Copyright © 2020 Albuquerque Journal
The state Supreme Court has effectively closed the books on state investment scandals involving pay-to-play schemes beginning in 2004 that cost New Mexico taxpayers hundreds of millions of dollars in investments that went south.
The court last week upheld earlier rulings that rejected a challenge to a $24.5 million settlement reached between lawyers for the Educational Retirement Board and State Investment Council with Vanderbilt Capital Advisors LLC. The state lost more than $100 million on its Vanderbilt investments, and the settlement had been challenged as inadequate by Frank Foy, former chief investment officer at the ERB.
Foy and his wife, now deceased, in 2009 filed one of the first Fraud Against Taxpayers Act lawsuits, alleging large-scale fraud by Chicago-based Vanderbilt Capital and others in hundreds of millions of dollars in investments made by the ERB and SIC.
A few months later, they filed a second lawsuit after the Journal and other newspapers published reports of an intricate nationwide pay-to-play scheme by politically connected middlemen who were paid to help financial firms garner investments from state fiduciaries like the SIC and other pension boards around the country.
A tortuous trail of legal proceedings followed as judges assigned to the cases retired, appeals were filed, hearings were held and settlements were reached, challenged and finally approved.
Foy and his fellow plaintiffs had their case taken out from under them by then-Attorney General Gary King and a large law firm hired by the SIC that decided to sue individual actors in the scandal for fraud or failing in their fiduciary duties.
Foy cried foul at the AG’s move and later challenged the settlements, saying the state was getting less than 10 cents on the dollar for its losses, but judges approved the takeover and were backed by the Court of Appeals.
After years of pursuing investment firms and others who rigged the placements of state money, the state recovered a little over $50 million – nowhere near the total losses.
“Our approach in restoring professionalism at the SIC following the pay-to-play scandal has been straightforward … hold accountable the bad actors who violated their fiduciary duties for wrongful enrichment at the state’s expense,” State Investment Officer Steve Moise said. “We accomplished this based on the facts – not wild-eyed conspiracy theories.”
The scandal made headlines for years.
A federal grand jury investigation came up empty. But the state’s chief investment officer and chairman of the Educational Retirement Board resigned, the legislature overhauled the State Investment Council, investment advisers were fired, and some middlemen coughed up a portion of their ill-gotten “finder’s fees” to settle civil lawsuits.
The state has received more than $50 million in settlements, but Foy and his fellow plaintiffs have not received a dime, and they may never.
Officials at the SIC say that the $24.5 million held in escrow after Foy challenged it would be worth close to $40 million today had it not been for the delay.
His attorney has argued previously that under the state’s Fraud Against Taxpayer Act, people bringing legal action are entitled to triple damages – more than $700 million in the Vanderbilt case.
The state Court of Appeals in June approved a lower court decision that allowed the $24.5 million settlement with Vanderbilt’s current owners.
The Educational Retirement Board will receive more than $4 million from that settlement, and Day Pitney, the private law firm hired by the SIC, also will receive a share, which is not yet public. The rest goes to the SIC.
The Court of Appeals decision was not kind to Foy.
The Appeals Court opinion by retired Judge Michael Bustamante says, “As is their practice … plaintiffs have not challenged any of the district court’s findings as not being supported by substantial evidence… plaintiff’s briefing is however, teeming with hyperbolic assertions of ‘fact’ and descriptions of conspiracies for which there is no support in the record other than their allegations.”
The opinion goes on to say that the courts have repeatedly ruled that the Attorney General’s Office and the Day Pitney law firm legitimately represented the state’s interest.
Lawsuit goes public
Foy and attorney Victor Marshall held a press conference in early 2009 unveiling a previously sealed lawsuit they had filed claiming the SIC and ERB had lost hundreds of millions of dollars investing in collateralized debt obligations hustled by Vanderbilt Capital Advisors.
Attorneys representing several defendants held a press conference attacking Foy but not defending the investments.
The complex mortgage-backed securities Vanderbilt offered the state, known as CDOs, were all the rage in the investment community, but ultimately it turned out there were serious problems with the underlying mortgages that had been bundled together.
The collapse of the market for CDOs is considered the major factor in the Great Recession of 2008 and was devastating for institutional investors in New Mexico.
The Educational Retirement Board lost its entire $50 million investment in Vanderbilt’s CDOs. The State Investment Council had invested with Vanderbilt starting in 2004, and while some of the CDOs were viable, ultimately the state permanent fund, which is managed by the Investment Council, lost more than $100 million.
While the teachers’ pension fund and the state permanent fund weren’t the only big losers in CDOs – some banks lost billions of dollars – they were the only ones with an unknown gatekeeper, a man named Marc Correra.
Friend of Richardson’s
Marc Correra is the son of Anthony Correra, a political supporter, friend and financial adviser to then-Gov. Bill Richardson.
Early in Richardson’s first administration, the elder Correra was directly involved in the hiring of Gary Bland as state investment officer.
Between 2004 and 2009, state records showed, Vanderbilt Capital paid Marc Correra more than $5 million for drumming up investments from the State Investment Council and the Educational Retirement Board.
Correra shared in more than $22 million in finder’s fees from a variety of sources including firms recommended to the SIC by its financial advisor, Aldus Equity of Dallas.
Essentially, Correra or his father told Aldus which firms to recommend to the SIC for investments, and those firms paid a finder’s fee to Marc Correra.
A similar scheme uncovered in New York found that Aldus and other firms doing business with the SIC and ERB were paying a key political player there for the same type of investments from the New York State Pension Fund.
While Bland told reporters in 2009 that he was aware of Marc Correra’s role, staff members at the State Investment Council who made up the internal committee that reviewed the Vanderbilt investments didn’t know of Correra’s involvement.
Richardson denied knowing about Correra’s involvement in the state investments and ordered a ban on so-called placement agents.
Anthony Correra paid $1 million to settle a lawsuit filed against him by the SIC, which also managed to get $4.1 million from Marc Correra after pursuing him through a federal bankruptcy he filed in Texas while he lived in Paris.
More legal trouble
Most of the major actors in the pay-to-play scandal have faded into obscurity.
But there are exceptions. One of them is California financier and national Republican Party fundraiser Elliott Broidy, who continues to garner national headlines.
Broidy pleaded guilty in 2009 to a felony charge for spending $1 million on “gifts” to New York state officials to obtain $250 million in investments from the New York State Pension fund in Markstone Capital Partners L.P., an investment fund he founded, and forfeited $18 million to the state.
At the same time he was raiding the New York pension fund, Broidy hired an undisclosed placement agent to help arrange a $20 million investment from the SIC into Markstone.
The state ultimately invested $16 million, which essentially is gone. The state was paid $5.4 million during the early years of the investment, but the SIC considers the value of the remaining investment of more than $9 million to be minimal.
Markstone also paid a $1 million settlement to the SIC for hiring former Michigan Rep. Dan Carr, a friend of then-Gov. Richardson as its placement agent to help secure the New Mexico investment.
Broidy at the time was a top national Republican fundraiser.
More recently, Broidy, who worked on President Donald Trump’s inaugural committee, is expected to plead guilty to charges he failed to disclose his role in a secret lobbying effort to stop a federal criminal investigation into a multibillion-dollar fraud at a Malaysian investment fund, according to published reports.
Broidy is charged with one count of conspiracy alleging he and others expected to make millions of dollars by using Broidy’s access to the Trump administration and his perceived influence to get the investigation halted.
Broidy and others were unsuccessful in stopping the investigation.
