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Lawsuit Targets KRS Board Members, Hedge Funds

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FRANKFORT, Ky. (LEX 18) — A lawsuit filed Wednesday in Frankfort claims state officials and hedge fund managers engaged in a risky "civil conspiracy" resulting in the loss of billions of dollars.

The 146-page lawsuit claims the Kentucky Employees Retirement Systems (KRS) was badly mismanaged for years and that the real losses were purposely obscured.

According to the filing, which was first reported by the Courier-Journal, the KRS pension plans were operating with a surplus in 2000 but now is $25 billion to $50 billion in the red. In August 2011 trustees were sold $1.2 billion to $1.5 billion in unreasonably risky "black box" hedge fund vehicles.

The plaintiffs include a Kentucky State Police trooper, a law clerk at the administrative office of the court, a deputy court clerk, a Richmond EMT, an employee of the Department of Health and Human Services, a Louisville firefighter, a Louisville police officer, and a law clerk in the Jefferson County Attorney's office.

The defendants are mostly state officials who were trustees of the KRS board and managers of various hedge fund sellers.

"The crisis that engulfs KRS and the Commonwealth of Kentucky is not due to any fault of the Kentucky workers or taxpayers whose wages and tax dollars have funded the plans for over 60 years," the lawsuit states. "KRS, its Plans and Funds, and Kentucky taxpayers are innocent victims."

The suit says the KRS trustees used "outmoded, unrealistic and even false actuarial estimates" in making its decision and projections.

After years of losses, the filing says, the defendants doubled down.

"Contrary to their obligations of truthful disclosure in 'easily understood' language as mandated by the Kentucky pension statute, Trustees, with the knowing assistance of all the other Defendants, chose to cover up the true extent of the KRS financial/actuarial shortfalls and take long-shot imprudent risks with KRS Funds to try to catch up for the Funds’ prior losses and deceptions," reads the lawsuit.

The defendants are seeking an unspecified amount of damages and to recoup losses based on the alleged conspiracy.

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