Kentucky Attorney General Daniel Cameron filed a lawsuit on behalf of the Commonwealth of Kentucky as an intervening plaintiff in a fiduciary-breach lawsuit against Blackstone Group, Prisma Capital Partners, KKR & Co. and Pacific Alternative Asset Management Co., as well as former executives of the $13.4 billion Kentucky Retirement Systems, Frankfort, actuarial consultant Cavanaugh MacDonald Consulting and investment consultant RVK.
The lawsuit, filed Monday in Franklin County Circuit Court, seeks "compensatory and punitive damages" and the relief sought includes damages due to losses incurred by the retirement systems by utilizing unsuitable investments, loss of assets, and loss of "prudent" investment opportunities and positive investment return, and the "disgorgement of fees" from sellers of "unsuitable investment products," according to the court filing.
The lawsuit is also seeking damages related to "the greatly increased costs to the taxpayers of restoring KRS and its pension plans to properly funded status."
The prior suit, Mayberry vs. KKR, was filed in December 2017 by eight members of KRS. The plaintiffs said that the defendants enticed KRS to invest in fund-of-funds investment vehicles, when KRS could have earned higher returns in the stock market.
The Kentucky Supreme Court earlier this month agreed with an earlier court of appeals' dismissal of that lawsuit. Chief Justice John D. Minton Jr. in the July 9 opinion said the plaintiffs did not have standing to bring their claims of funding losses sustained by the pension fund because they "do not have an injury in fact that is concrete or particularized."
In April 2019, the appeals court reversed an earlier decision by a state circuit court judge in November 2018 denying the hedge fund firms' motion to dismiss.
Krista Locke, Mr. Cameron's spokeswoman, said in an email: "Our goals in pursuing this litigation are straightforward: to protect the pensions of hardworking government employees and to safeguard taxpayer dollars."
Don Kelly, an attorney at Wyatt, Tarrant & Combs, the firm representing Blackstone, said: "It's surprising the state attorney general's office would pursue a case that has already been dismissed by the Kentucky Supreme Court. As we've demonstrated repeatedly, these claims have absolutely no merit. We delivered more than $150 million in net profits to Kentucky pensioners — and exceeded by nearly three times the benchmark set by KRS itself."
Cara Major, KKR spokeswoman, declined comment but referenced PAAMCO and Prisma's February 2018 memoranda of motions to dismiss.
The memoranda stated the plaintiffs had "no standing to assert such claims on behalf of KRS or the Commonwealth," citing among other items of support that the breach of fiduciary duty and aiding and abetting claims were governed by a five-year statute of limitations. KRS made its investments with PAAMCO and Prisma in August 2011.
Prisma was acquired by KKR in 2012 and merged with PAAMCO in 2017 to form PAAMCO Prisma Holdings.
Other defendants include actuarial firm Cavanaugh MacDonald Consulting and Thomas Cavanaugh, the firm's co-founder; Rebecca A. Gratsinger, CEO of investment consultant RVK; Jim Voytko, RVK's president, director of research and senior consultant; David Peden, KRS CIO from 2014 to 2017 and currently a senior investment consultant at Pavilion, Mercer's non-profit consulting practice; T.J. Carlson, KRS CIO from 2010 to 2013 and current CIO of the $28.7 billion Texas Municipal Retirement System, Austin; and William A. Thielen, KRS executive director until his retirement in 2015.
“From its initiation, we have stated confidently and without reservation that the claims against RVK were completely without merit,” Mr. Voytko said, adding that the firm has never been sued in its 35-year history.
Mr. Peden, Mr. Carlson, Mr. Thielen, Mr. MacDonald and a Cavanaugh MacDonald Consulting spokesman could not be immediately reached for comment.