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The State Court of Appeals has upheld lower court decisions throwing out many of the fraud allegations in two civil lawsuits filed on behalf of taxpayers claiming widespread corruption in state investment practices.
The court struck down as unconstitutional the 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.
The ruling means only acts committed after the law’s effective date – July 1, 2007 – are covered by the statute.
The ruling impacts two lawsuits filed by Frank Foy, the former Chief Investment Officer for the Educational Retirement Board, against numerous Wall Street firms, investment advisers and high ranking state officials.
Foy alleges the officials, advisers and 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 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, formerly close confidant and unofficial adviser to then-Gov. Bill Richardson.
Foy’s attorney, Victor Marshall, said Thursday that he intends to ask the state Supreme Court to review the decision.
“The court struck down an extremely important statute that could cost taxpayers millions of dollars,” Marshall said.
The opinion issued Wednesday found that the Fraud Against Taxpayer Act, which allows citizens with the approval of the Attorney General’s Office to file the lawsuits, applies only to frauds or corrupt practices that occurred after July 1, 2007, the date the law went into effect.
The 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 Appeals Court in a decision written by Chief Judge Celia Foy Castillo 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.
Marshall, in a telephone interview, said both of Foy’s lawsuits allege misconduct and frauds that occurred after the FATA became law in 2007.
“We have ample examples of fraud and pay to play between the defendants occurring in 2007, 2008 and 2009,” Marshall said. “So we will continue to pursue those while we appeal.”
Foy’s first FATA lawsuit involved more than $100 million in state investments in mortgage backed securities called CDOs that were pushed by the defunct Chicago based Vanderbilt Financial LLC.
The SIC and ERB lost more than $90 million in those investments. Marc Correra shared in more than $5 million in fees for helping Vanderbilt secure the state investments.
All of those investments were made prior to 2006, but the losses weren’t discovered until 2008.
Foy’s second lawsuit involves state investments in hedge funds and private equity funds.
The firm advising the SIC and ERB on such investments, Aldus Equity of Dallas, was enmeshed in a pay to play pension fund scandal in New York State that came to light in March 2009.
Aldus got involved in New Mexico investments in 2004. Many of the firms Aldus recommended investments in firms that had connections to the New York scandal or paid fees to Marc Correra and other third party marketers.
Aldus founder Saul Meyer pleaded guilty to a state fraud charge in New York and received a deferred sentence for his cooperation with prosecutors. — This article appeared on page A1 of the Albuquerque Journal
Reprint story -- Email the reporter at mgallagher@abqjournal.com. Call the reporter at 505-823-3971
