New Mexico District Judge Stephen Pfeffer has dismissed a pay-to-play suit filed by former Educational Retirement Board (ERB) Investment Officer Frank Foy and the state watchdog on grounds that the claims and alleged wrong doing pre-date the pertinent state law.

According to the April 28 decision, Pfeffer said that claims should be thrown out on "ex post facto grounds" due the fact that the state's Fraud Against Taxpayer Act did not take effect until July 1, 2007. Foy's initial lawsuit, which was filed in July 2008, stated that ERB voted in May 2006 to invest in the Chicago-based firm's CDO-related securities products.

"Although the acts alleged by plaintiffs may very well be deserving of punishment, the [U.S. and New Mexico] Constitutions preclude retroactive application of punitive statutory schemes that did not exist at the time of the alleged conduct, regardless of how loathsome that conduct might be," Pfeffer said in his 29-page dismissal order.

However, the District Judge stated that the Attorney General Gary King, the "state's chief law enforcement officer," could "pursue criminal, civil, or administrative sanctions based on laws that were in effect at the time of the alleged wrongful conduct."

Phil Sisneros, King's director of communications, told Investement Management Weekly today that the Attorney General's office is currently "reviewing the judge's ruling and its legal implications for this and other future cases."

"When our analysis is complete we will be in a better position to say what action we will take," Sisneros said, noting that a timeline for possible future measures was unavailable.

Looking Back

In the filed litigation, Foy, a Bernalillo County resident, states that the state retirement agencies¹ $90 million investment to Vanderbilt Capital Advisors' Financial Trust and its other CDO products, were agreed upon based on fraudulent claims. He stated that the firm rampantly gave "false claims, statements, and representations" to obtain the mandates.

In March, Foy filed an additional amended complaint to include $153 million in other investments to Vanderbilt in earlier years.

"Underneath the concealments and denials there was an agreement and understanding that the SIC and ERB would invest in the Vanderbilt CDO in exchange for political contributions by Vanderbilt," the complaint said.

In an email today, Charles Wollmann, the SIC¹s public information officer, said that due to the fact the Council is not named, nor is a participant in the filing, it has no comment on the ruling.

As of press time, Foy's attorney Victor Marshall and Vanderbilt lead's counsel Peter Simmons were unavailable for comment. Additional inquiries placed to Richardson¹s office did not receive an immediate response.

Another CDO-Related Lawsuit

According to published reports, a state judge has ruled that Countrywide Financial must defend a fraud claim by a unit of MBIA  that is related to the securitization of HELOCs worth billions.

New York State Supreme Court Justice Eileen Bransten in an order also told Bank of America to defend "successor and vicarious" liability claims, after its purchase of Countrywide in 2008, the reports said. The judge dismissed negligent misrepresentation claims against Countrywide.
A breach of contract claim also is pending.

The lawsuit, originally filed against Countrywide in 2008, is related to 15 HELOC securitizations. After the merger, BofA was added a defendant last year.

MBIA Insurance Corp. made billions of dollars in credit enhancements in the form of financial guarantees of the trust obligations on various classes of RMBS, the reports said, citing the lawsuit.

MBIA has alleged that Countrywide's lending practices between 2004 and 2007 "fundamentally changed" the risk profile of its mortgage loan portfolio.

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