- Refunded more than $137 million in misappropriated KRS trust funds, with 8% interest since April 2019,2 for a total of $192,713,333 as of April 30, 2024. Masu.and
- Pay any civil penalty authorized by Kentucky Sec. REV. Status § 61.685, $578,139,999 (3 times $192,713,333 as of April 30, 2024); To a special trustee appointed by the court.and
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Provides accounting for all transactions with these KRS trust funds.
This $137 million compares to Kentucky Retirement System’s total paid-in capital of $768,728,901 and profits of only $5,276,203. To add insult to injury, the application also notes (and details from the Fund’s report):
Oh, but it’s not $137 million anymore. KKR continued to plunder pots even as compensation was being fought in court. From filing again:
Time is of the essence as not only has KRS been deprived of the use and value of $137 million in withheld funds for over five years, but the withheld funds have inexplicably decreased by hundreds of thousands of dollars. .
Note S. Prisma Daniel Boone Fund
The funds invested in the Prisma Daniel Boone Fund continue to be held in a contingency reserve to cover potential obligations arising from the Mayberry litigation (see Note O for further information on the Mayberry litigation). Total reported reserves as of June 30, 2023 were $97.7 million for pension plans and $40.6 million for insurance plans. This is based on his May 31, 2023 reporting as the Absolute Revenue Manager reports on a one month lag.
Just to be clear, you’re really charitably assuming that the reduction from $137 million is due to payment of legal fees and expenses. But, as Lambert warns, “It’s called a vehicle because you take all your money away.” Hence the need for an accounting.
Let’s go back to KKR’s false justification. All three hedge funds’ custom contracts included indemnification language. The Corporate Finance Institute explains that indemnification is “a legal agreement by which one party holds the other party harmless for potential loss or damage. In the world of hedge funds, these provisions are typically egregious, not only comprehensive but often omitted, such as the common “malicious or grossly negligent” cut-out.
Therefore, if the three hedge fund miscreants actually had valid indemnification provisions, the Attorney General’s and Tier 3 Plaintiff’s lawsuit would not only be pointless, but even counterproductive. Even if they win, they will ultimately have to pay the hedge fund operator’s legal costs and damages.
However, a Kentucky court had already ruled that this indemnity clause violated the Kentucky Constitution, which explicitly allowed the contract to be subject to the exact same terms as hedge funds. . In the second embedded document below, after three large groups of defendants filed motions to dismiss, Philip Stevens, invoking the indemnity clause plus a claim that they were not subject to Kentucky’s personal jurisdiction. You can see how the judge tackled this issue in gory detail.
The brief procedural history is that on December 28, 2020, the trial court granted the Attorney General’s motion to intervene on behalf of the federal claims. (I’ll omit the details of how a major hedge fund group each attempted to sue Kentucky Retirement System for violations in 2019.) Under contract, the criminal organizations of California’s PAAMCO, Delaware’s Blackstone, and KKR are legally bound by Kentucky Retirement System. was invalid because the system had sovereign immunity). The state subsequently filed two lawsuits against hedge fund operators in 2021 and filed a motion for summary judgment in September 2021, which was quickly granted in a motion to dismiss.
In March 2022, Justice Philip Stevens issued a very detailed decision addressing the issue that the court lacked personal jurisdiction (which was quite a howl. , combed through evidence including that KKR had an office and even a lobbyist in Kentucky). As you can see in the second embedded document, he similarly thoroughly addresses why the indemnity language in the relevant contract does not supersede Kentucky’s constitution. The Kentucky Court of Appeals upheld Stephen’s decision in December 2023.
Even though the attorney general’s office finally removed the hurdle to seeking damages against the three hedge fund sellers, we wonder why no action has been taken on the previous allegations since December. Some people may think so. Last Friday, one of three orders by new Judge Thomas Wingate was to deny further motions to dismiss the Commonwealth lawsuit against KKR and a long list of other defendants. Referring to a March 2022 decision that marked the second time the court had considered whether the court had personal jurisdiction over hedge fund sellers, Judge Stevens said, “There will be a third opportunity to conduct a similar analysis,” he added. In relation to fundamental behavior. ” I don’t know why practicing this kind of movement isn’t considered malicious.
In any event, the Tier 3 plaintiffs acted very quickly, putting the Attorney General in a very difficult position. There appears to be little dispute that Kentucky Retirement Systems is entitled to return his $137 million, plus interest. The only thing that appears to be in question is how much interest there will be and whether punitive damages should be assessed. It is presumed that the purpose of the Attorney General’s intervention was to achieve a quiet and modest settlement. The attorney general’s peanut settlement is in the interests of the state (which backs the funds) and the funds themselves, as he faces a potential recovery of his low nine figures from only one of the three criminals. It becomes very difficult to act against them.
The first part of the embedded filing alleges, among other things, that KKR has made flagrant misrepresentations to the court in connection with its efforts to evade jurisdiction. . From the submitted documents:
In fact, KKR-Prisma’s withholding of KRS trust funds amounts to “misappropriation of trust property,” a crime under Kentucky’s criminal law. The KKR Defendants acted in bad faith and filed false affidavits to contest personal jurisdiction in the Declaration of Relief Action. They also launched a retaliation lawsuit in Delaware in an attempt to circumvent Kentucky’s judicial system. The KKR Defendants’ malicious conduct merits three civil penalties.
Another ground for a punitive damages claim is the aforementioned plunder of withheld funds, which is highly inappropriate since the compensation that could have allowed the use of these funds is at issue. It appears to be.
Obviously, KKR will object to this application. What they claim is beyond my pay grade. They will probably try to say that at most only certain poorly capitalized subsidiaries can be subject to this action (legally speaking, Tier 3 plaintiffs are not allowed to pierce the veil of certain companies). ). Judge Shepherd has already preliminarily rebutted some of this argument, effectively stating that a corporation created primarily for the purpose of tax benefits cannot be treated as substantive for liability purposes. Additionally, KKR’s press releases and SEC filings contain numerous references to KKR itself providing various services and profits from the activities of these submarines without disclosure, which Defendants hope to avoid. It is also questionable whether this claim can be adequately supported, given that . Let me tell you, the court has already received some evidence in previous filings.
KKR’s litigation team may also argue that Tier 3 plaintiffs lack standing. That would be one basis for appealing last Friday’s Wingate Tier 3 ruling. I don’t think the chances of success are very high, but the schedule will be pushed back further.
If that fails, the defendants could try arguing that Tier 3 plaintiffs are entitled to only a small portion of the $137 million. I’m not sure where this position would lead, but even if there were some basis for it, it would effectively mean that Tier 3 plaintiffs who are members of defined contribution plans are in the position of first loss.
In any case, a fierce battle is expected over this claim, with the plaintiffs likely to expand their front lines soon.
00 Plaintiff’s Motion for Order Directing Return of Trust Fund 1-22
00 Plaintiff’s Motion for Order Directing Return of Trust Fund 70-98
