The State of New Mexico Could Be on Hook for College Plan Losses
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The New Mexico Court of Appeals has ruled that the State of New Mexico may be held liable for most of an alleged $175 million in losses suffered by investors in the state’s college savings plans. A unanimous court issued the ruling yesterday. It provides added momentum to a class action lawsuit brought on behalf of families who saw college savings suffer enormous losses due to mismanagement by the investment firm selected by the New Mexico Department of Higher Education.
The Court of Appeals overruled a district court that found the state enjoyed sovereign immunity and could not be held liable for the losses. The class action asserts a breach of contract claim, arguing the state violated its obligations to investors by wrongfully investing in high-risk ventures instead of the conservative fixed-income funds the plaintiffs had contracted for. The Court of Appeals ruling permits that claim to be litigated against the state.
You may read the entire Court of Appeals ruling here.
New Mexico Watchdog explained the class action in this previous report.
The college savings plans were managed by the Oppenheimer investment group. The New Mexico Attorney General has already concluded a settlement with Oppenheimer that won just over $63 million for investors who suffered losses in the college savings plans. Investors had the choice of accepting the settlement, and releasing Oppenheimer and its related entities from all claims, in exchange for an injection into existing Oppenheimer college savings plans of additional funds. The AG and the New Mexico Department of Higher Education claim the Oppenheimer settlement recovered just over half of all the losses.
Attorneys for the class action complain the AG settled too quickly and cheaply.
Not all New Mexico families who had lost money in the Oppenheimer funds chose to accept the settlement. Nonetheless, the New Mexico AG and Oppenheimer concluded the settlement this month by sending payments to all investors, regardless of their acceptance of the terms of the settlement.
According Santa Fe attorney John Beinvenu, one of the attorneys pursuing the class action, acceptance of the settlement with Oppenheimer did not shut investors out of participating in the claims against the State of New Mexico and the Education Trust Board and the Education Plan Trust of New Mexico, the other two defendants in the suit. Bienvenu also believes that individuals who did not accept the Oppenheimer settlement but received payments in the final disbursal may accept those funds and still pursue Oppenheimer and the State for all remaining losses.
The amount of money actually at stake in the class action will be the difference between the total losses in the college savings plans, estimated by plaintiffs in excess of $175 million, and the amount of the Oppenheimer settlement, says Bienvenu.
Class action notices went out in September. The case is pending in the First Judicial District Court of Santa Fe before Judge Stephen Pfeffer.