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Wisconsin Board Accused of Breaking Rules in $95 Million Loss

March 23, 1995

MADISON, Wis. (AP) _ Wisconsin investment officials disregarded rules barring speculation when they lost $95 million from derivatives linked to the Mexican peso, a state official scrutinizing the loss said.

The loss was in Wisconsin’s $6.7 billion investment pool, which manages assets for local municipalities and state government funds, including the Wisconsin Retirement System.

The loss, disclosed last week, was expected to reduce the fund’s payouts for several years.

``State investment in derivatives should be used to hedge risk, not for speculation,″ State Investment Board director Patricia Lipton said Tuesday.

The losses resulted from investing in derivatives linked to the Mexican peso, which plunged in value after Mexico’s government devalued it in December. Derivatives are investments that derive their value from the market price of another investment, such as stock options, or currency.

Board investors are allowed to use derivative investments only to hedge against loses in other securities, Lipton said.

``In this case, they may have stretched,″ Lipton said. ``We do have a transaction or transactions which we think go beyond our guidelines.″

Lipton wouldn’t identify the managers or say if they still handled board funds. She also declined to say if any disciplinary action would be taken.

The Mexican economy, which was attractive to investors for several years, has deteriorated sharply since late last year amid a more than 50 percent plunge in the peso’s value.

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