Dallas Police & Fire Pension System filed a lawsuit against CDK Realty Advisors, accusing the pension fund’s former real estate manager of breaching its fiduciary duties and providing “reckless and improper” advice.
The lawsuit was filed in a Dallas County court on Tuesday.
The lawsuit alleges “CDK advised (the pension fund) to enter into a variety of real estate investments that were high risk, speculative and not typically of the type pursued by pension systems,” resulting in write-downs and losses of more than $320 million.
The lawsuit further alleges CDK failed to conduct proper due diligence, charged fees for unperformed services and failed to obtain periodic appraisals that would have revealed properties’ decreased value, among other charges.
Some of the properties that produced losses for the pension fund included undeveloped land in Idaho and a working ranch in Colorado, the lawsuit alleges.
The pension fund seeks to recover the losses associated with CDK’s alleged actions along with disgorgement of more than $25 million in fees received by CDK, according to the lawsuit.
CDK filed its own lawsuit against the $2.9 billion pension fund in February over $139,479 in alleged unpaid money management fees.
The pension fund’s lawsuit is a response and counterclaim to CDK’s lawsuit and reflects part of an “intensive investigation,” said Kelly Gottschalk, executive director of the pension fund in a telephone interview.
For more than a year, the pension fund had been transitioning separate account assets from CDK to other managers to reduce risk, and ensure fees are competitive, among other reasons, according to board meeting materials.
At it height, CDK managed about $750 million for the pension fund, Ms. Gottschalk said. CDK was hired in 2002 and was removed as a manager last year.
In its lawsuit, CDK claims that its services brought the pension fund $80 million in gains between 2002 and 2014 and that it was not involved in projects in Napa Valley, Calif.; Utah; Arizona; and Hawaii; among others, that produced significant losses for the pension fund.
In November 2014, Philip Kingston, a pension board trustee, told Pensions & Investments that the pension fund was taking a look at its direct-ownership real estate investments after losing millions of dollars on the investments. Holdings Mr. Kingston named at the time were Museum Tower, a residential building in Dallas; speculative development plays in Arizona; luxury residential properties in Park City, Utah, and Hawaii; and properties in Napa Valley, Calif.
Steven A. Schneider, attorney for CDK, said in an e-mailed statement that “the allegations contained in the DPFPS counterclaim are totally without merit and untrue” and that CDK investments in aggregate have produced gains for the pension fund.
“CDK-managed investment for DPFPS were fully disclosed, reviewed and approved in advance by the DPFPS board and management, and also presumably by its outside real estate consultant,” said Mr. Schneider on Wednesday. “Investments recommended or managed by CDK were in accord with DPFPS’ goals and instructions to CDK. DPFPS’ allegations to the contrary are not correct.”
