Oct. 22 (Bloomberg) -- New Mexico’s chief investment officer resigned after the state was drawn into a nationwide investigation of the fees paid to politically connected agents by those seeking to win investment-management work.

Gary Bland, who served on the board overseeing endowment funds for the fifth-biggest U.S. state by area, quit yesterday, according to a letter submitted to New Mexico Governor Bill Richardson. Bland was appointed by Richardson, a Democrat who unsuccessfully sought his party’s 2008 presidential nomination.

“Clearly, I am saddened and disappointed to render my resignation as state investment officer,” Bland wrote.

New York Attorney General Andrew Cuomo, the U.S. Securities and Exchange Commission and the Justice Department are investigating “pay to play” practices in which money managers and their placement agents used ties to public officials to help gain access to $2 trillion in U.S. public pension systems.

State Land Commissioner Pat Lyons, a member of the investment council, said the Paul Hastings law firm of Los Angeles collected information that Bland pressured money managers doing business with the state to hire certain middlemen. The investment council hired Hastings to help it respond to a joint investigation by the SEC and the Federal Bureau of Investigation.

“He was soliciting third-party marketers,” Lyons said. “In fact, some of them took place after we already voted for the investment.”

Half of Fees

Lyons wouldn’t disclose the names of the middlemen, citing the investigations. Bland couldn’t immediately be reached for comment.

Marc Correra, the son of a political supporter of Richardson, shared in more than $16 million, about half of fees paid to middlemen for New Mexico investments. Correra’s father, Anthony, served on the board of political action committee Richardson set up to register Hispanic and American Indian voters.

Bland’s resignation follows the Oct. 6 guilty plea to fraud charges by Saul Meyer, founder of Dallas-based pension consultant Aldus Equity. Meyer pleaded guilty in court to fraud charges and admitted he paid $300,000 to Hank Morris, a one-time adviser to former New York state Comptroller Alan Hevesi, to secure money from that state’s pension fund.

Aldus worked as a private equity adviser to New Mexico before being fired by the investment council and Educational Retirement Board earlier this year. The retirement board said in June that it was subpoenaed by the Justice Department, which sought information about the role Aldus played in investments with the fund.

Federal Subpoena

The state investment council, which oversees the state’s $11 billion endowment funds, also said it received a federal subpoena.

Meyer admitted that on numerous occasions, contrary to his fiduciary duty to New Mexico’s State Investment Council and Educational Retirement Board, he ensured that Aldus recommended proposed investments pushed on him by politically connected people in New Mexico while knowing they stood to benefit financially or politically, Attorney General Andrew Cuomo said on Oct. 6. Cuomo declined to name the individuals.

The former chief investment officer of New Mexico’s public schoolteachers’ fund has accused Richardson’s former chief of staff of instructing Bland to make investments in exchange for political contributions. Bland was allegedly “willing to participate in kickbacks, or look the other way while kickbacks were being arranged,” according to a state court filing.

Whistleblower Suit

Frank Foy, the former investment officer, alleged that Bland would press the teachers’ pension fund to invest with the same firms that agreed to make campaign contributions. The suit said Bland, who also serves on the board of the teachers’ fund, would vouch for investment managers, arguing the fund ought to rely on the investment council’s due diligence.

Foy alleged that New Mexico lost $90 million while investing with firms whose employees and spouses contributed at least $15,100 to Richardson’s presidential campaign.

In a court filing, Bland’s attorney says the suit should be dismissed because as a state employee he isn’t subject to the state whistleblower’s law.

Foy also didn’t exhaust internal procedures for reporting false claims and didn’t provide specific allegations of fraud, according to an Oct. 19 filing in the first judicial district court in Santa Fe.

In his resignation letter, Bland said the investment council’s “much criticized” private equity portfolio had a 12 percent compound rate of return for five years.

Richardson accepted Bland’s resignation and thanked him for his service, according to a statement from the governor’s office.

To contact the reporter on this story: William Selway in San Francisco at wselway@bloomberg.net; Martin Z. Braun in New York at mbraun6@bloomberg.net;

Last Updated: October 22, 2009 16:16 EDT