing for a no-confidence vote for Bland. He said that nobody tried to pressure him or any other members he knows of, to keep Bland on the job.

Lyons, a Republican, usually isn't the first to defend the administration of Democrat Bill Richardson. In fact he and Richardson have been on opposite sides of several issues -- including the state investment scandals.

See my story in Wednesday's New Mexican HERE.

Hurry Up and Wait

Nothing much is happening now at the Roundhouse. At least not in public. The House Dems have been in caucus since the morning without coming up for air. Last night a veteran representative was joking with me about waterboarding dissident Dems -- specifically the ones who voted against the cigarette tax. Maybe they're doing that.

The Senate had a short floor session. The Senate Finance Committee met for awhile, without doing anything earth-shattering.

Earlier today, Think New Mexico delivered to the Governor's Office printouts of 511 e-mail letters from people protesting raising the tax on food. (That's a picture Jason Espinoza of Think New Mexico handing over the letters.

The governor's still signing bills from the regular session, (which seems like years ago ...)

Yesterday afternoon he signed SB 18, which restructures the State Investment Council.

“I have moved aggressively to restore confidence in our investment practices, and this new law will help ensure that our investments are not tainted in any way,” Gov. Richardson said in his news release.

The bill adds members to the State Investment Council -- including four appointed by the Legislature -- and will require appointed members to have 10 years of financial or investment experience. The bill also prohibits appointed members from having any contracts with state investment entities for two years prior to their appointment and for two years after their term ends.

However, the bill was amended during the legislative process. The fiscal impact report notes that contrary to the recommendations of Ennis Knupp, the Chicago consultants hired to examine the SIC, the governor and his appointees still will be the largest group on the council, accounting for five of the members.

Also, the governor will remain chairman of the council, also against the consultants' recommendations.

"Therefore if the amended legislation were enacted, the SIC would still be operating outside of national best practices and contradict numerous findings in the Ennis Knupp (report)," the fiscal impact report concludes. "This has the potential to create the risk that further turmoil and suspicion, from both a performance and reputational perspective, will continue to accompany these agencies at the potential cost of hundreds of millions of taxpayer and retiree dollars."

Oh well ....

Senate Passes Bill to Create Independent Council to Recover Lost Investments

The Senate unanimously approved Senate President Pro-tem Tim Jennings' SB269, which would create an independent counsel to seek to recover investments lost by the State Investment Council, Educational Retirement Board and the PERA.

Jennings stressed that the special council would not be responsible for investigating possible criminal wrongdoing. But if evidence of a crime was uncovered, it would be turned over to the state attorney general, Jennings said.

The bill includes a $400,000 appropriation, which would be paid for out of the retirement funds.

"It makes more sense that to just say adios to these dollars," Jennings said.

Sen. Dianna Duran asked Jennings whose responsibility this would be without the special council. Jennings said it would be the attorney general's office and the investment boards themselves. But there hasn't been much action by those agencies, he said.

Sen. Tim Keller said that in committees representatives of the attorney general testified they didn't have the money to pursue such investigations.

Governor's Office Reacts to Latest Override

Spokesman Gilbert Gallegos released this statement:

“The Governor has worked in good faith with the Senate. If some senators want to play political games, that’s their prerogative. Hopefully, the House will see through the political gamesmanship and continue to focus, like the Governor, on a solution to the budget deficit and a sensible restructuring of the State Investment Council.”

UPDATED: Here's Sen. Steve Neville, R-Farmington, sponsor of HB531 talking to reporters after the vote. (video courtesy Senate Republicans)

Roll Call on Overriding SB 460

Senators Voting Against Override

Mary Jane Garcia
Cynthia Nava

Bernadette Sanchez
Michael Sanchez

Senators Voting for Override

Rod Adair

Vernon Asbill
Sue Wilson Beffort
Mark Boitano
Kent Cravens
Dianna Duran
Tim Eichenberg
Dede Feldman
Steve Fischmann
Eric Griego
Clint Harden
Stuart Ingle
Tim Jennings
Tim Keller
Gaye Kernan
Carrol Leavell
Linda Lopez
Linda Lovejoy
Cisco McSorley
Howie Morales
George Munoz
Steve Neville
Jerry Ortiz y Pino
Mary Kay Papen
Bill Payne
John Pinto
Nancy Rodriguez
Sander Rue
John Ryan
Bill Sharer
John Arthur Smith
Peter Wirth

Absent

Pete Campos
Carlos Cisneros
Phil Griego

Richard Martinez

David Ulibarri

Another Override

With virtually no discussion, the Senate just voted 33-4 to override SB460.

This is the one to lessen the governor's influence on the State Investment Council.

Background here.

UPDATE: Senate Majority Leader Michael Sanchez explains he voted against the override because there is current legislation working its way through the Senate.

Sen. Tim Keller, who voted in favor of the override, said he wants a bill to reform the SIC that the governor to sign. He noted "There is no override next year" because Richardson will be gone.

Overriders of the Purple Sage

Looks like override fever is spreading in the Senate. After yesterday's vote to override Gov. Bill Richardson's veto of SB531 from last year's session, the gang of 42 might be considering another override today.

This one is Sen. Steve Neville's SB460 from last year. That bill would change the membership makeup of the scandal-plagued State Investment Council, giving the Legislature more influence and the governor less.

In an e-mail statement, Neville said:

“In this time of great suspicion, it is important both the Senate and House vote to override the governor’s veto. There is no more time to lose, this should have become law last year. We need to instill more confidence in the State Investment Council that manages $12.1 billion of New Mexico dollars.”

