Lawsuit: 'Pay to play' cost state $90M

ALBUQUERQUE (KRQE) - A former state official is alleging a link between campaign contributions made to Gov. Bill Richardson and a soured investment that cost the state $90 million.

In a lawsuit filed on behalf of state taxpayers and unsealed Wednesday, Frank Foy claims he was pressured into investing in now-worthless subprime mortgages with Vanderbilt Financial in 2006. At the time Foy was the chief investment officer for the Educational Retirement Board which controls billions of dollars in teacher retirement funds.

That pressure came from Bruce Malott, the ERB chairman, and Gary Bland, chief executive of the State Investment Council, Foy said.

"It was a very tough period of time because somebody outside the staff came forward and was recommending an investment that we felt was imprudent and probably illegal," Foy said during a news conference.

Once the $90 million investment was secured, Vanderbilt made a $15,000 donation to Richardson's presidential campaign, according to the lawsuit.

Malott and Bland are both Richardson appointees. Malott also was Richardson's campaign finance chairman. Neither Malott nor Richardson has responded to the allegations.

However Bland issued a statement calling Foy's assertions without merit and questioning his motivations. Bland said he has not participated in any wrongdoing and will vigorously fight the allegations which he called reckless.

The $90 million just disappeared because the mortgages were worthless and the company behind the business knew it, according to the lawsuit.

"They were illegal inducements; this was no coincidence," Victor Marshall, Foy's attorney, said. "But when the money passed, who said what to whom, what noises were made back and forth, what winks, that's a good question.

"We need to proceed with discovery."

Discovery is the investigative process between the filing of a lawsuit and going to trial when lawyers gather statements, documents and other evidence.

Marshall said he unsealed the lawsuit Wednesday after the attorney general's office reviewed it and declined to prosecute.