New Mexico Attorney General Gary King has sued a New York money market fund that collapsed last fall in an attempt to recoup all of the state’s investments and to ensure that the fund doesn’t spend taxpayers’ money in its legal defense against a bevy of lawsuits, his office announced Friday.

King’s office filed the lawsuit, as well as an injunction petition, in 1st Judicial District Court in Santa Fe on Wednesday. Here are the complaint and the injunction.

King is suing the The Reserve, a mutual fund company in New York, on behalf of the state Treasurer’s office and the New Mexico Finance Authority.

There seem to be two issues in play: The AG wants to make sure that the value of the state’s investment is protected. The state asked Reserve for its money back last fall, but the fund did not comply. Subsequently, the fund lost value with the downturn in the stock market. The state wants to make sure that the courts value its investment at the time of the money-back request, and not after the downturn, which resulted in lost value. King’s spokesman Phil Sisneros said Friday that it’s unclear how much value the state’s investment lost between the time of the request in September 2008 and now.

A second issue is that the fund has put aside $3.5 billion to help defend itself against lawsuits. A portion of that legal defense money that is tied up includes New Mexico’s funds, the state argues. And New Mexico doesn’t want that money spent to defend Reserve against lawsuits.

Here’s an excerpt from the AG’s news release:

Both state agencies have a combined investment of more than a billion dollars in the Reserve’s Primary Fund. A request was made in September, 2008 to have the majority of the funds returned to the state, as Reserve was contractually obligated to do, but the company failed to comply. Because of a financial downturn the assets then lost a substantial amount of their value. The AG’s office contends the STO and NMFA have been deprived of the fullest value of their assets in the fund due to the delay by the defendant in returning their investment money when requested.

On behalf of the state, the Attorney General is asking the district court to order the Defendant to immediately make payment based on the value of the assets at the time of the request; to award costs and attorneys’ fees; and to provide any other relief the court deems appropriate.