Gary Bland Could Be Trouble for The SIC’s Pay-to-Play Lawsuit
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A man with nothing to lose and a belly full of fight heads the long list of defendants in the State Investment Council’s pay-to-play lawsuit. With his back against the wall, in a struggle he believes is about clearing his name, Gary Bland is mounting a legal defense that may end up helping all the defendants in the SIC’s complex legal case. Ironically, the smallest dog in the fight might have the deepest bite.
Gary Bland, former SIC investment officer
In a previous story–Marc Correra, You’ve Been Served!–we related the exuberant confidence of the SIC’s chief counsel. “We are winning,” he proclaimed in the SIC’s June meeting when reporting on the progress of the litigation.
Not so fast, Bland counters. Here’s his side of the story, and it could mean a major headache for the SIC down the road when it has to prove its case.
The SIC’s Pay-to-Play Litigation in a Nutshell
The SIC’s claims are laid out in its Second Amended Complaint for Money Damages filed in the First Judicial Court of Santa Fe County on February 20, 2012. The SIC alleges that Bland violated the fiduciary duty he owed to the SIC and its permanent funds as the State Investment Officer during the Bill Richardson Administration by placing investments with managers based on his own “selfish interests and the personal, political and financial interests of politically-connected individuals and their associates.”
The political connections, the lawsuit alleges, all go back to former Governor Richardson, who appointed Bland. Personally, through his staff, or through a close associate named Anthony Correra, the suit alleges Richardson used his position to influence or direct Bland to steer investments to his friends and contributors.
From that point on, the allegations get more complicated.
Anthony Correra, a long time close Richardson associate, is the father of Marc Correra. Marc Correra shared in over $20 million in undisclosed placement fees from the alleged
Marc Correra, center, with his attorneys. Courtesy roundhouseroundup.blogspot.com
politically influenced investment decisions. Marc Correra did little or no work to earn those fees. Other “politically-connected individuals” also scored huge fees for minimal effort.
Next to Bland, the most important character in the factual allegations was Saul Meyer and his company Aldus Equity Partners. They served as advisers to the SIC in making private equity investments, that is, investments in companies and ventures not publicly traded on stock markets. Meyer pleaded guilty to various crimes in New York related to a similar role he played in a pay-to-play scheme that exploited that state’s pension funds. In his plea hearing, Meyer admitted that in New Mexico he had responded to political pressure to steer investments to politically connected individuals even though those investments “were not necessarily in the best interests of the people of New Mexico.” Here’s his full statement to the court, courtesy of the Wall St. Journal (subscription necessary, sorry).
The SIC’s complaint alleges Anthony Correra was the principal point of contact between Richardson, Bland
Former Gov. Bill Richardson
and Meyer, and also used his position to pressure Bland and Meyer to recommend to the SIC investments that would generate huge, undisclosed fees for his son, Marc.
The suit alleges that Bland, Meyer and Aldus “caused” the SIC to make investments for the benefit of politically-connected individuals, and that these investments caused the SIC and the permanent funds to incur substantial losses.
The suit seeks to recover damages from Bland, the Correras, Meyer, Aldus and twelve “politically-connected” individuals who received undisclosed placement fees. All of the “politically-connected individuals,” but one, are prominent Democratic fundraisers and Richardson allies Even a former Democratic Congressman from Michigan is named as a defendant.
Bland, Meyer and Aldus are charged with breach of fiduciary duty. Aldus faces a claim it breached its advisory contract with the SIC. The remaining individuals, including the Correras, are alleged to have “aided and abetted the breach of fiduciary duty” by Bland, Meyer and Aldus. That is a cause of action that sounds simple and straightforward. It has been used against people who assist their spouses in embezzling funds from trust accounts. But with Bland standing across its path, the SIC may have a more difficult time than expected in making its case stick or forcing settlements before trial.
