KRS trustee hires expert lawyer for SEC inquiry

By Kevin Wheatley Published:

As the Securities and Exchange Commission investigates millions paid to placement agents in past Kentucky Retirement Systems investments, a KRS trustee has hired a former SEC attorney who’s considered an expert in public pensions.

Edward Siedle, president of Benchmark Financial Services, will represent KRS Trustee Chris Tobe separate from KRS’s legal counsel in the SEC’s informal inquiry, according to minutes from the most recent KRS trustees meeting. 

KRS will reimburse Tobe after a representation agreement is reached, according to the minutes.

Tobe declined to comment, citing a gag order. Interim Executive Director Bill Thielen deferred comment to Ryan Stippich with Reinhart Boerner Van Deuren, who could not be immediately reached.

Siedle also could not be reached for comment.

KRS has paid Reinhart Boerner Van Deuren, of Milwaukee, Wisc., and Siedle, of Ocean Ridge, Fla., more than $91,000 combined for representing KRS in the SEC’s fact-finding investigation, according to Chief Investment Officer T.J. Carlson.

Siedle is considered an expert on public pension corruption and has experience with the SEC and FBI in those matters, according to his biography on Benchmark Financial Services. 

He has testified before the Senate Banking Committee on mutual fund scandals in the Louisiana legislature and as an expert in litigations from the Bernie Madoff investment scandal.

He has been published in Time, BusinessWeek, The Wall Street Journal, New York Times, Forbes and other national publications, and his special on hidden 401(k) fees earned Bloomberg News its first Emmy, according to his biography.

Former and current clients include the Alabama Personnel Board; Fairfield County, Conn.; cities of Nashville, Chattanooga, Burlington, Vt., and the Orange County Sheriff’s Office.

The SEC is investigating KRS’s use of placement agents in a number of investments from 2004 to 2009. Former Auditor Crit Luallen found fees paid to placement agents reached $8.7 million in that time with $2.9 million in estimated payments.

One agent in particular, Glen Sergeon of New York, had a prior working relationship with Adam Tosh, KRS’s chief investment officer at the time, and firms associated with Sergeon were scheduled to collect nearly $6 million in fees from KRS investments, the audit found.

The audit, released in June 2011, found no evidence of a “pay to play” scheme here, but Luallen said auditors found “several troubling aspects regarding the use of placement agents.” She forwarded the audit to the SEC, which has the authority to determine whether further investigation into KRS’s use of placement agents is needed.

Tosh resigned in 2010 after internal auditors questioned him on Sergeon’s millions in agent fees.

The SEC may better regulate such agents after their use led to “pay for play” scandals in other state pension systems like New York and California.

One of Sergeon’s investments was Arrowhawk Durable Alpha LLC of Darien, Conn. KRS originally planned to invest $200 million in the hedge fund but later capped the amount at $100 million. 

Arrowhawk announced its closure in December, and KRS says it expects to get the $100 million back by June 30 as the hedge fund unwinds its portfolio. About 95 percent of the investment is expected back by March 31.

A bill that would require placement agents to register as lobbyists passed the House State Government Committee Feb. 9. As lobbyists, the agents would be required to disclose salaries and expenses on a regular basis.

KRS, which has roughly $13.5 billion in assets, oversees pension plans for more than 340,000 state and municipal retirees and employees. 

With retirement and insurance obligations combined, it faced an unfunded liability of about $19.2 billion at the end of fiscal year 2011, but its officials have said there’s no risk of defaulting on current obligations.

House Bill 300 would also ban using placement agents not registered with the SEC, place a four-year limit on KRS chairpersons, limit trustees to three consecutive terms, subject KRS to a state audit every five years and post expenditures and employee salaries online.

The State Journal edited this story to reflect potential fees paid to placement agents in KRS investments, according to former Auditor Crit Luallen's 2011 audit. Also, the audit covered 2004 to 2009, not 2007 to 2009.

 

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