Two lawsuits filed on behalf of taxpayers alleging corruption in state investment practices may have new life.
The state Supreme Court has agreed to hear the appeal of lower court decisions that all but put a stake into the heart of the suits, filed by Frank Foy, former chief investment officer for the Educational Retirement Board.
The lawsuits alleged misconduct by the ERB and the State Investment Council in making more than $1 billion in investments. They claimed state officials, financial advisers and numerous Wall Street financial firms executed pay-to-play schemes dating back to 2003 that led to the loss of hundreds of millions of dollars at the expense of the State Investment Council and the teachers’ pension fund.
The Supreme Court sent out its order on hearing the appeal this week. The high court does not explain why it decides to hear an appeal in a particular case and it has not issued a schedule for when the case will be heard.
The lawsuits were filed under the state’s Fraud Against Taxpayer Act, which allows citizens to file civil lawsuits on behalf of the state, with the approval of the state attorney general, to recover state money lost through fraud.
In December, the state Court of Appeals upheld two District Court judges in throwing out many of Foy’s allegations.
The court struck down a portion of the 2007 Fraud Against Taxpayers Act that allowed the state or its representatives to recover damages for fraudulent acts against the state dating back to 1987. That ruling meant only acts committed after the law’s effective date – July 1, 2007 – were covered by the statute.
The lawsuits revolve around more than $22 million in fees paid to Marc Correra by firms seeking investments from the SIC and ERB. Correra received the fees between 2003 and 2009. He is the son of Anthony Correra, a former close confidant and unofficial adviser to then-Gov. Bill Richardson.
“This is wonderful news,” Foy said of the Supreme Court decision. “If we win on appeal, we could recover hundreds of millions from the big Wall Street firms that cheated our school teachers and schoolchildren.”
Foy’s attorney, Victor Marshall, said the appeal “goes way beyond Frank Foy. If we can win this appeal, it helps New Mexico recover a lot more money from Medicaid fraudsters and other scam artists.”
The defendants say the investments all were above board and legal.
The Appeal Court found the portion of the statute that allowed FATA lawsuits for fraudulent conduct dating back to 1987 to be unconstitutional because it allowed for the recovery of triple damages from defendants.
The court found the triple damages and fines for actions prior to July 2007 amounted to “punishment” and violated the ex post facto clause of both the state and federal constitutions.
The clause prohibits the federal or state governments from retroactively passing a law that makes a previously innocent act a crime or changing the nature of proof necessary to convict a defendant.
Four New Mexico justices – Chief Justice Petra Jimenez Maes, Richard C. Bosson, Edward L. Chávez and Charles W. Daniels – agreed to hear the appeal with Justice Barbara J. Vigil excusing herself from the case.
At the same time, the justices also agreed to hear an appeal from three of the defendants in the case, which claims they shouldn’t be named as defendants in Foy’s lawsuits because they were public officials at the time the investments were made.
That appeal was filed by former ERB chairman Bruce Malott.
One of the defendants in Frank Foy’s civil lawsuits, Anthony Correra, asserted his Fifth Amendment rights against self-incrimination to all questions posed to him in 2010 by the Securities and Exchange Commission.
The deposition was obtained by the Journal this week from the State Investment Council in response to a records request.
The federal regulators were investigating many of the same pay-to-play allegations that Foy raised in his lawsuits.
But they ran into a wall in questioning Correra.
Correra was a political confidant of then-Gov. Bill Richardson.
His son, Marc Correra, shared in $22 million in fees paid by financial firms receiving investments from the State Investment Council and Educational Retirement Board.
In the 2010 sworn testimony, Correra declined to answer questions about his education, employment background or his personal and professional relationship with Richardson.
Correra declined to answer questions about his relationship with the State Investment Council, the Educational Retirement Board, or whether he was paid directly or indirectly or had any involvement in the state investments with Vanderbilt Capital Advisors.
In February, Vanderbilt Capital Advisors, a Chicago investment firm, agreed to pay the State Investment Council and the Educational Retirement Board more than $24 million dollars for participating in a pay-to-play scheme to get state investments.
According to court documents, attorneys for the State Investment Council are seeking Santa Fe District Judge Stephen Pfeffer’s approval of the settlement with Vanderbilt, in which $20 million would go to the SIC and $4.25 million would go to the teachers’ retirement fund.
The SIC estimates its losses in Vanderbilt investments at $100 million.
The ERB lost $40 million.
Anthony Correra was told that by asserting his Fifth Amendment right not to be a witness against himself, a judge or jury could take an “adverse inference” in any civil action.
— This article appeared on page A1 of the Albuquerque Journal