years is how long it took the federal Securities and Exchange Commission to ban “pay to play,” following a 1994 rule by the government-chartered

Municipal Securities Rulemaking Board



[T]he full extent of pay to play practice remains hidden and is often hard to prove.


—SEC Secretary Elizabeth Murphy, explaining the rule.

On July 16, the US Senate passed a financial reform bill. Two days earlier, and with less fanfare, the SEC published a new rule banning “pay to play” by investment advisors to public entities.

Critics complain the reform bill doesn’t really shake up Wall Street and, as a result, may fail to stop the next crisis.

Similarly, the new SEC rule—which, among other things, imposes a two-year “time out” period for certain campaign contributions by investment advisors—won’t make private firms much less cozy with their public clients.

In justifying the rule, the SEC cites a number of pay-to-play cases, including the convictions of former New Mexico State Treasurers Michael Montoya and Robert Vigil.

But the SEC doesn’t mention the ongoing lawsuit brought by a former state investment officer, Frank Foy, against his former employer, the Educational Retirement Board, which invests teachers’ pensions. (For background,


ERB Chairman (and former campaign treasurer for Gov. Bill Richardson) Bruce Malott is a key defendant in the lawsuit. Malott has kept his job despite calls for his removal, from lawmakers of both parties.

In May, the ERB selected a new private equity advisor from three companies who’d submitted bids. According to minutes of the meeting, State Treasurer James Lewis questioned why the winning bidder was able to reduce its proposed fee before the board made a final selection.

ERB Chief Investment Officer Bob Jackscha told Lewis “he thought it would be okay.” ERB legal counsel Chris Schatzman said the practice “was acceptable, although somebody could obviously challenge that.”

Lewis abstained from the vote “based on his reservations about the process.”

Despite Lewis’ “reservations,” the ERB will pay $500,000 a year to its new private equity adviser, NEPC of Massachusetts. NEPC managing partner Allan Martin told the ERB his company has served the state’s public funds since 1981 “and has never made a political contribution to anyone in New Mexico.”

NEPC is also a defendant in Foy’s lawsuit. Last year, the town of Fairfield, Conn., sued NEPC for having signed off on an investment into

Bernard Madoff

’s infamous

Ponzi scheme