Former pension fund CIO's fraud case is rejected in New Mexico

A New Mexico judge tossed out a pay-to-play lawsuit filed by Frank Foy, former chief investment officer for the $8.3 billion New Mexico Educational Retirement Board, Santa Fe.

In his lawsuit, Mr. Foy, who retired as CIO in 2008, sought to recoup at least $90 million in state funds lost through investments in mortgage-backed securities sold by a firm whose executives donated to New Mexico Gov. Bill Richardson’s presidential campaign.

District Judge Stephen Pfeffer dismissed the case, saying in a decision Wednesday that the actions at issue preceded the law under which the case was filed, the Fraud Against Taxpayers Act. The law took effect in 2007. The money-losing investments began in 2004.

Mr. Foy claimed that as much as $243 million in state funds were used to buy “worthless” collateralized debt obligations sold by Chicago-based Vanderbilt Capital Advisors. Mr. Foy began the lawsuit in 2008, claiming that as much as $22 million in finder’s fees were shared by the son of a political ally of Mr. Richardson, a Democrat.

“We’re very pleased with the decision,” said Peter Simmons, a partner at Fried, Frank, Harris, Shriver & Jacobson who represented the Vanderbilt units named as defendants. He is based in New York.

State records show Vanderbilt paid $5.6 million in fees to Marc Correra or his associates. Mr. Correra’s father, Anthony, is a friend and political supporter of Mr. Richardson. The elder Mr. Correra couldn’t be reached for comment. Ronald Rubin, a lawyer in New York for Marc Correra, had no comment.

Starting in February 2007, at least four Vanderbilt employees contributed as much as $8,400 to Mr. Richardson for President Inc., Federal Election Commission records show.

Alarie Ray-Garcia, a spokeswoman for Mr. Richardson, didn’t respond to a request for comment on Thursday. Gilbert Gallegos, Mr. Richardson’s deputy chief of staff, earlier described the case as without merit.

Victor Marshall, Mr. Foy’s lawyer, said the judge overlooked fraud and misrepresentation laws that predate the investments.

“The judge’s analysis does not dispose of the entire case,” Mr. Marshall said. He said he is consulting with New Mexico Attorney General Gary King, who filed a friend-of-the-court brief defending the 2007 fraud law, before taking further steps.

The State Investment Council also invested with Vanderbilt, Mr. Foy said in the lawsuit, claiming that the $90 million commitment made by the council and his pension fund led to a $2 million payment to Marc Correra. He said the state should be awarded as much as three times its investment in the mortgage-backed CDOs, saying that most of that money has been lost.

In March, Mr. Foy added consultants NEPC, Merrill Lynch and Calyon Securities as defendants in the suit. Also added at that time were both the Correras and NEPC partner Allan C. Martin.