Whistleblower suit says $24M settlement wasn't enough, points finger at claimed Day Pitney conflicts
Hired to help New Mexico recoup money allegedly lost as a result of “pay to play” arrangements concerning state investments, the law firm Day Pitney negotiated a settlement of over $24 million from Wall Street financial institutions.
But that amount was too low, a former state investment official contends in a whistleblower suit filed under the Fraud Against Taxpayers Act. Plaintiff Frank Foy claims that there were undisclosed conflicts involving Day Pitney’s other clients, reports the New Mexican.
Foy alleges that the law firm should have told the state’s Educational Retirement Board that Day Pitney represented a number of the same financial institutions the board was seeking to collect from, in unrelated legal matters. Foy served as the chief investment officer of the Educational Retirement Board before his own retirement. The Day Pitney clients who were also being targeted for the New Mexico settlement included Citigroup, Ernst & Young, Merrill Lynch and Deustche Bank.
Not disclosing these conflicts violated professional conduct rules in New Mexico, the suit says. Foy also alleges that this led to the state receiving less settlement money because Day Pitney didn’t aggressively pursue the case. The suit contends that Day Pitney was not aggressive enough because the financial institutions were “more lucrative and more important to Day Pitney over the long run,” in terms of the repeat business they could provide.
Day Pitney’s managing partner, Stanley Twardy, told the newspaper the suit is “wholly without merit” and said the firm expects it will be dismissed “in due course.”
Filed in September, the suit was unsealed Monday.
A state-court judge had refused to approve the $24 million settlement in 2013, questioning whether enough discovery had been done. The money is currently in escrow. However, the settlement has been OK’d by the State Investment Council, the New Mexican reports.
A spokesman for the council called allegations in Foy’s suit “slanderous and inaccurate.” He said they have previously been discredited and “do nothing but hamper the state’s ongoing efforts to punish those who enriched themselves from the permanent funds at the expense of New Mexico school kids.”
New Mexican: “Pay-to-play scandal lingers long after Richardson”
Wall Street Journal (sub. req.): “‘Pay to Play’ Pact Yields $24 Million for New Mexico”
Pensions & Investments: “New Mexico Supreme Court ruling revives pay-to-play lawsuits”