Independent counsel blisters Crit Luallen

A national leader in the field of forensic investigations in the money management industry is criticizing former Kentucky state Auditor Crit Luallen for botching a pre-election audit of the state pension system last summer in an ongoing scandal that appears to involve tens if not hundreds of millions of dollars in losses on her watch.

Edward Siedle of Benchmark Financial Services in West Palm Beach, Florida expressed shock that Luallen could miss obvious "red flag" signs of corruption at Kentucky Retirement Systems (KRS).

"The entire investment management contracting process at KRS appears suspect at this time," Siedle said.

He said her audit was "remarkable in its failure to adequately address the most obviously troubling issues surrounding use of placement agents at KRS."

Placement agents are salespeople who connect investment firms with big money clients like the KRS in return for unjustifiably large fees paid by the firms. Large institutional investors like KRS should have no problem at all in negotiating away entirely these placement agent fees which, Siedle said, are so improperly accounted for that we still don't know how much we have paid or are paying in excessive fees.

Siedle cited some of the circumstances behind the placement agent "pay-for-play" activities, which read like a modern day, high tech Bluegrass Conspiracy tale with the penny loafers and cocaine traded in for wingtips and the cold-sweat desperation of a big government apparatchik realizing the gravy train is about to hit the wall. The common denominator, of course, is the politicians too dumb and too crooked to speak up before it all comes crashing down.

The good news, as Siedle sees it, is that at least some of the improperly spent funds may be recoverable. First step, though, is to end the cover-up and to start getting everyone talking about where the money is.

In what amounts to an interesting side note but should be instructive nonetheless given any future political aspirations Luallen may have was her published assessment of who ultimately pays placement fees. Luallen said in her audit "it was also determined that the payment of placement agent fees by investment managers did not correlate to an increase in the management fees paid by KRS or reduce the funds available to pay benefits to retirees."

Simply put, if Luallen had the last word on this, the millions in squandered funds wouldn't be recoverable in court because the most powerful woman in Frankfort for the last two decades doesn't think we were overcharged at all as she apparently doesn't understand how service providers pass increased costs along to consumers.

That's the same kind of reasoning that has allowed the Obama Administration to say they are going to give away free health insurance by just making the insurance companies pay for it.

Banner day for corruption in Frankfort

House and Senate leaders have worked out an agreement to keep surgical costs artificially high in Kentucky and to hinder recovery efforts of at least tens of millions of taxpayer dollars in the KRS placement agent scandal.

And you are very unlikely to read a word of it in the mainstream media.

Both HB 300 and HB 458 sailed through the Senate today. Both bills must go back to the House, but they will get quick approval there. The biggest problem with these bills is House and Senate leaders knew exactly what was in the bills and apparently none of the rank and file members bothered to understand or, perhaps, even read them.

HB 300 makes "placement agent" middlemen permanent fixtures in our already scandal-plagued pension system. The middlemen siphon off millons of dollars at a time from investment funds our elected officials should be protecting. Specifically, we should ban placement agents from our financial transactions, but instead we are writing them into the law as lobbyists who don't even have to report how much they are looting from us.

HB 458 keeps alive the seriously outdated and failed central planning of medical services scheme called "Certificate of Need." Governor Beshear is using the state's Certificate of Need program to implement ObamaCare. Senate President David Williams and House Speaker Greg Stumbo, by passing this bill, just made it easier for him to do that.

By keeping competition out of the health care industry, Williams and Stumbo are directly increasing your healthcare costs. But you don't have to thank them; the Kentucky Hospital Association already has.

Governing by Google Alert

The federal whistleblower in Kentucky's ongoing pension investment placement agent scandal learned earlier today from an email Google Alert that Governor Steve Beshear prefers covering up the issue rather than dealing with it.

Chris Tobe, the whistleblower, had to read on the internet today that he has been replaced on the Board of Trustees of the Kentucky Retirement Systems.

Several other members of the Board have been subpoenaed recently to testify to the Securities and Exchange Commission in their ongoing investigation of the placement agent scandal.

