Wednesday, January 13, 2010
State's Tab for Bad Investments Rises
By Mike Gallagher / Journal Investigative Reporter
The tab for bad investments the state made with Chicago-based Vanderbilt Capital just got worse to the tune of at least another $65 million.
The Legislative Finance Committee is now estimating the state lost $155 million in a series of highly leveraged mortgage investments with Vanderbilt, up from earlier estimates of $90 million.
On Tuesday, the Senate Finance Committee was told by a private attorney whose client is suing to reclaim the losses that the red ink on the investments could go as high as $200 million.
Legislators were not happy .
"We've got a budget crisis, an ethics crisis and an investment crisis," said Sen. Cisco McSorley, an Albuquerque Democrat and chairman of the Senate Judiciary Committee. "I don't know if we can deal with all three in a 30-day session."
The concern was bipartisan.
"Every day during the session when we're cutting the budget, this is going to come up," said Senate Minority Leader Stuart Ingle, R-Portales,
The original loss in the so-called "collateralized debt obligations" was placed at $90 million last year when the controversy surrounding the state investments began.
The State Investment Council and the Educational Retirement Board at that time wrote off $90 million in losses for investments the agencies made in Vanderbilt CDOs.
The additional $65 million are in similar investments made with Vanderbilt in 2004 and 2005. Staffers say the losses on those investments fluctuate.
Interim State Investment Officer Bob Jacksha said after the meeting that legislative concerns are being heard.
"We hear the message," Jacksha said. "We've had discussions with inside and outside legal counsel about retrieving the losses. So far, they have not been fruitful, but we haven't given up."
Former ERB investment officer Frank Foy and his attorney, Victor Marshall, told senators they have been stonewalled by state investment agencies in their attempts to get documents about the Vanderbilt investments.
Foy sued Vanderbilt, its officers, parent firms, then-State Investment Officer Gary Bland and Educational Retirement Board Chairman Bruce Malott under the state taxpayer fraud law in a case unsealed last January. The lawsuit seeks to recover the money on behalf of the state.
Malott, Bland and the others have denied Foy's allegations of a politically based conspiracy to give Vanderbilt investment business in exchange for political contributions.
Staffers for the SIC and ERB said they have turned over tens of thousands of documents to Foy and Marshall.
A class-action lawsuit filed on behalf of teachers and employees covered by the ERB was filed this week in state court in Santa Fe, where Foy's lawsuit awaits a ruling on whether it will proceed or be thrown out.
Several senators, including Senate President Pro Tem Sen. Tim Jennings, D-Roswell, said legislators may have to look at how the state's Risk Management Division is responding to the Foy lawsuit.
"It appears we're paying for the defense of people who may be stonewalling this lawsuit," Jennings said.
One of the concerns legislators have is that Vanderbilt paid more than $5 million in third-party placement fees to former Santa Fe broker Marc Correra. He is the son of Anthony Correra, a close friend and political adviser to Gov. Bill Richardson.
Both men were named in a Securities and Exchange Commission subpoena seeking information from Bland, who left office in October in the face of a no-confidence vote from a subcommittee of the State Investment Council.
Bland has denied any wrongdoing but has spent hours being interviewed by the FBI and given sworn testimony to federal securities regulators.
Federal grand jury subpoenas have been served on the teachers pension fund and the Investment Council. The Governor's Office refuses to say whether subpoenas have been served on it.