(Editor’s note: Curtis Morrison is a candidate for the Kentucky Senate. This piece was first posted on Louisville Courant, and is used here with permission.)
By Curtis Morrison, Louisville Courant
In Frankfort on February 16, the Kentucky’s House unanimously passed Rep. Mike Cherry’s “Skunk Bill” (HB300) under the heading: “AN ACT relating to retirement and declaring an emergency.”
(Editor’s note: The Teacher’s Retirement System reform bill would, among other things, require placement agents involved in Kentucky Retirement Systems and Kentucky Teachers’ Retirement System investments to register as lobbyists, better define their roles, require conflict of interest disclossures and set term limits for the boards.)
To understand what our legislature considers an emergency, and what is really an emergency, we need to back up a bit. According to their website,Kentucky Retirement Systems is defined as:
...a quasi-independent state agency that is responsible for the investment of funds and administration of pension and health insurance benefits for over 337,000 state and local government employees, former employees and retiree.
KRS has a huge fiduciary responsibility, safeguarding the pensions and insurance benefits for 337,000 public servants.
KRS oversees more than $13 billion of your hard-earned tax money.
In August of 2010, Chris Tobe – the sole member of KRS’s Board of Trustees with expertise in pension investment matters – became alarmed by the millions of dollars being “earned” by “placement agents” who ultimately decided where KRS money is invested. Placement agents, with connections, too.
Tobe smelled a skunk.
When Tobe realized Former Kentucky Auditor Crit Luallen was planning to sweep the skunk under the rug, he contacted the FBI.
As Tobe expected, on June 28, 2011, Luallen told a last-minute press conference that everything was alright over at the KRS:
“…auditors saw no evidence of a pay-to-play scheme involving placement agents… nor conflicts of interests that benefited KRS officials, nor is there evidence that KRS incurred any additional costs for using placement agents…” – Crit Luallen
The conference was poorly attended – conveniently – as it conflicted with Gov. Beshear’s announcement of Neogen’s expansion, and a public input meeting of the Bridges Authority.
Here’s the link to the video: auditor.ky.gov/Public/PR_Video/2011KRS_Press_Conf.wmv
(A journalist actually enters the room during the conference, interrupting with how he didn’t get notice of the conference.)
Move along. Nothing to see (or smell) here.
With no awkward odors around, Gov. Steve Beshear and Attorney General Jack Conway easily won their November 2011 re-elections.
But Tobe takes his fiduciary responsiblity as a KRS Trustee uber-seriously, and so he persists.
Tobe has another audit of KRS placement agent policy completed, which has just been released. (Google Doc here)
Tobe’s auditor, Edward Siedle, has quite a different perspective, not only about placement agents at KRS, but about Luallen’s last audit not yelling fire when there was actually a fire.
According to Siedle, Luallen’s report was “remarkable in its failure to adequately address the most obviously troubling issues surrounding use of placement agents at KRS” and the report did not address “whether the millions in compensation paid by this public pension to such agents bore any relationship to services the agents actually provided.” – P4
According to Siedle, Luallen’s report glossed over placement fees because “the investor does not pay the placement agent fees…” Siedle points out the the obvious flaw in that oversight.
I’ll illustrate with an example from the real estate business. If you’re buying a house, as a buyer you are told that do not have to pay your real estate agent’s commission. The seller takes care of it.
While that’s technically true, you would be naive not to notice the money the seller is using to pay your commission was your money just a few seconds before. That’s probably one of the reasons real estate agents commissions are paid on the closing statements – so all parties know how much everyone was getting paid before transactions are consummated.
Well, that’s not how KRS rolled. If they were purchasing a house, they wouldn’t care how much their real estate agent was getting paid or, for that matter, how much they were paying for the house.
If KRS was buying a used car, yep, they’d trust the salesman was on their side.
KRS placement agents personally profited millions off the pension and insurance money of Kentucky’s hard-working public employees without any oversight of the placement agents compensation.
In summary, in my opinion, it is unfathomable that the APA could have recited the facts related to a classic “pay-to-play” scenario and yet concluded none existed. I can only assume that the APA lacked expertise in investigating pension abuses and did not retain a qualified expert to assist in its examination.
In 2009, New York Attorney General Andrew Cuomo faced the identical pay-to-play scandal, and was able to get $4.5 million returned to their state’s pension fund from just four private equity firms.
Despite the ongoing SEC investigation into KRS, Attorney General Jack Conway has not followed Cuomo’s lead.
Back to House Bill 300:
Instead of getting all the skunks out of the kitchen by prohibiting placement agents altogether, HB300 – now in the senate’s lap – only puts leashes on those skunks. In December, Rep. Cherry, the bill’s sponsor announced his retirement from the House at the end of the year. He’s probably wanting to become a placement agent himself.
The Skunk Bill is now assigned to the Senate’s Appropriations and Revenue Committee. If you believe Kentucky shouldn’t even have skunks, er, placement agents at KRS in the first place, these are the Senators who you need to communicate with in the very near future:
Sen. Bob Leeper [Chair]
Sen. Vernie McGaha [Vice Chair]
Sen. Walter Blevins
Sen. Joe Bowen
Sen. Tom Buford
Sen. Jared Carpenter
Sen. Denise Harper Angel (Disclosure: Author of this blog is candidate challenging her)
Sen. Ernie Harris
Sen. Jimmy Higdon
Sen. Paul Hornback
Sen. Ray S. Jones
Sen. Alice Forgy Kerr
Sen. Gerald A. Neal
Sen. R.J. Palmer
Sen. Joey Pendleton
Sen. Brandon Smith
Sen. Jack Westwood
Sen. Mike Wilson
And one last thing: Why are we gambling with public employees pension money in the stock market anyway?
I understand the money is invested in about every industry across the board. That sounds irresponsible at best. There are ways to invest public money in low-risk, high-integrity investments, and it would be nice to see our state legislature take that on as well.