A Man With Nothing to Lose
Gary Bland is broke. The IRS has levied a $577,000 lien against his assets, and a California court has hit him with a $42,594 judgment for breach of contract. (See Thom Cole’s story for The Albuquerque Journal). The state won’t pay for a lawyer, and he can’t afford his own. He asked us to meet him in the future in Santa Fe, because it was too costly for him to drive his Ford Expedition to Albuquerque.
Any judgment the SIC wins against Bland will not be worth the the litigation costs. In the terms of the lawyering business, Bland is “judgment proof.”
Nor can the SIC hope to secure any kind of meaningful settlement with Bland before trial. He has nothing to offer and no reason not to keep up what he views as a fight for his personal honor.
Based on the pleadings he has prepared and filed for himself, it is clear he is committed to that fight. Bland has personal knowledge of every allegation against everyone in the case. He is effectively also an expert witness for the defense. Having been at the helm of the SIC at the time of the events alleged in the lawsuit, he is positioned to rebut every fact alleged by the SIC’s lawyers. He’ll be able to call any bluff from the SIC’s lawyers because he knows what is in the agency’s files. His efforts may also provide ammunition his fellow defendants would not produce on their own.
The Marvin Rosen Allegations: A Democratic Moneyman in the SIC’s Sights
To get a handle on how this case might play out, we questioned Bland in detail about the claims in the SIC’s lawsuit pertaining to Marvin Rosen, one of the dozen “politically-connected individuals” who received large placement fees.
Marvin Rosen
Rosen was the CEO and finance chair of the Democratic National Committee during the days of Bill Clinton’s presidency. He was responsible for auctioning nights in the White House’s Lincoln bedroom to high dollar donors. He moved on to be one of Hillary Clinton’s top fundraisers in her unsuccessful race for the White House. He was later embroiled in the Ken Starr Hollywood ponzi scheme that ripped off such celebrities as Julius “Dr. J” Erving. His name has also surfaced in connection with a bribery case being tried in Miami, Florida that involves Haiti’s corrupt telecom monopoly.
The SIC’s lawsuit makes some very specific allegations against Rosen:
In connection with multiple alternative investments made by the NMSIC, including Fenway Partners Capital Fund III (“Fenway”) and the Optima Fund Limited (“Optima”), Rosen received between $300,000 and $900,000 in payments through Diamond Eagle Partners, LLC (“Diamond Edge”), of which he is a partner. After Rosen approached senior members of Governor Richardson’s staff, Anthony Correra instructed Bland, Meyer and/or Aldus to advise and direct NMSIC to make investments for which Rosen stood to receive payments.
Further, the complaint alleges,
Rosen knowingly facilitated the pay-to-play scheme of Bland, Meyer and Aldus as a quid pro quo for favors and benefits in New Mexico and elsewhere.
Charles Wollmann, public information officer for the SIC, answering our e-mail inquiry, says, “The Fenway Capital III Commitment was $30M and $29.55M of that was deployed. It’s a private equity fund and many of its investments remain going concerns. The Optima investment was a $50M commitment in a fund of hedge funds, which the SIC redeemed early 2009.”
The complaint alleges that the SIC has “experienced a negative return on its investment in Fenway,” but the SIC’s Wollmann declined to reveal what that loss is.
The complaint alleges specifically that “Bland directed NMSIC to invest in Optima, which he then characterized as a fund showing good performance.”
Wollmann declined to answer our question on what proof the SIC can offer to establish these facts. Bland also wants to know. He has asked for the proof against him in interrogatories and requests for production of documents to which the SIC has not responded. Discovery in the case has been stayed until December. The SIC is hoping that much of the case can be settled before discovery begins.
Bland’s Pushback
Bland’s verbose and lengthy pro se pleadings sometimes show the marks of a non-lawyer representing himself. Example: the exclamation points he employs when expressing his exasperation at not receiving answers to his questions regarding the factual basis for the SIC’s allegations against him. But his briefs also reveal a higher level of sophistication and legal expertise than the run-of-the-mill pro se litigant. In our discussions, he shared some legal theories and evidentiary points that may reduce the settlement value of the SIC’s case and make a substantial judgment less likely if this ever goes to trial.
