N.M. agrees to $4.9M settlement with investment firm
Dispute stretches from Richardson administration
The State Investment Council has agreed to a $4.9 million settlement with an investment company that lost $30 million of taxpayer money during the real estate meltdown.
The settlement with Eastern Real Estate Development LLC, which did business in New Mexico as NorthStar SIC Holdings, is a result of a yearslong controversy involving several investment advisers who paid improper or undisclosed placement fees to broker Marc Correra, who boasted about his political connections to former Gov. Bill Richardson.
Richardson and Correra have denied any wrongdoing, but the settlement stems from documents obtained as part of other civil lawsuits and a probe by federal securities investigators, which ended without sufficient evidence to bring any court actions.
The State Investment Council, which is chaired by Gov. Susana Martinez and includes public members as well as state officials, met for two hours behind closed doors Tuesday before voting 10-1 to accept the settlement. New Mexico Land Commissioner Aubrey Dunn voted in opposition.
“The attorney for the State Investment Council has instructed Commissioner Dunn to refrain from explaining his ‘no’ vote, so there will be no further comment on this matter from Commissioner Dunn or the State Land Office,” a spokeswoman for his office said Wednesday in an email.
The settlement also prohibits the state from sending out a news release about the case, which has been the practice in other settlements. Additionally, the document approved by the SIC states, “Neither party will make or cause to be made any disparaging remarks or derogatory statements about the other party.”
Minutes of the SIC from past years indicate that NorthStar SIC Holdings LLC received a commitment from the State Investment Council in 2005 to invest $90 million, of which $55 million was invested in two projects. The state liquidated those holdings in 2014 for a total loss of about $30 million.
After allegations made by a state whistleblower, the investment deals during Richardson’s eight years as governor were investigated both by the SIC, which launched an internal probe, and the U.S. Securities and Exchange Commission, which did not find enough basis for an enforcement action.
Still, the investment council has filed civil actions against Correra and others, and a trial is set for next summer. The council alleges fund managers paid Correra more than $22 million in improper placement fees to steer New Mexico money to their investments.
No formal complaint was ever filed against Eastern Real Estate. Instead, the State Investment Council and its law firm argue the investment deal that lost money and the excessive fees showed a lapse of fiduciary duty to New Mexico taxpayers. The funds distribute money each year to pay for higher education and other state services.
Tuesday’s settlement is the second largest and brings the total recovered so
far to some $32 million, although the biggest chunk, a $24.2 million payment from Vanderbilt Capital, sits in an escrow account pending more legal challenges.
The settlement documents also contain language that the parties are not admitting to any wrongdoing, and that Eastern Real Estate agrees to help the state in the case against Correra and others, if called upon to do so.
In return, the state is dropping all claims against the company.
Unlike so-called “pay-to-play” cases in New York state, the New Mexico cases have been made more difficult because no one here has been charged by the U.S. Department of Justice, which looks into criminal actions, or the U.S. Securities and Exchange Commission, which moves on civil enforcement of security laws.
These allegations, as well as others, however, cost Richardson a Cabinet appointment in President Barack Obama’s administration. He withdrew his nomination for secretary of commerce as other pay-to-play controversies around the United States shed light on his management here.
The scandal led to wide-ranging reforms that changed the membership of the investment council and put policies in place for more checks and oversight on investments and those hired by the state to provide financial advice.
Contact Bruce Krasnow at 505-986-3034 or brucek@ sfnewmexican.com.