Judge declines to OK settlement in challenge of hedge funds’ handling of KY pension money
Republished from Kentucky Lantern
FRANKFORT — Franklin Circuit Judge Thomas Wingate has declined to approve a final settlement in the longrunning lawsuit against big hedge funds over their role in controversial investments by the Kentucky Retirement Systems more than 13 years ago.
The settlement was announced Jan. 8 by Kentucky Attorney General Russell Coleman, who said the hedge funds had agreed to pay $227.5 million to Kentucky’s pension programs for public employees.
But in a four-page order, Wingate said, “The Court is left without a sufficient reason as to why the Court’s approval is necessary for this settlement or why this Court is being asked to make findings that the Court is without sufficient knowledge to make.”
Wingate wrote that he “welcomes the parties to settle the matter as they best see fit, however, the Court declines to bless an agreement and enter an order that asks the Court to make findings that the Court believes to be outside of its role.”
While the order leaves open the door to further settlement talks, it is a setback for Coleman, the hedge funds and the other parties who had presented a proposed final settlement order to Wingate for his approval.
Kevin Grout, a spokesman for Coleman’s office, said late Monday, “We’re reviewing the court’s order and discussing with the Kentucky pension board leaders.”
The order appears to be a big win for four Kentucky public employees who filed a separate case against the same hedge funds. That’s because a key part of the proposed settlement order would have required that their case, as well as other related cases, be dismissed.
The employees in that separate case are represented by attorney Michelle Ciccarelli Lerach. A spokesman for Lerach said Lerach is reviewing Wingate’s order and will release a statement later this week.
Wingate’s Friday order also included a directive that will slash the potential amount that could be paid in fees to attorneys who represent Coleman’s office in the case.
The contract between Coleman and those private attorneys led by Ann Oldfather, of Louisville, calls for the fees to be 20% of the first 20% of gross recovery in the case.
The proposed settlement called for hedge funds to turn over $227.5 million, but that total had two parts — $82.5 million in new money plus $145 million held in reserve by Prisma, one of the hedge fund companies that are defendants in the case.
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Wingate’s order said the $145 million has belonged to Kentucky’s pension funds all along and is “not to be considered ‘recovered funds’ and/or a portion of the ‘settlement recovery’ for the purpose of determining attorneys’ fees.”
Don Kelly, the attorney representing Blackstone, one of the defendants in the case, emphasized in a statement Monday that Wingate’s order leaves the door open for the parties to settle the case. “The settlement is clearly in the best interests of the Commonwealth and its pensioners and will result in significant assets being paid to the pension plans,” Kelly said. “As stated by the Attorney General and the KPPA (Kentucky Public Pension Authority), who are best positioned to make decisions in the public interest, now is the time to put an end to this long running expensive and distracting litigation.”
From the case’s outset the hedge funds have denied allegations that the investments resulted in high fees, low transparency and massive losses for Kentucky public pension plans. Kelly said in his statement Monday that Blackstone Alternative Asset Management had “delivered a net return of 30 percent on investment.”
Read the judge’s order
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