ALBUQUERQUE — A former investment officer for the state's educational pension program and his critics are disputing how vigorously he opposed an investment that he claims cost state taxpayers more than $90 million.

Frank Foy has said he actively opposed the state Educational Retirement Board's investing $40 million in collateralized debt obligations — known as CDOs — offered by Chicago-based Vanderbilt Capital Advisors.

However, minutes from a May 2006 meeting of the board's Investment Committee in which the investment was initially approved do not show Foy opposed the CDO investment. The CDO investment was approved on a 4-2 vote by the board minutes after the committee met.

"Mr. Foy said the investment division recommends to invest between a minimum of $20 million and a maximum of $40 million in this vehicle," stated the meeting minutes obtained by The Associated Press on Friday.

The investment is at the center of a civil lawsuit Foy filed that alleges the board invested in the CDOs because of pressure from Bruce Malott, a Gov. Bill Richardson appointee who served as chairman of the pension system's governing board, and from an unidentified defendant.

In the lawsuit, made public this week, Foy claims there was an alleged "pay-to-play" scheme in which political contributions to Richardson influenced the awarding of the investment business to Vanderbilt.

Foy's attorney, Victor Marshall, said Foy's recommendation to the committee was his attempt to limit the amount of money the board would invest with Vanderbilt.

"That recommendation was trying to put a cap on it because Malott wanted to invest much more," Marshall said. "Frank was fighting to invest as little as possible."

Sam Bregman, an attorney for Malott's company, Meyners & Co., which also is a defendant in the lawsuit, called Marshall's comments "laughable" and the lawsuit "frivolous."

"The evidence clearly shows from the board minutes that Foy was recommending the investment. If he was opposed to the investment, he had a fiduciary duty to speak up and insist on this investment not going through. Instead he recommended it," Bregman said.

Malott declined to comment publicly on the matter.

Marshall pointed out Foy was not a voting member of the committee, which limited what he could do and say. As chief investment officer, Foy was responsible for making state investments involving teachers' retirement funds. He was under the oversight of board members, including Malott.

Marshall said Foy voiced his opposition to two ERB members who represented retired teachers. Polly Turner and Delman Shirley voted against the Vanderbilt CDOs in a subsequent board meeting held minutes after the Investment Committee meeting.

Malott, State Investment Officer Gary Bland, New Mexico Education Secretary Veronica Garcia and former state treasurer Doug Brown approved the CDOs, the minutes from that meeting showed.

Foy did not speak for or against the Vanderbilt investment at the ERB meeting, according to the minutes.

Turner, who stepped down from the board last June, said Foy told her of his opposition to the investment ahead of the meeting. She said she felt the board had not been educated on the investment instrument, they had received no written materials and were moving too quickly on the decision, the minutes showed.

"I don't know how much stronger his opposition could be," she said in an interview Friday. "He definitely was opposed to them."

She said Malott called the ERB meeting to approve the investment minutes after the Investment Committee meeting, in an unusual move she described as "very hasty."

Marshall vowed that Foy's opposition to the investment would come out during testimony at a trial.

Malott, who served as treasurer of Richardson's 2006 gubernatorial re-election campaign, has called Foy's lawsuit baseless and said he lost faith in Foy's appropriateness for the position.

Foy said he took a demotion in 2006 after a decade as chief investment officer. A year later, he was accused of sexual harassment, a claim he maintains was false.

The lawsuit, filed in state district court in Santa Fe last July, seeks damages that could total more than $300 million.

It also alleges that the state Investment Council invested $50 million in the CDOs through Vanderbilt. By December 2006, the total $90 million investment was worthless after the funds collapsed.

Foy claims Vanderbilt executives later contributed at least $15,100 to Richardson's failed presidential campaign in 2007.

Foy is the first high-ranking state employee to go to court and publicly allege Richardson political appointees helped steer state business to the Richardson's campaign contributors.

Pay-to-play allegations also are at the center of a federal grand jury investigation that has derailed Richardson's U.S. commerce secretary nomination. The governor has denied any wrongdoing in the federal investigation.




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