Bland won’t shy from the fight. He won a Bronze Star for his conduct in combat in Vietnam as an Army lieutenant. His pugnacity comes across in his writing and telephone conversations. He does not act like a man with anything to hide. He insists he is being made “a scapegoat for this shit.” He has voluntarily talked to government investigators and The Albuquerque Journal at length about this matter.
Bland has filed a counterclaim against his former employer, making his own claims for damages.
Of course, he could be brassing it out, facing enemy fire unblinking. Or he could have facts and law on his side.
With respect to our test sample of the SIC’s lawsuit, Bland directly contradicts the Rosen allegations with his own personal knowledge, and thereby also provides a defense to Rosen. He is likely to have the same effect on the SIC’s claims against other defendants since his conduct is at the center of the every claim in the case.
On the facts, Bland states in his long-winded response to the SIC’s Second Amended Complaint:
Marvin Rosen attempted to influence both Bland and Saul Meyer by stating to Meyer that ‘The Governor wanted this investment done quickly.’ Bland instructed Meyer to ‘kill’ the possible investment as a result. That was done!”
We asked Bland to elaborate.
Saul Meyer
He said he met Rosen early in his tenure at the SIC when Rosen made a presentation on a proposed fund investment, and two or three times later with regard to the same investment as it worked its way through the SIC’s normal review. He met Rosen again in a meeting with Governor Richardson. He wrote to us in an e-mail following up our telephone conversation:
What Bland means by the last comment is that he will rebut the SIC’s claim that he favored politically-connected individuals by showing how many deals he rejected for those same individuals.
Bland Was Not Omnipotent
Bland makes a point the SIC will have hard time shoving aside. The SIC alleges that Bland “caused” or “directed” the SIC to make investments that were bad for the SIC but good for politically-connected individuals. Bland responds that he did not make the investment decision, and on that he is technically correct. Each prospective investment is reviewed by SIC staff. Private equity investments that make it past SIC staff are then reviewed by the Private Equity Investment Advisory Committee, which includes individuals from outside state government. If the PEIAC recommends the investment, it must then be voted on by the the entire State Investment Council, which at the time included Richardson appointees as well as the State Treasurer and Land Commissioner. It took the approval of these larger groups of people to make an SIC investment. Bland lacked the authority unilaterally to invest any SIC money in private equity funds.
No Harm No Foul?
Bland has said that he was as surprised by the undisclosed placement fees as anybody else. But Bland resigned when a private law firm hired by the SIC turned up documents that might contradict Bland’s claim of total ignorance. Former Land Commissioner Pat Lyons, who had been on the SIC during Bland’s tenure, said documents were uncovered showing Bland pressured advisers to use third party placement agents. “He was soliciting third-party marketers, and we didn’t think it was the right thing to be doing,” Lyons said in a telephone interview with the Santa Fe New Mexican.
Those documents, if they exist, may severely damage Bland’s credibility. Regardless, in our conversation he raised a defense to the SIC’s damage claim that will have to be addressed. The placement fees were not paid by the SIC, he points out. They came out of the fund managers’ compensation. So how has the SIC been damaged monetarily? Good question.
Of course, if the fund itself turned out to have been a bad investment, so bad Bland, Meyer and the other defendants knew or should have known, then the SIC did incur monetary damages, driven by the motivation to generate placement fees for friends of Governor Richardson. But Bland is ready for that one, too.
Prove It, He Says
The allegation about the Fenway investment is a rare instance in the SIC’s 41-page complaint where one of the investments steered to politically-connected individuals is alleged to have lost money. Only three of the funds among all the funds involved in the pay-to-play allegations are described as having lost money.
