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Feds subpoena current and former Kentucky Retirement Systems execs

October 10, 2011 | | Comments 0

By John Cheves
jcheves@herald-leader.com

The U.S. Securities and Exchange Commission, which regulates investment markets, wants to depose officials at the Kentucky Retirement Systems as part of its “informal inquiry” into the role of placement agents at the $13 billion pension fund.

Several current and former KRS executives have received subpoenas from the SEC, and all members of the KRS board of trustees since 2007 are expected to be deposed as well, KRS executive director William Thielen said Monday. KRS serves state and local government retirees.

Attorneys for KRS are trying to negotiate a deal with the SEC so the interviews are conducted in Kentucky rather than forcing everyone to travel to New York at considerable expense, KRS board chairwoman Jennifer Elliott said.

“However we do it, our plan is certainly to cooperate with them,” Elliott said.

The SEC opened an inquiry last year into the millions of dollars in fees paid to placement agents, the well-connected middlemen who help private investment companies sell their products to KRS. The fees are paid by the investment companies, who then are paid by KRS.

Placement agents have led to political pay-to-play scandals in other states. The SEC has considered banning the agents.

In June, state Auditor Crit Luallen issued a report on business practices at KRS that revealed nearly $11.6 million in fees paid or committed to placement agents from 2007 to 2010.

Luallen said one placement agent in particular, Glen Sergeon of New York, enjoyed close access to KRS through his previously undisclosed relationship with Adam Tosh, then KRS’ chief investment officer. Tosh resigned in 2010, shortly after internal auditors at KRS questioned him about nearly $6 million in fees paid to Sergeon in deals.

Luallen said her office did not have access to Tosh’s and Sergeon’s personal financial records, so she could not determine whether money privately changed hands between them. But she forwarded her report to the SEC, which has the authority to subpoena financial records.

Tosh and Sergeon did not cooperate with Luallen’s auditors and they have refused to comment on her findings.

The SEC did not return a call seeking comment on Monday.

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Filed Under: Crit LuallenFederal GovernmentState Government

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