State Republicans called Wednesday for an independent investigation into phone calls made by Democratic Gov. Steve Beshear's office to Kentucky's main pension agency to suggest meetings with political supporters working on behalf of private investment companies.
Meanwhile, state Auditor Crit Luallen. a Democrat, will examine the matter as part of an ongoing audit of business practices at the Kentucky Retirement Systems that is scheduled for release next month, spokeswoman Janet Cantrill said.
Beshear spokeswoman Kerri Richardson suggested Republicans need to find "some real issues."
"It's obvious that the silly season has arrived when the Republican Party seeks to create something out of nothing," Richardson said.
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Steve Robertson, chairman of the Republican Party of Kentucky, said the Democratic governor's office should not use the state pension fund to help his political backers.
"The people named in this scandal, they're not investment experts, they're political allies of the governor. Yet the governor's office is pushing them onto the pension system," Robertson said.
The Herald-Leader reported Wednesday that Mike Burnside, until recently the executive director of the Kentucky Retirement Systems, said he met with Beshear supporters Mark Guilfoyle and Jill Daschle only because the governor's office called him and requested it.
Guilfoyle and Daschle represented Fort Washington Investment Advisors of Cincinnati and EnTrust Capital of New York, respectively, the companies confirmed this week. Neither firm won a contract to manage assets at KRS, which oversees $13 billion for state and county government retirees.
Guilfoyle, a Northern Kentucky lawyer and lobbyist, is a longtime Democratic activist and donor who served on Beshear's 2007 transition team. Daschle's husband was executive director of the Democratic Governors Association, which spent at least $2 million to help elect Beshear.
Burnside said he met with them but referred them to his investment staff.
"I explained that everyone would have to go through the same due-diligence process required of all agencies seeking to do business with KRS, including review and approval by the investment committee," Burnside said.
Burnside was fired last month when Beshear appointees took control of the KRS board, two of them becoming chairwoman and vice chairman.
The Republican Party on Wednesday called for Attorney General Jack Conway to appoint an independent prosecutor to investigate the issue because Conway, a Democrat, has his own ties to some of the people involved.
Conway's former campaign manager, Mark Riddle, was an EnTrust Capital employee for two years. He was paid to introduce the company to officials at the Kentucky Teachers' Retirement System. Entrust Capital managing partner Gregg Hymowitz gave $2,400 to Conway's 2010 U.S. Senate campaign.
In response, Conway spokeswoman Shelley Catharine Johnson said, "It is the policy of this office to neither confirm nor deny the existence of an investigation."
Luallen, the state auditor, did not know about calls made by the governor's office to KRS on behalf of supporters, Cantrill said. Luallen "will look into the questions raised" as part of her ongoing audit, Cantrill said.
Robertson said he might file a complaint with the Executive Branch Ethics Commission, which could take administrative action against Beshear and his aides, but first he needs to do additional research.
The five-member ethics commission — appointed by the governor — has jurisdiction over the state pension agencies. But the ethics laws are open to interpretation. For example, the law says a public servant cannot "use or attempt to use his official position to secure or create privileges, exemptions, advantages or treatment for himself or others in derogation of the public interest," but it offers no more detail.
In an attempt to clarify, the ethics commission has issued several opinions over the years advising the governor and his top aides to stay out of routine bureaucratic decisions, such as merit-system hiring, if political supporters are involved. Intended or not, a suggestion from the governor's office can be seen to many in Frankfort like a command, the commission has advised.
"Because of the source of the recommendations, employees responsible for hiring may feel pressure or an obligation to place such individuals in positions," the commission wrote in 2007.
Richardson, the Beshear spokeswoman, said there's no evidence the governor's office pressured anyone.
"No agencies are pressured to do business with anyone," she said. "In fact, apparently the KRS chose not to do business with these two groups."