Frank Foy: The Whistle Blower

Frank Foy may seem an unlikely actor on the national pay-to-play stage. But the bald and bespectacled former CIO of the $8.5 billion New Mexico Educational Retirement Board — whose father was the youngest member of the vaudeville family immortalized in the 1955 movie The Seven Little Foys — has risen from obscurity by filing two “whistle blower” lawsuits, both alleging that allies of New Mexico Governor Bill Richardson had pressured the ERB into making investment decisions “tainted by political considerations and contributions.” When Foy failed to go along with the plan, the lawsuits claim, it cost him his job.

Foy isn’t looking to get his job back. Instead, he says he is trying to help New Mexico reclaim the $90 million it lost from the money managers and bankers that sold it the bad investments — plus damages that would bring the total to more than $300 million.

One of the defendants in both cases is Gary Bland, a gregarious silver-haired cowboy who was handpicked by Governor Richardson in 2003 to run one of New Mexico’s other large public funds, the $11.5 billion State Investment Council. Bland is no investment neophyte: He ran the pension fund at aerospace giant Boeing Co. for 28 years before retiring in 2001. Foy claims in his lawsuit that Bland, who as New Mexico’s state investment officer sits on ERB’s board, and others tried to manipulate the manager selection process to benefit Governor Richardson.

Ironically, Foy and Bland started off as allies. One of Bland’s first objectives when he rode into town was to get the state legislature to agree to broaden the types of strategies in which its public funds could invest. With the support of Foy and others, he won a hard-fought, two-year battle to get the law changed — enabling the ERB and the SIC to invest in hedge funds and private equity.

That is when, according to the lawsuits’ allegations, Foy’s troubles really started.

In 2006 the ERB made one of its earliest alternative investments, in a collateralized debt obligation run by Chicago-based money management firm Vanderbilt Capital Advisors. Foy was reluctant to put money into Vanderbilt, ERB meeting minutes show, but eventually proposed investing as much as $40 million, which ERB chairman Bruce Malott and Bland supported. SIC invested $50 million with Vanderbilt. Today, New Mexico’s entire $90 million investment, which held residential mortgages, is worthless.

Opponents describe the 63-year-old Foy as an arrogant, embittered ex-employee who didn’t understand alternative investments and is now out to make money the easy way — with a lawsuit. It is no secret that Foy and Malott did not get along, nor that the ERB chairman was skeptical of Foy’s leadership.

In July 2008, Foy, who by then had been hit with what he says are false sexual harassment charges and forced into retirement, filed a civil suit against Malott, Bland and others, alleging that the Vanderbilt investment was made for political reasons. He points out that Vanderbilt employees subsequently made contributions to Richardson’s 2008 presidential bid. In the case of the $50 million investment by SIC, the placement agent was Marc Correra, the son of one of Richardson’s key backers.

Foy’s charges were brought against the backdrop of a grand jury and FBI investigation into Richardson’s campaign finances, which ended this summer without any action being taken against the governor. Still, in the nationwide probe of pay-to-play at public funds by New York Attorney General Andrew Cuomo and the Securities and Exchange Commission, most of the placement agents and many of the managers at the heart of these investigations show up, in one form or another, in New Mexico.

“New Mexico has always struck me as a very political place,” says a well-connected money manager. Foy would probably agree.

See related story, " Pension Pay To Play Casts Shadow Nationwide".