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Sunday, October 18, 2009
N.M. Reacts Slowly to Latest Scandal
By Sean Olson
Copyright © 2009 Albuquerque Journal
Journal Staff Writer
The latest allegations of New Mexico involvement in investment scandals have been splashed across newspaper pages from Santa Fe to Wall Street but have triggered barely a ripple at the Roundhouse.
Republicans have called for heads to roll, while Gov. Bill Richardson's administration and the Democratic-controlled Legislature have been largely silent.
Republican Party of New Mexico Chairman Harvey Yates Jr. said State Investment Officer Gary Bland and Bruce Malott, chairman of New Mexico's Educational Retirement Board, should be suspended and investigated because of questions about New Mexico investment practices over the past several years.
Bland, who has strongly denied he has done anything wrong, said Friday that it was premature for anyone to point fingers.
"With three separate agencies investigating the issues and with (an independent audit) in progress, it might be wise to wait for the results and not rush to judgment," Bland said.
Malott said Friday that he has served for more than a decade on the Educational Retirement Board and still has the blessings of the rest of the fund's board, which recently re-elected him chairman.
"I think they are in the best position to determine what is best for our fund, and to make judgments about the value of my contribution," Malott said.
No one in New Mexico has been named or formally accused of wrongdoing. Still, Sen. Tim Keller, D-Albuquerque, said national publicity about New Mexico investment practices could instill a lack of confidence among financial leaders.
"There's no doubt it damages our reputation and hurts us financially," Keller said.
House Minority Whip Keith Gardner, R-Roswell, said the lack of response at the Capitol is a sign that New Mexicans are desensitized about what he called a culture of corruption.
"It's horrible that this culture even exists, and it's even worse that people are getting used to it," Gardner said.
Richardson's office says the Democratic governor has already taken action to correct problems.
"The governor will continue to push for reform next session with a plan to revamp the State Investment Council, including broader membership and additional systematic checks and balances," said Richardson spokesman Gilbert Gallegos.
Legislators serving on the Investment Oversight Committee note that a Richardson-approved independent audit of state investments is under way and that the administration so far deserves the benefit of any doubt.
More bad news
The latest allegation involving New Mexico investment practices came earlier this month from Saul Meyer, a founding partner of Dallas-based Aldus Equity Partners, which formerly provided investment analysis and advice to both the New Mexico State Investment Council and the Educational Retirement Board.
Meyer pleaded guilty in Manhattan this month to participation in a kickback scheme involving investments by the New York state pension fund. In a statement read in court, Meyer said his firm recommended investments pushed 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,'' Meyer said in the court statement.
The FBI has questioned State Investment Council and Educational Retirement Board staffers, and a federal grand jury has issued subpoenas for records from both agencies. The Securities and Exchange Commission also has inquired about investment issues.
Bland defended his agency's Aldus-related investments, noting that some recommendations from Aldus were rejected and that the ones that weren't have "produced well above average returns."
Malott said the Educational Retirement Board would work through the controversy.
"Obviously, our board was very disappointed to learn that Aldus did not act in the best interests of our fund. We intend to do everything possible to restore the confidence of the members we serve," he said.
Earlier controversies
The Meyer statement in the Aldus case followed two other controversies involving New Mexico's State Investment Council and the Educational Retirement Board:
• The loss of $90 million after investing in Vanderbilt Financial Trust, a now worthless fund. A lawsuit by former Educational Retirement Board Chief Investment Officer Frank Foy alleges the state invested in Vanderbilt only because of pressure from Malott and another, unnamed official. Malott has denied the claims in the lawsuit.
• Disclosures that third-party investment agents shared in tens of millions in finder's fees paid by companies securing business with the State Investment Council and Educational Retirement Board. Marc Correra, the son of Richardson contributor and friend Anthony Correra, shared in $22 million in such fees. Marc Correra's attorney, Sam Bregman, has said his client "has done nothing wrong and committed no crime."
Anthony Correra, a member of Richardson's transition team, was given work space at the State Investment Council for a short period after Richardson took office in 2003. Bland has said he spoke regularly with both Correras about financial markets but didn't give the Correras any preferential treatment.
Administration response
Gallegos recently declined to answer questions about the governor's confidence in Bland, who oversees the State Investment Council and its nearly $12 billion in assets and who was also appointed by Richardson to serve on the Educational Retirement Board. Richardson has, however, defended his investment appointees in the past.
Richardson chairs the State Investment Council himself and appoints most of its members. He appoints three of the seven members of the Educational Retirement Board, which has about $7 billion in assets.
Gallegos said the governor "has taken strong, aggressive action to deal with the problems related to state investments."
Richardson banned third-party marketers from receiving finder's fees after the controversial fees were reported. He fired Aldus Equity Partners after Aldus was implicated in the New York kickback scheme.
Richardson has also approved an independent audit of state investments, Gallegos noted.
Legislative oversight
Keller, a member of the Legislature's Investment Oversight Committee, said the state needs to wait until the independent audit is released at the end of the year before making changes to investment funds and practices. But he said it's already clear that moves are needed to eliminate "conflicts of interest."
Keller said most of New Mexico's funds are managed well, but he questions how well the State Investment Council is run.
"I have a big lack of confidence in the SIC," Keller said. "I don't know how you couldn't after this year."
Another Investment Oversight Committee member, Rep. Miguel Garcia, D-Albuquerque, said that while some legislators have concerns about investment officials, it is important to give the Governor's Office the "benefit of the doubt" when evaluating its appointees.
Election arguments emerging
Lt. Gov. Diane Denish, who is running for the Democratic nomination for governor in 2010, declined to discuss whether she has confidence in personnel at the State Investment Council and Educational Retirement Board.
"New Mexico has one governor at a time, and these questions should be directed at the sitting governor," said Denish, who twice was Richardson's running mate and is second-in-command as lieutenant governor. "When I am elected governor, I will thoroughly review the performance of all governor appointees."
It looks inevitable that the investment problems will be an issue in next year's elections for governor and other offices.
Yates said New Mexicans are sick of the corruption charges and should be more willing to punish a party, the Democrats, with more than 70 years of political dominance.
Republicans have been especially harsh with criticisms of Denish, who they say is liable for not doing more to ferret out corruption while having a position within the state administration.
"If she lacked the courage to do that, then it would seem to me that New Mexicans ought not to trust her to clean up state government," Yates said.
Denish said she has proposed ethics legislation to help stop corruption, including advocating for a nonpartisan ethics commission and an online database that tracks all state contracts.
"While my opponents are throwing rocks from the sidelines, I've been leading the fight to make state government more open and accountable to the people of New Mexico," Denish said.
Journal investigative reporter Mike Gallagher contributed to this report.
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