Tobe says the state pension system will run out of money in about three years, necessitating annual payments of $600 million dollars to be made from other revenue sources.

The legislature failed to draw any attention to this situation by allowing scandal-enabling legislation (HB 300) to fly past them last week. The deafening media silence on this issue would not be happening if a Republican were Governor. This fact makes it all the more troubling that no Frankfort Republican could be bothered to speak out on this at all.

More bipartisan Frankfort "hanky panky"

When the Securities and Exchange investigation of Kentucky's pension plan pay-to-play scandal finally blows up in a few short years, state Rep. Mike Cherry's comment about the legislative coverup will look particularly silly.


Rather than ban the practice of "placement agent" middlemen wasting millions of public dollars in the moribund Kentucky Retirement Systems, the legislature just made them permanent fixtures in Frankfort's political swamp. 


Cherry, the House State Government Committee Chairman, spoke to the Frankfort State Journal about his bill, HB 300, which didn't ban the wasteful practice. Instead the bill requires them to register with the toothless Executive Branch Ethics Commission.


“Having them register as lobbyists precludes any hanky panky regarding contributions and the like,” Cherry said.


This is a completely absurd thing to say because registering them in this way doesn't even require them to report their placement agent income, much less preclude in any way the vast amounts of contribution hanky panky that now gets to continue with state sanction.


Former KRS Board of Trustees member Chris Tobe says the state pension system will require $600 million annual payments starting in about three years. Enabling this waste and corruption will loom much larger when that happens.


The problem is that our representatives in Frankfort should be taking steps to correct this mess. Covering it up will just make it harder to fix later.

Cover-up is always worse (pension version)

The Senate budget committee today unanimously passed HB 300, the pension scandal cover-up bill. The bill now heads to the Senate floor.

Insufficient work by former state Auditor Crit Luallen paved the way for official Frankfort to continue hiding a kickback scheme run through investment middlemen call "placement agents," which has already cost state taxpayers potentially hundreds of millions of dollars.

HB 300 would further embed placement agents in the Kentucky Retirement Systems by making them register as lobbyists with the executive branch of state government, which requirement does not involve reporting their actual dollar amounts of compensation.

This would be a big step away from what needs to happen, which is a lawsuit to recover all the placement agent fees paid out by the state. Few people in official Frankfort want such scrutiny because then the placement agents will talk about how some of that money was funneled to politicians.

This issue will become much more of a front-burner concern in three to five years when the pension plans run out of money and the taxpayers are on the hook for massive new payments we can't afford.

Your representatives need to hear from you to realize that covering this garbage up will be a much greater crime than starting now the process of coming clean. It will be much more expensive, too.

Voting no on this one is hugely important. Passage of HB 300 will come back to haunt us all.

Rand Paul, Mitch McConnell need to see this

Kentucky Employees Retirement Systems is currently funded at 28%, less than any state fund in the country, KRS Trustee Chris Tobe said.

"Underfunding each year is like a hurricane devastating the pension," Tobe said. He predicts that within three to five years the pension system will require $600 million a year from the legislature just to make annual payments.

The lack of understanding in the legislature on this issue is made clear by the way House Bill 300 is flying through on its way to becoming law.

The problem is that both parties in both chambers of the legislature and much of the executive branch are caught up in a desire to keep this quiet. And the media blackout is at least somewhat understandable; if this were a Republican-only scandal there would already be a thousand news stories and editorials calling for blood.

As it is, there is zero chance of an Attorney General investigation. We need federal intervention quickly. The Securities and Exchange Commission is already looking into the placement agent problem just as the legislature is covering tracks with House Bill 300.

Tobe said requiring placement agents to register as executive branch lobbyists will actually make the problems worse.

He calls placement agents "looters" and says HB 300 "encourages looting with unlimited and undisclosed looting allowed as long as you sign in as a looter."


Senators Paul and McConnell have the biggest megaphones in the state. They should do us all a favor and use them to put a stop to this.