SIC Facing Setbacks in Its Pay to Play Lawsuit
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The State Investment Council has not been hitting home runs in its pay to play lawsuit since its General Counsel announced in June that victory was at hand. Three key defendants have been dismissed and the SIC has yet to secure settlements with any of the remaining parties.
As we reported previously, Evan Land, the SIC’s top lawyer, exuded unalloyed optimism when he briefed the SIC about developments in a complex lawsuit arising out of the scandal that has tarred the reputation of the agency that oversees investment of New Mexico’s $16 billion in permanent funds.
Land described a strategy of “flipping” minor defendants to reach defendants with deep pockets. The SIC is suing to recover losses allegedly caused by massive breaches of fiduciary duty by its former State Investment Officer, the outside firm that managed the SIC’s private equity portfolio and investment managers who paid undisclosed third-party placement fees to secure SIC investments.
“No one got out,” Land boasted, meaning none of the defendants had succeeded in being dismissed from the case or dodging service of process.
Land may have declared total victory too soon.
Three defendants, none of them insignificant, have been dismissed from the case. Anthony Correra, who stands in the middle of the conspiracy alleged by the SIC in its lawsuit, was dismissed for failure of service. The SIC still has not been able to effectively serve the lawsuit on one of the key players. In the SIC’s favor, on October 4, 2012, Judge Sarah Singleton granted the SIC’s motion to attempt an alternative form of service to bring Anthony Correra into the lawsuit. That will give them one last shot at hauling the elder Correra into court.
Two important defendants have also been dismissed from the lawsuit. Daniel Hevesi and Henry “Hank” Morris were dismissed on October 12, 2012. They are residents of New York. Charles Wollmann, the public information officer for the SIC, says they were dismissed “on jurisdictional grounds; the Court’s rationale was that folks who have not set foot in New Mexico may not be hauled into state court here.”
But the loss for the SIC was more substantial than that. The SIC’s attorneys had twice been granted leave by the judge to amend their complaint to state minimal facts to show that Hevesi and Morris had engaged in the conspiracy alleged in the complaint. The defendants’ lawyers ridiculed their inability to set forth more than empty conclusory allegations even after a third amended complaint had been filed. The SIC asked for one more try, and pleaded to be permitted to conduct discovery to find some facts on which to state its case. The judge accepted defendants’ arguments and ruled the SIC was out of tries and dismissed Hevesi and Morris because the SIC’s lawyers had failed to allege one fact that these men engaged in the alleged conspiracy.
This development may spell trouble for the SIC’s case against the other defendants. The SIC’s lawsuit spends a good deal of time arguing that what happened in New Mexico was just like what happened in New York state, where Morris was convicted of a number of
felonies in a lucrative pay to play scheme surrounding management of the Empire State’s pension funds. Hevesi escaped prosecution there only because his father, Alan Hevesi, the former New York State Comptroller, made his son’s freedom from prosecution a condition of his guilty plea to elements of the pay to play and bribery scheme.
In its complaint, the SIC emphasizes the importance of the New York criminal scheme to understanding what it alleges happened in New Mexico.
For example, paragraphs 45 and 46 from the Second Amended SIC complaint allege:
45. The New Mexico pay-to-play scheme that forms the basis for this action not only
resembles the New York scheme in many respects, but also involves many of the same
participants and investments.
46. Indeed, as detailed herein, the intertwined New York and New Mexico schemes were part of a larger nationwide web of corruption that has eroded the public treasury and corroded the public trust.
The SIC’s failure to allege any facts against individuals who were central figures in the New York scheme may signal deeper problems in showing that that scheme was grafted onto SIC investments in New Mexico.
The SIC has one minor victory to proclaim. But its not a victory against any of the “bad guys” in its lawsuit. Judge Singleton denied a motion to disqualify Attorney General Gary King from participating n this matter. King is serving as local counsel for the out-of-state law firm retained by the SIC because of its expertise in complex securities litigation.
But the motion the SIC won was not brought by any of the people the SIC was suing. It was brought on behalf of Frank Foy, a whisteblower who has filed his own lawsuit over New Mexico’s pay to play scandals under the administration of former Governor Bill Richardson. A copy of Judge Singleton’s order allowing AG Gary King to remain as counsel in the case is linked here.
Wollmann informs New Mexico Watchdog that no settlements have been reached with any of the remaining defendants in the case. Discovery had only been permitted on a limited basis so that the parties could exchange information on insurance policies and establish the correct amounts of third-party placements fees. That stay on full-blown discovery ends December 3, when the parties may begin to take depositions and exchange written discovery requests. Costly expert witness discovery also begins.
Another defendant, William Howell, has filed a motion similar to that won by Hevesi and Morris. No decision had been made on Howell’s motion at the time New Mexico Watchdog last reviewed the court file.
After reporting the SIC’s declared optimism about its lawsuit, New Mexico Watchdog interviewed the lead defendant, Gary Bland, the former State Investment Officer. He provided a completely different view of the SIC’s litigation, and predicted considerable difficulties for any significant recovery. You may read that report here.