By Kate Nash: The Santa Fe New Mexican
Records show that a contract between the State Investment Office and an international law firm has been amended six times since 2005, boosting the original $30,000 cost to $5.8 million.
The deal — which among other things calls for Paul, Hastings, Janofsky and Walker LLP to create an electronic database of records subpoenaed by the FBI and Securities Exchange Commission — is drawing scrutiny this session from lawmakers who don’t like the price tag.
Contracts like the one signed by the State Investment Office could get more examination as they go through an approval process under a measure sponsored by Sen. Tim Keller, D-Albuquerque.
His proposal, SB 18, would mean more eyes would see such agreements before they are approved.
Currently, the state investment officer and a deputy have the power to sign off on contracts. As for the contract with the Los Angeles-based law firm, the council in November was told about the “magnitude and pace” of the billings, a spokesman for the office said. That’s the same month that the latest contract amendment was approved, which bumped up the cost by $3 million.
Under Keller’s measure, it would be up to the State Investment Council, not the investment officer, to approve contracts and amendments. Also, the investment officer would not be a member of the council.
“All those contracts and amendments would have had to go through the board, not just one guy,” he said. “The public could hold them accountable.”
Keller’s wide-ranging bill, which deals with several other issues of governance at the State Investment Council, the Educational Retirement Board and the Public Employees Retirement Association, is pending in the Senate Rules Committee.
The investment office has no position on the bill, a spokesman said.
The state for five years has contracted with the Paul, Hastings firm for a variety of legal services including securities law and legal issues related to investment structure, records obtained by The New Mexican show.
The law firm provides services in addition to those of the investment council’s two in-house attorneys.
The firm is in the process of converting thousands of documents into the database. A lawyer for the investment council has said the work likely will result in recovering money lost in bad investments and fees paid to third-party marketers.
The database will be used to respond to more effectively respond to Inspection of Public Records Act requests, said Charles Wollmann, spokesman for the office. He said some of the requests encompass nearly all documents in the office.
Responding to all the requests hasn’t been cheap, Wollmann said. Just maintaining the records electronically costs $7,000 a month, he said.
Once the database is complete, it’s unclear how the information will be made available to the public, Wollmann said.
Lawmakers are sure to be looking at that information. Apart from the cost, some are upset that they hadn’t known about all the amendments to the contract.
“Should the investment office have communicated this more thoroughly to the Legislature regarding the growing legal expenses?” Wollmann said in an e-mail. “In hindsight, I think that’s certainly the case. But remember in the Hastings case, this was an emergency contract expansion with a well-qualified firm, for services that the SIC was in immediate need for. The alternative was potentially to have regulators come in and take over the office, leaving the $13 billion fund unmanaged.”
A subcommittee of the State Investment Council this week agreed to review the contract and have the firm define the scope of the remaining work to be done. The SIC subcommittee is to report back to the full council.
Apart from the law firm’s contract, the investment office this session also has taken heat for requesting $5.7 million in additional appropriations, including $4 million in additional funds and $1.7 million in budget readjustments.
Wollman said the money would go to both work related to the Paul, Hastings contract as well as pending litigation over mortgage-backed securities against Countrywide, which made risky loans to thousands of borrowers before the lender was acquired by Bank of America.
The office and the State Investment Council, which oversees billions in state investments, this year has been hit with a series of requests related to its investment activities.
The office and the council have been under scrutiny for a policy that allowed third-party marketers, or placement agents, to collect big fees for helping money-management firms get state business. The council since has banned the practice.
Placement-agent fees are not illegal, but have come under scrutiny in New Mexico because of a corruption scandal involving a New York state pension fund. New York prosecutors say investment firms paid kickbacks to win pension business, with the payments often disguised as fees to placement agents.
No charges have been filed in New Mexico, but federal agents have interviewed staff at the State Investment Council and the Educational Retirement Board, and a grand jury has subpoenaed documents related to placement-agent fees on New Mexico investments.