(April 30, 2010) — A New Mexico judge rejected a pay-to-play lawsuit filed by Frank Foy, a former chief investment officer for the $8.3 billion New Mexico Educational Retirement Board. The suit sought to recoup millions of dollars in state funds lost through investments in mortgage- backed securities sold by a firm whose executives donated to New Mexico Governor Bill Richardson’s presidential campaign.

“We are analyzing the judge’s ruling and its implications on the law that could impact this and other cases in the near future,” said Phil Sisneros, a spokesman for Democratic Attorney General Gary King said to the AP. “We do expect that the appellate courts will have to weigh in at some point.”

Foy, who retired as CIO in 2008, aimed to recover $150 million to $230 million in taxpayer money for the state because of alleged fraud and a “pay-to-play” scheme involving public investments. District Judge Stephen Pfeffer in Santa Fe dismissed the whistleblower lawsuit. He said in an April 28 decision that the actions at issue preceded the law under which the case was filed — the Fraud Against Taxpayers Act, which took effect in 2007. The money-losing investments began in 2004. The judge said it’s unconstitutional to apply the law and its sanctions to activities that occurred prior to July 2007, when the statute went into effect.

Foy claimed that as much as $243 million in state funds were used to buy “worthless” collateralized debt obligations, or CDOs, sold by Chicago-based Vanderbilt Capital Advisors. In the suit, Foy stated that as much as $22 million in finder’s fees were shared by the son of a political ally of Richardson, a Democrat. The dismissed suit was filed in the summer of 2008 under seal, but was made public in January of 2009. It was later amended to include Marc Correra, whose father, Anthony, is a friend and political supporter of Richardson. State records show Vanderbilt paid $5.6 million in fees to Correra or his associates, according to Bloomberg.

Pay-to-play has become an increasingly hot-button issue in recent news. Following an investigation of the $110 billion New York State Common Retirement Fund (CRF) last year that revealed the role of middlemen, for example, the Securities and Exchange Commission (SEC) has proposed banning investment managers from paying placement agents to solicit government pension funds.