Bland argues that these funds were inherently risky by their very nature and the SIC cannot prove their losses were not caused by the precipitous economic decline that struck the global markets in 2008. A private equity fund, as the SIC itself so frequently points out, is expected to lose money initially, then years later maybe (or maybe not) begin to turn around and show a profit. This is the “J curve” model for anticipating private equity performance. Bland argues that any private equity fund may perform as these funds performed, and the SIC cannot prove that their performance was any different, regardless of who made money in undisclosed placement fees.
The SIC’s lawsuit seems to acknowledge this fact about private equity, called “alternative investments” in the complaint: “Compared to the core portfolios of public equities and fixed income instruments,” the lawsuit states in an introductory paragraph, “alternative investments generally present the prospect of superior returns and the risk of more substantial losses. Alternative investments are more complex and difficult to evaluate than the investments in the core portfolio.”
Bland thinks the SIC’s heavy reliance on Meyer’s New York court admission reveals a gaping hole in their case. “He didn’t say he recommended ‘bad’ investments,” Bland told us. “And these were not bad investments. They were all reviewed by staff and others and found to meet our standards.” Indeed, Meyer’s admission only goes so far as to state that the investments he recommended “were not necessarily in the best economic interest of New Mexico.” (emphasis added)
“If these investments were so bad,” Bland argues, “then why aren’t they trying to get the money back?” The SIC’s lawsuit does not seek a court order unraveling any investments. Indeed, none of the management firms holding the investments have been named as defendants by the SIC.
A Nuisance Lawsuit?
The lawsuit does not say how much the SIC has been damaged or how much it wants from any of the defendants. Bland says the SIC is only chasing “litigation value” settlements from defendants who can afford lawyers and will pay simply to make the lawsuit go away. In such settlements, the defendant decides to pay the plaintiff the value of the attorney fees and costs and lost time it would incur in defending the case. They admit no wrongdoing in the settlement terms.
So far, according to the SIC’s chief counsel, they have recovered $400,000, which he acknowledges is a small sum in a case of this magnitude. The SIC’s own attorney fees and litigation costs must come out of any amounts recovered.
If the SIC cannot settle before discovery begins, it will have to reveal its case to the defendants. Even before trial, it will have to survive any summary judgment motions the defendants file. If it becomes evident the SIC is holding a weak hand, the settlement value of its case drops.
Bland is not going to give them what they need. Nor is it likely the SIC will get testimony from Richardson or the Correras to prove its pay-to-play allegations. Meyer was obligated by his guilty plea in New York only to cooperate with criminal investigations in New Mexico. The SIC cannot compel him to cooperate in their civil case. No wiretaps were running at the time of the alleged quid pro quo deals. No undercover agent was collecting damning evidence with hidden microphones. Where will the SIC find the inside information it needs to build its case?
The only claim against the twelve politically-connected defendants who received undisclosed placement fees is that they “aided and abetted” breaches of fiduciary duty by Bland and Meyer. That will require the SIC to prove those defendants, along with Bland and Meyer, knew the investments they were offering to the SIC were bad investments. In addition to the challenge of proving the defendants’ state of mind, the SIC still has to show that the investments actually were bad from the start, at which point it runs into Bland’s argument about the 2008 market collapse and the vetting and approval of the investments by others not alleged to have been part of the scheme.
Other defendants may decide to buy their peace with the SIC simply to put this matter behind them and get back to work. Bland has no such incentive. His days in the investment industry are over. He will most likely be in this until the end, waging his one-man fight to clear his name, and incidentally helping the people with the deep pockets the SIC wants to reach. The more dust Bland kicks up, the harder it may be to see how this case comes out in the SIC’s favor.
Posted under News.
Tags: Aldus Equity, Aldus Equity Partners, Anthony Correra, Bill Richardson, Gary Bland, Governor Richardson, Marc Correra, Marvin Rosen, pay to play, Saul Meyer, SIC, State Investment Council