Neville and Sens. Tim Keller and Cisco McSorley have similar bills this session, all of which have been combined onto a committee substitute SB18.

Richardson, despite pocket-vetoing Neville's bill last year, gave a message to allow such a bill to be considered during this budget session of the Legislature.

Richardson's spokesman Gilbert Gallegos yesterday dismissed the first override as a "procedural gimmick" and an attempt to "derail the serious business of the legislature."

CORRECTED: A previous version of this post didn't include McSorley's as one of the bills that was combined in the substitute bill.

More Fun With The State Investment Council

Last week the Senate Judiciary heard testimony from Frank Foy, who has filed a whistleblower suit claiming the Education Retirement Board -- for whom he worked as investment officer -- and the State Investment Council were pressured into investments for political purposes. Foy and his lawyer Victor Marshall complained that the SIC and other state agencies were "stonewalling" them by not providing requested documents.

See our story on that hearing HERE.

Today, the Judiciary Committee is scheduled to hear from SIC officials to explain their position.

That hearing is set for 3 pm in the Room 321.

(The meeting time has been revised on this post.)

Doug Brown to Head SIO Search

Gov. Bill Richardson just announced he's appointing Doug Brown to head the search for a new State Investment Officer to replace recently resigned Gary Bland. This is the same Doug Brown who in 2005 was appointed by Richardson in 2005 to be interim state treasurer when then-treasurer Robert Vigil, indicted (and later convicted) in a federal corruption investigation, had resigned under threat of impeachment.

Bland resigned in the face of a growing state investment investigation and a threatened vote of no confidence by the State Investment Council. Richardson's press release doesn't mention Bland's name.

Brown currently is dean of the University of New Mexico’s Anderson School of Management.

On the search committee are three SIC members Andrew Davis, Stephen Feinberg and Peter Frank -- all Richardson appointees -- who signed a resolution seeking a no-confidence vote for Bland.

“Doug Brown has a history of unselfish service to the state and I appreciate the fact that he is willing to head the search for one of the most important positions in state government,” said Gov. Richardson, who is the chairman of the State Investment Council.

Also on the search committee is Katherine Miller, secretary of the state Department of Finance.

Richardson also named Bob Jacksha, currently chief investment officer for the Education Retirement Board, to serve as interim SIO during the search. Jacksha has worked before as deputy SIO for the SIC.

Update on Gary Bland

Gary Bland, who resigned as state investment officer today, was facing a vote of no confidence today due to evidence he was pressuring investment firms to do business with certain third-party marketers, the Associated Press is reporting.

Strangely, the only public place online where I could find the latest AP version of the story was on a Delaware site! CLICK HERE

AP reporter Barry Massey reported :

State Land Commissioner Pat Lyons said a private law firm hired by the council had gathered information that Bland pressured investment firms doing business with the state to hire certain third-party marketing or placement agents. He declined to identify the marketers, saying he didn't want to jeopardize investigations by the U.S. Attorney's Office and the Securities and Exchange Commission.

Bland, investmentment officer since early 2003, is the first appointee of Gov. Bill Richardson who has resigned due to issues involving investment scandals.

SIC WIll Allow Exemptions to the No 3rd-Party Agent Rule

But only on a "super-majority" vote (seven of the nine State Investment Council members).

Check out my story about this and other modifications to the SIC's recently adopted transparency and disclosure policy in today's New Mexican. CLICK HERE

Foy Expands Whisteblower Suit

Former state Educational Retirement Board investment officer Frank Foy has expanded his "pay-to-play" lawsuit to include local investment broker Marc Correra, his father Anthony Correra, former Bill Richardson pal Guy Riordan and several of those involved in the New York investment scandal, including the indicted Hank Morris

Foy has in a lawsuit claimed that former Richardson chief of staff Dave Contarino, State Investment Officer Gary Bland and ERB director Bruce Malott pressured the ERB and SIC to make investments totalling $90 million with a Chicago company called Vanderbilt. The investments went bad -- though Marc Correra made a couple of million in finders fees on the deals.

This new turn of events should be interesting for Albuquerque lawyer Sam Bregman. He represents Malott's accounting firm, named as a defendant in this case, as well as Marc Correra in another matter.

Kate Nash is covering a press conference, which should be strarting about now. Meanwhile, below are the latest filings in the case. (I don't know why it shows an error sign. There should be no trouble downloading or reading the documents):

Corrected Austin Amended Complaint w Exhibits-Errata Corrections Made as FILED

Defendants in Foy Case Won't Turn Over Documents

Here's another case of the state refusing to turn over documents related to the investment scandals. This time it's in the "discovery phase" of the Frank Foy whistle-blowing suit.

State officials as well as the Chicago-based Vanderbilt Financial, which lost $90 million in investments from state pensions and public trust funds, have told the court they won't turn over discovery documents requested in Frank Foy's pay-to-play suit against former Bill Richardson chief of staff and campaign manager Dave Contarino, state Investment Officer Gary Bland, Educational Retirement Board chairman Bruce Malott and others.

In a motion filed in state District Court in Santa Fe last week, Victor Marshall, attorney for Foy, who is a former ERB investment officer, said, "All of the defendants have refused to answer any interrogatories or produce any documents whatsoever, even the most basic documents concerning the transaction giving rise to this lawsuit."

In his response to Foy's discovery motion asking for various documents, Bland said the requests were "vague, overly broad and overly burdensome." Vanderbilt, in its response, uses similar terms, which the plaintiffs call "boilerplate" language.

See my story in the New Mexican on this HERE.