Saturday, January 9, 2010

Jennings not happy about state's legal costs

Senate President Pro Tem Tim Jennings in a letter is blasting the State Investment Council's decision to spend millions on recent legal woes. He says the council has asked for supplemental emergency money while other departments are being cut and isn't happy. Those legal fees have grown, and Jennings wants to know why. I've written about them here, here and here.

Here's an excerpt of Jennings' letter:
"The State Investment Council and the Educational Retirement Board lost hundreds of millions of dollars on dubious investments. The former chief investment officer for the teachers' pension fund, Frank Foy, has filed a whistleblower lawsuit to try to get the money back for the state. Shouldn't the state of New Mexico, SIC, be doing the same thing? Shouldn’t they all be trying to recover the state's lost investments?

Meanwhile, the state - with state dollars - is defending the current and former state employees, including Mr. Bland, who are under a cloud of suspicion. The legal bill so far is more than $438,000 to defend or represent various individuals in federal investigations and Foy's whistleblower lawsuit. This makes little sense because Foy is technically suing on behalf of New Mexico taxpayers, so as the state hires lawyers to deal with this problem, it is essentially spending public money to defend itself from... itself. It is spending no money whatsoever to recover lost investment dollars.

The State Investment Council, formerly under the supervision of Bland, has spent huge amounts of money responding to federal subpoenas and to ensure that the council's employees and board members have the opportunity to be legally represented. The SIC years ago entered into a $30,000 professional services contract with the Paul HastingsJanofsky Walker law firm from San Francisco for review of investment documents, but that contract has steadily expanded to $5.8 million as the firm's lawyers, some of whom are paid up to $950 per hour, began responding to the federal subpoenas and conducting an internal review that apparently led to Bland's resignation. I have asked the state Attorney General to formally review the legality of expanding this small $30,000 contract to $5.8 million without a competitive bid process. Recently, the SIC signed contracts with seven additional law firms for a total of $320,000 to represent individual staff members of the SIC, prompting the SIC to ask for emergency supplemental funding while state funding is being cut everywhere else. Essentially, we are again spending scarce state dollars defending ourselves from ourselves.

This situation doesn't make sense. The public and the Legislature need to know exactly what all these lawyers are doing. While every individual is entitled to a vigorous defense and legal counsel, the people of the state of New Mexico are equally entitled to their own advocate throughout this process.

The state should be spending more energy and resources working to recover the investments we have lost.

Why must the state rely on whistleblowers and federal investigators to defend the interests of taxpayers? Perhaps because the state's top financial regulator, Securities Division Director Bruce Kohl, was laid off by the governor in response to the state's budget crisis. Did the governor really believe that Kohl's position was less essential than some of the political employee's who kept their jobs? We may never know as the governor has said virtually nothing about who he decided to lay off.

With the state's top investment watchdog out of the picture, the state must now take extraordinary steps to protect the integrity of the state investment process. The state should be spending more time, energy and money to recover the lost funds caused by the possible lack of due diligence of a few people. Hopefully, the size of the recoveries will outweigh the tremendous costs incurred as a result of these alleged improprieties and return much needed revenues to New Mexico taxpayers."

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