The SEC has stepped into the corruption probe in New Mexico that saved Gov. Bill Richardson the hassle of amending years of tax returns. The new angle involves one of those enticing "toxic derivatives" deals we can't stop reading about, although there's a sexual harassment component, too.

Frank Foy used to manage the state teachers' pension fund, and in 2007 he says he got a call from a guy from a Chicago investment adviser -- and soon-to-be Richardson donor -- named Vanderbilt Capital Advisors. He told the Santa Fe Reporter he was too swamped to meet with him:

"This guy calls me up and says, 'I want to talk to you about a CDO.' I said, 'Call me back in a month. I don't have time to screw with it, dude,'" Foy recalls. "He didn't like that answer."

Soon after, Foy told the Reporter, he got a call from [Foy's Richardson-appointed boss Bruce] Malott. "He said, 'You were very rude to Pat Livney. I think he has a good investment and you ought to talk to him.'...I'd never been called by the chairman before. I thought, 'This stinks.'"

The investment was the lowest-rated slice of a collateralized debt obligation -- called the "equity tranche", presumably because like a stock its value can go all the way to zero. (Which it -- surprise! -- essentially did, after paying out about $4 million in interest payments to the fund, according to State Investment Officer Gary Bland.) Vanderbilt's CDO was the most toxic brand of the sort of "toxic" securities dragging down bank balance sheets right now; most banks, according to this handy primer on CDOs, didn't attempt to sell them to investors. But Livney, a former head trader of asset-backed securities at JP Morgan, nabbed a $90 million investment from the teachers' pension fund, despite what Foy claims were his strenuous objections. Malott, Foy says, told him the investment had been ordered by Bill Richardson's chief of staff. Shortly thereafter, a female employee accused Foy of sexually harassing her, and he was demoted.

Foy told the Reporter the accusation involved an employee's "inappropriate clothing" and the New Mexico Independent that he denied them "vigorously," but he was found guilty on three charges anyway in what he believes "was a sham by senior management to force my hand to get me to quit or retire."

Richardson supporters have been smearing Foy's accusations, on and off-the-record, as opportunistic and politically-motivated. In February State Democratic Party chairman Brian Colon penned an angry opinion column in the Albuquerque Journal linking the CDR investigation to the politically-motivated firing of former U.S. Attorney David Iglesias. But if Foy's claims are true, his case is perhaps the nastiest microcosm yet of what is beginning to look like a vast conspiracy of the shady banks, political operators and well-remunerated middlemen to bilk the public sector to bankroll the ever-riskier bets that destroyed the economy.

When a related, and strikingly similar, investigation -- also involving CDR Financial's "consulting" services on derivatives bets that are now costing taxpayers tens of millions -- embroiled the Philadelphia City Hall five years ago -- supporters of then-mayor John Street accused investigators of being politically motivated, and critics shot back an old Lincoln Steffens line about Philadelphia being "corrupt and content." Both arguments seem moot -- almost quaint -- today.