In a step forward for long-suffering Kentucky Retirement Systems (now Kentucky Public Pension Authority) beneficiaries, attorneys for so-called Tier 3 Plaintiffs beat back a scheme by Attorney General Russell Coleman to settle claims against private equity kingpins KKR and Blackstone on the cheap…oh, and completely drop claims against their top partners, here the famed Henry Kravis, George Roberts, Steve Schwarzman, and Tomlinson Hill.
This “settlement” was brazen since the Attorney General intended to extinguish claims by plaintiffs he did not represent, here the so-called “Tier 3 Plaintiffs” who have what amounts to hybrid defined benefit and defined contribution plans. Even though they may seem to represent a small portion of total fund assets, their lack of a state guarantee (unlike those in the defined benefit plans) puts them in a first loss position. And demonstrating the seriousness of their claims, their attorneys have filed for what on a current basis (as in with updated interest) would be $807 million of damages, penalties and interest on a single violation by one of the four hedge funds targeted in this case.
In a show of cheekiness, Coleman presented the settlement as $227.5 million, when that figure included $145 million of monies owned by the KRS pension funds that were improperly seized by KKR. The local press wised up to what was going on, including the possibility of a grotesque payout to crooked attorney Ann Oldfather, who after being fired by the original plaintiffs in the case, took their records and information to get hired by the Attorney General. What makes this situation even more offensive is that the earlier Attorney General and protege of Mitch McConnell, Daniel Cameron, who engaged Oldfather ,was widely seen as taking up the case at such a late juncture solely to settle it cheaply so as to curry favor with these powerful Republican donors.
The Courier-Journal recapped the meager returns to pensioners and the possibility of an egregious payout to Oldfather:
The deal Cameron’s office signed with Louisville lawyer Ann Oldfather’s office after the initial case was dismissed set terms for fees those attorneys could collect once the lawsuit was settled: 20% of the gross recovery’s first $250 million; 15% of the gross recovery between $250 million to $1 billion; and 10% of the gross recovery past $1 billion.
If the gross recovery is $227.5 million — a figure that includes the $145 million Kentucky had given to KKR (one of the four hedge funds in the case) that has been withheld as the litigation moved forward — then attorney fees would rise to $45.5 million, a higher sum than the $37 million in new money the state would receive. If the gross recovery does not include that $145 million, attorney fees would reach $16.5 million, with $66 million in new funds going to the state,
The Attorney General had asked for the court to approve the settlement, with a hearing date of February 26. The Tier 3 Plaintiffs had asked either for a stay on their case to be lifted (appeals, which look unlikely to succeed, are pending) or to have their case go to mediation. As you can see from the short order below, Judge Wingate approved of the motion to proceed to mediation.
This development is fatal to the settlement. Recall that the moneybags had refused to come to terms with Daniel Cameron earlier because they were unduly confident that their big building, white shoe lawyers had the upper hand against the tenacious plaintiffs attorneys headed by Michelle Lerach. But their big fear is not simply the possibility of having to make a big payout, but of discovery confirming the depth of deceptiveness of their business practices, not just damaging their reputation but also potentially leading to other lawsuits.
Confirming our assessment, Michelle Learch said in a statement:
In light of Judge Wingate’s order, it is extremely unlikely that the Attorney General‘s settlement will go forward as currently attempted — if at all. The Court ordered our case to mediation and we intend to mediate with the hedge fund sellers to reach a real settlement. If that cannot be done, we will be able to go ahead and litigate our claims without any further interference from the Attorney General.
Another contact confirmed that this ruling represented a “crushing defeat” for Attorney General Coleman.
So a toast to the victors. May they continue to clear the considerable legal obstacles thrown in their path since 2017 to prevent this case from moving forward and the long-suffering Kentucky pensioners getting a measure of justice.
Update 8:15 AM EST: The Kentucky Lantern posted on Judge Thomas Wingate’s order below. Because our recent posts on the settlement controversy covered the long and tortured history of the case, we skipped over much of that above. Those wanting more of a background will find a good high level overview in KY settlement with hedge funds delayed as judge orders mediation in state workers’ lawsuit. This article did not clarify the point we stressed above, that the Tier 3 Plaintiffs were differently situated, among other reasons by virtue of not having a state guarantee, and Judge Wingate had ruled against the attorney general’s attempt to include the Tier 3 Plaintiffs in his “occupy the field” plan (that ruling is being appealed, hence the stay mentioned in the order below).
Key bits from the Kentucky Lantern:
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(2025-02-14) Order Referring Case to MediationFriday afternoon court order will delay and possibly jeopardize final approval of the recently announced settlement of a long-running lawsuit over controversial investments by Kentucky Retirement Systems in hedge funds more than a decade ago.
That high profile case alleged that some former officials of the retirement systems (since restructured as the Kentucky Public Pensions Authority or KPPA) and four big investment firms violated their fiduciary duties beginning in 2011 by gambling more than $1 billion of Kentucky pension money on hedge fund investments that carried high risk, high fees and low transparency.
Early last month Kentucky Attorney General Russell Coleman, who is pressing the case for the state, announced that he had reached a settlement in which the investment firms agreed to pay $227.5 million to the state’s pension system, but admit no wrongdoing.
A key part of the settlement required dismissal of other lawsuits related to the same claims….
However, attorneys representing four Kentucky public employees who filed a separate case against the same defendants have objected to the proposed settlement in motions filed with Franklin Circuit Judge Thomas Wingate, who must approve the settlement before it becomes final…
Wingate directed that parties in this separate case agree on a mediator. He said if they do not agree on a mediator they must give him a list of three mediators and he would pick one…
The judge had previously scheduled a hearing on whether to approve the proposed settlement of the original case for Feb. 26. Because of his order directing mediation in the separate case, Wingate postponed that hearing until March 26.
Thanks for continuing to follow up on this case.
Here Here!!
although not savvy enough to understand it all, i have been following this (thank you Yves) and it is a good feeling to read how this is playing out – can only hope more weight comes to fall on those trying to steal pensions –
Hard to believe Oldfather turned traitor. Wow.