Former New Mexico Ed CIO alleges pay to play

Frank Foy, former CIO of the $6.5 billion New Mexico Educational Retirement Board, Santa Fe, is making pay-to-play allegations against a number of alternative investment firms and placement agents, some of which had been mentioned in a New York state investigation.

In an amendment to a lawsuit filed by Mr. Foy in July 2008 in New Mexico First Judicial District Court, Mr. Foy claims that the board’s private equity consultant, Aldus Equity Partners made campaign contributions to state officials including former state Treasurer Robert Vigil, who has been convicted of state corruption charges, in exchange for being hired as consultant.

The complaint also alleges that venture capital firm Psilos Group contributed more than $125,000 to Gov. Bill Richardson’s campaigns or DNC Services Corp., an arm of the Democratic National Committee, calling the contributions “thinly disguised kickbacks.”

It also claims Psilos paid or arranged kickbacks through Diamond Edge Capital Partners, a placement agency, and Marvin Rosen, a managing partner with Diamond Edge; both the company and Mr. Rosen have “close connections with pension officials in New York,” the complaint alleges. The board invested $10 million with Psilos.

Earlier this month, New Mexico Educational Retirement Board terminated Aldus Equity Partners as its private equity investment adviser and dropped a $75 million private equity co-investment commitment with the firm. The board terminated the firm in response to pay-to-play allegations against Aldus in connection with investments of the $122 billion New York State Common Retirement Fund, Albany, and differences between Aldus’ placement agent report and a staff investigation into marketers used by the board's investment managers.

The amendment was made to Mr. Foy’s second complaint. Mr. Foy filed his first complaint in June 2008 against certain members of the retirement board and private equity firm, Vanderbilt Capital Advisors in which he alleges the private equity firm contributed to Mr. Richardson’s presidential campaign in exchange for retirement board investments in collateralized debt obligations that proved to be worthless.

Educational Board officials just received a copy of the amended complaint and have not had an opportunity to review it, said Christopher G. Schatzman, the board’s general counsel. He added that he understands that the complaint was substantially changed.

Matthew Orwig, managing partner at the law firm of Sonnenschein Nath, representing Aldus Equity, did not return calls by press time.

Psilos Group has not received a copy of the complaint, said Lisa Suennen, managing member of Psilos.