Former Educational Retirement Board Member Pauline Turner says the investment deal at the center of Frank Foy’s pay-to-play lawsuit was ‘hasty’ and ‘irresponsible’
Pauline Turner thought it was unusual for Bruce Malott, chairman of the New Mexico Educational Retirement Board (ERB), to call a special meeting in May 2006 for a vote on whether to invest $40 million with Vanderbilt Financial.
Special meetings weren’t unheard of, but they were by no means common, she said in an interview. And Turner, then an ERB board member, had become increasingly concerned about the board’s move, under Malott’s leadership, toward what she saw as riskier investments.
So she was in the minority in voting against the Vanderbilt investment at the May 12, 2006 meeting of the board. Turner explained her opposition at the meeting, according to the minutes: She felt the board was making “what appeared to be a hasty decision” because its members hadn’t been educated on the type of investment they were about to make and didn’t have policies and procedures in place to deal with such investments.
“I felt personally that we were taking more risk in a way that was really irresponsible because a lot of the board members — not all of the board members, but a lot of the board members — didn’t understand what we were doing,” Turner said in the interview.
Ultimately, the board voted 4-2 — with then-member Delman Shirley siding with Turner — to go ahead with what was essentially an investment of the retirement funds of public educational employees in subprime mortgages. The state later lost the entire $40 million investment, along with a separate $50 million investment the State Investment Council (SIC) made with Vanderbilt.
That $90 million loss led to the current pay-to-play lawsuit filed on behalf of the state by Frank Foy, who at the time of the investment was the ERB’s chief investment officer. Foy, in seeking damages of $300 million for the state — and a percentage he would keep for himself — alleges that the state made the investments in exchange for a little more than $15,000 in contributions to Gov. Bill Richardson’s 2008 presidential campaign.
Richardson and other state officials flatly deny the charges.
No ‘firsthand knowledge’ of pay to play
Turner said in the interview that she has no ‘firsthand knowledge’ of any pay-to-play deal involving Vanderbilt or any other investment. Regardless, Foy’s attorney, Victor Marshall, wants to depose Turner, and in one court filing wrote that she will be “a key witness in the case.”
Turner, 71, has battled lung cancer and is currently stricken by a pulmonary disease. Marshall has filed a motion to expedite her deposition, asking that it be taken later this month — or sooner if it becomes necessary — so that Turner’s testimony is not lost.
Turner, a Democrat, served on the seven-member board for 14 years, holding a position chosen by a vote of members of the American Association of University Professors. She described Foy as an honest man who spent a great deal of time helping her understand investments.
Turner and Foy both preceded Malott at the ERB, and Turner said the board was fairly conservative in its investing until Malott took charge. When the 2006 vote on the Vanderbilt investment came up, Turner said, the state had only recently begun to allow boards such as the ERB to invest in “alternatives” — investments other than stocks and bonds — and, because the board hadn’t yet drafted policies and procedures for dealing with such investments or spent enough time learning about alternatives, Turner said she doesn’t believe most board members realized they were voting on whether to invest in subprime mortgages.
Vanderbilt, she said, instead used the term “collateralized debt obligations,” which is common in the financial world, to describe the deal.
Turner described the four members who voted for the Vanderbilt investment — Malott, State Investment Officer Gary Bland, Education Secretary Veronica Garcia and former State Treasurer Doug Brown (who is no longer a board member) — as “the governor’s people,” and said they nearly always voted together.
Malott was originally appointed by former Gov. Gary Johnson but reappointed by Richardson. Garcia is a Richardson cabinet secretary. Brown was the interim state treasurer appointed by Richardson after the scandal in that office. Bland is and has been a close ally of Richardson who is employed in his administration.
Health, frustration led Turner to resign from board
Turner said she also became increasingly frustrated that the ERB, under Malott’s leadership, began to follow the lead of the SIC, as it did in the case of the Vanderbilt investments. In addition to being an ERB board member, Bland is also the SIC administrator, and he and Malott are among the defendants in Foy’s lawsuit.
Foy alleges that Malott and Bland made the Vanderbilt investments happen at the direction of Dave Contarino, a former Richardson chief of staff and campaign manager.
Turner resigned from the board in June 2008. In her affidavit accompanying the request for an expedited deposition, she states that she resigned because of “poor health, advancing age, and frustration in the direction that the Board was moving, particularly as it related to investment philosophy and the actions and characteristics of the Board Chair.”
Malott’s attorney said he had no immediate comment on Turner’s statements.