FRANKFORT — A key lawmaker on Wednesday said he will revive his efforts to ban well-connected middlemen known as "placement agents" from doing business with the Kentucky Retirement Systems, following a new state audit that raised concerns about the agents.
State Auditor Crit Luallen presented her audit of the state pension agency to the legislature's interim joint committee on state government. Luallen said she identified no misuse of KRS money related to placement agents, who help private investment companies sell their products. But Luallen said that one agent in particular, Glen Sergeon of New York, enjoyed close access to KRS and made nearly $6 million in fees through his relationship with Adam Tosh, then chief investment officer for KRS.
Tosh resigned in 2010 after being questioned about Sergeon in an internal audit at KRS.
In violation of KRS disclosure rules, no one at the agency knew Sergeon worked with Tosh, putting together proposals and scheduling out-of-state business meetings, on deals that would yield Sergeon fees from investment companies, Luallen said. She has forwarded her audit to the U.S. Securities and Exchange Commission for further review.
"Our audit found that use of placement agents lacked transparency and may not have been in the best interests of the retirement systems," Luallen told lawmakers.
Mike Cherry, D-Princeton, chairman of the House State Government Committee, said many concerns raised in the audit would have been addressed by his unsuccessful House Bill 480 during the 2011 General Assembly. Cherry said he will file the bill again during the 2012 session.
Cherry's bill would have banned payments to placement agents. It also would have imposed term limits and greater transparency on the boards that oversee many billions of dollars held by KRS, the Kentucky Teachers Retirement System and the Judicial Form Retirement System. State audits would have been mandatory on a regular basis, as would the online publication of salaries and spending records.
The House voted unanimously to approve Cherry's bill in February. It later died when the Senate attached a controversial state pension reform measure to it.
In recent months, some of the actions Cherry proposed have come to pass. Among them, KRS agreed to post its staff salaries online.
Also, longtime KRS board chairman Randy Overstreet was ousted, as was the agency's senior management.
At Wednesday's hearing, Rep. Jim Gooch, D-Providence, said he was troubled by the "dual roles" Sergeon held for several years as he was paid to sell investment services to KRS while he essentially shopped KRS around to different investment companies. Luallen said the legislature, to promote transparency, could require placement agents to register as lobbyists with the Executive Branch Ethics Commission.
"I'm not so sure that just having someone register as an executive branch lobbyist is going to solve that problem," Gooch said.