Board won't pay extra fees by former trustee's attorney

By Kevin Wheatley Published:

The Kentucky Retirement Systems’ Board of Trustees has declined to pay a former trustee’s attorney more than $50,000 he’s billed KRS.

Edward Siedle, formerly a U.S. Securities and Exchange Commission attorney, has represented Chris Tobe, a Louisville investment consultant who was not reappointed after his term expired Saturday, in an SEC investigation into KRS’ payment of placement agents in alternative investments from 2004 through 2009. 

The board agreed to let Tobe seek a special attorney and set a $25,000 cap on Siedle’s pay. KRS said the board capped Siedle’s legal bills to prevent him and Tobe from pursuing a personal agenda.

Siedle, in a March 12 report to the SEC that was critical of internal and state audits of KRS, says Tobe sought independent counsel because he is a whistleblower and brought the placement agent fees on KRS investments to the SEC’s attention in September 2010 and the FBI in May 2011, but KRS contends that past differences between Tobe and the current board, notably former Chairman Randy Overstreet, necessitated the separate attorney.

So far, Siedle, who has investigated dozens of “pay-to-play” scandals in other states and was hired in December, has sent KRS three invoices totaling more than $78,000.

KRS, which oversees pension plans for more than 340,000 active and retired state and municipal employees and faced a $19.2 billion unfunded liability at the end of fiscal year 2011, has paid another law firm, Reinhart Boerner Van Deuren, of Milwaukee, nearly $150,000 to represent 15 current and former KRS employees and trustees in the SEC’s inquiry. KRS put no limit on Reinhart’s fees.

Three, including one current KRS staff member, have been subpoenaed by the federal agency.

Siedle and Reinhart attorneys are paid $350 per hour by KRS in the SEC’s inquiry, interim Executive Director William Thielen said.

Trustees voted unanimously Thursday not to pay Siedle, of Ocean Ridge, Fla., aside from the more than $24,700 he initially billed KRS because the board hasn’t seen any documentation for legal services he has provided. 

“… It does not appear to the best of our knowledge that the KRS Board of Trustees has yet been provided the requested necessary information supporting invoices for the special counsel of former Trustee Mr. Chris Tobe that was required by the board through its agreement with Mr. Tobe and his special counsel,” Personnel Cabinet Secretary Tim Longmeyer, an ex-officio member of the KRS board, said during his motion not to pay Siedle’s fees above $25,000.

Siedle, reached by phone Thursday, said KRS’ refusal to pay “makes no sense” because he is an expert in money management matters and believes KRS is entitled to recover about $14 million in undisclosed placement agent fees. 

“If KRS were placing the interests of the participants of this fund first and foremost, then they would seek out expert investigative analysis and a recovery,” Siedle said. “I think the fact that they haven’t speaks for itself.”

In a June 2011 audit, state auditors found placement agents, financial middlemen hired by investment funds seeking investors who have sparked “pay-to-play” scandals in California, New York and other states, were set to receive $11.6 million in fees and firms associated with agent Glenn Sergeon, who previously worked with former KRS chief investment officer Adam Tosh, were slated for nearly $6 million in fees.

Siedle declined to provide details with invoices he sent KRS because doing so would violate attorney-client privilege, he said. 

Thielen said KRS asked to stay informed of “the basic nature of the services provided” as part of its agreement with Siedle. The board may reconsider its decision if Siedle provides documentation in the future, he said.

But Siedle says he never agreed to divulge privileged information, such as what he’s doing or whom he’s talking to on behalf of Tobe.

“They’ve asked me for information on the direction of my investigation, and I’ve always said, ‘No, you’re not going to get that,’” he said.

Siedle also took offense to Thielen’s comments in Tuesday’s State Journal that the SEC hasn’t informed KRS whether it intended to speak with Tobe. Siedle called Thielen’s comments “irresponsible” and said Tobe has had “extensive” communication with the SEC.

“That’s insane. Why would the SEC tell them whether they want to talk to the whistleblower?” he said. “He’s represented by independent counsel –me. 

“Again, this reflects a fundamental lack of knowledge of the role of independent counsel. The SEC is communicating with me … not with them. They are his adversary in this process.”

KRS has publicly questioned Tobe’s status as a whistleblower.

It’s unclear what Siedle’s next move will be in attempting to recoup his legal fees from KRS. 

“We’ll see. I can only say that the bills were legitimate.” Siedle said. “They provided substantial value to the pension. Unfortunately, the report of the independent counsel did not agree with what KRS wanted, and so they don’t want to pay the bill.”

 

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