DALLAS - A civil lawsuit claiming that two New Mexico pension funds lost $90 million by investing in toxic assets is the first to assert pay-to-play allegations against Gov. Bill Richardson's administration.
The lawsuit by Frank Foy, former chief investment officer of New Mexico's Educational Retirement Fund, claims the ERF board was pressured by the administration to invest $50 million in collateralized debt obligations with a firm that later contributed to Richardson's presidential campaign.
New Mexico's State Investment Council, invested $40 million with the same firm, defendant, Vanderbilt Capital Advisors of Chicago, according to the suit.
"The Vanderbilt toxic waste was worthless, but the defendants managed to sell it to the state of New Mexico for $90 million, thereby enriching themselves at the expense of the state and ridding themselves of toxic risks associated with this first loss tranche," the suit claims.
"The pressure to invest in Vanderbilt was motivated by illegal and improper inducements - kickbacks or bribes in the form of campaign contributions," the suit charges.
UBS Securities LLC and JPMorgan Chase Bank, and several other investment firms were also named as defendants. UBS AG and JPMorgan's investment banking firms were senior managers in New Mexico's 2004 bond program known as GRIP - Gov. Richardson's Investment Partnership - that is reportedly the subject of a federal grand jury investigation.
Richardson's spokesman Gilbert Gallegos said the suit was baseless and called Foy's lawyer, Victor Marshall, a "partisan Republican."
"The governor is confident that the state agencies in this lawsuit acted properly and in the best interest of New Mexicans," Gallegos said in a prepared statement. "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."
In the lawsuit, Foy claims he was falsely accused of sexual harassment to force him to retire.
The State Investment Council rebuked Foy's claims.
"Mr. Foy's assertions are without merit and his motivations are questionable at best," said Charles Wollman, a spokesman for the investment council. "The state investment officer [Gary Bland] has not participated in any wrongdoing and he will vigorously fight the reckless allegations."
Vanderbilt's parent firm Pioneer Global Asset Management is named in the suit, along with its parent firm UniCredit SpA of Milan, Italy.
Foy's suit said the ERF board voted 4 to 2 in May 2006 to invest in the Vanderbilt CDO over the objections of Foy and the fund's staff. Within a year, five Vanderbilt employees and two of their spouses contributed a total of $15,100 to Richardson's presidential campaign, according to federal election records.
Richardson's campaign refunded $2,000 of the donations because they exceeded federal contribution limits.
The funds bought the CDO equity tranche backed by residential mortgages, the suit says. The firm made several false or misleading statements in attempting to sell the debt, according to the lawsuit.
"The defendants told the state of New Mexico that it would be protected by the fact that the defendants would also invest in the equity tranche, while concealing the fact that their investments in this equity tranche is far outweighed by the revenue they made from selling most of nonexistent 'equity' to the state," the suit states. "In fact, there was no 'equity' in the Vanderbilt shares; these securities were virtually worthless from the beginning."
