Key Takeaways
- • Franklin Circuit Judge Phillip Shepherd ordered Kentucky's Public Pensions Authority to release a suppressed investigative report within 10 days, ruling that taxpayers who funded the $1.2 million study have a right to its contents.
- • The Calcaterra Pollack investigation examined potential "improper or illegal activities" in billions of dollars in hedge fund investments made between 2011 and 2017, central to ongoing litigation alleging fraudulent transactions totaling $1.5 billion.
- • KPPA's attempt to withhold the report under attorney-client privilege and work product doctrine was rejected by the court, which found that privilege was waived when the agency shared the report with the Office of the Attorney General in 2021.
- • Plaintiffs—including public employees and Kentucky's attorney general—allege hedge fund dealers provided risky, poorly disclosed, high-fee investments while aided by certain KPPA trustees and employees; the hedge fund defendants deny wrongdoing.
- • The forced disclosure follows a settlement framework generating $227.5 million from hedge funds, with approximately $145 million designated for distribution to KPPA and affected parties.
Summary
Kentucky's state pension agency must now release a comprehensive investigative report on hedge fund investment misconduct following a judicial order that rejected the agency's confidentiality claims. Franklin Circuit Judge Phillip Shepherd issued two separate opinions on August 25, 2022, compelling the Kentucky Public Pensions Authority to publicly disclose the Calcaterra Pollack report within 10 days. The judge emphasized that the $1.2 million cost to taxpayers created an affirmative obligation to transparency, stating: "The public paid $1.2 million for this report. The public has a right to know its contents and decide if it got what it paid for."
The underlying controversy centers on hedge fund investments made between 2011 and 2017 totaling approximately $1.5 billion. Lawsuits filed by public employees and later joined by Kentucky's attorney general allege that multiple hedge fund dealers provided risky, poorly disclosed, high-fee investments to KPPA while receiving assistance from certain agency trustees and employees. The investigation was commissioned by KPPA in 2020 to examine "any improper or illegal activities" within these transactions. Defendants—the hedge fund dealers—have denied all allegations of wrongdoing.
Initially, KPPA indicated the report would enter the public domain. However, the agency subsequently refused disclosure requests from multiple parties, including the Lexington Herald-Leader, citing exemptions under Kentucky's Open Records Act including attorney-client privilege and work product doctrine. Judge Shepherd rejected this position, finding that KPPA waived attorney-client privilege when it shared the report with the Office of the Attorney General in 2021—an entity that was not acting as the agency's legal counsel in the matter. This factual determination stripped away the primary justification for continued confidentiality.
The case reflects broader governance tensions within public pension administration. A settlement framework has emerged generating $227.5 million from hedge fund defendants, with approximately $145 million earmarked for KPPA distribution. The forced disclosure of the investigative report now exposes the institutional record of how investment decisions were made, monitored, and questioned during the period in question, providing both litigation participants and taxpayers with documentary evidence previously shielded from public view.
The underlying controversy centers on hedge fund investments made between 2011 and 2017 totaling approximately $1.5 billion. Lawsuits filed by public employees and later joined by Kentucky's attorney general allege that multiple hedge fund dealers provided risky, poorly disclosed, high-fee investments to KPPA while receiving assistance from certain agency trustees and employees. The investigation was commissioned by KPPA in 2020 to examine "any improper or illegal activities" within these transactions. Defendants—the hedge fund dealers—have denied all allegations of wrongdoing.
Initially, KPPA indicated the report would enter the public domain. However, the agency subsequently refused disclosure requests from multiple parties, including the Lexington Herald-Leader, citing exemptions under Kentucky's Open Records Act including attorney-client privilege and work product doctrine. Judge Shepherd rejected this position, finding that KPPA waived attorney-client privilege when it shared the report with the Office of the Attorney General in 2021—an entity that was not acting as the agency's legal counsel in the matter. This factual determination stripped away the primary justification for continued confidentiality.
The case reflects broader governance tensions within public pension administration. A settlement framework has emerged generating $227.5 million from hedge fund defendants, with approximately $145 million earmarked for KPPA distribution. The forced disclosure of the investigative report now exposes the institutional record of how investment decisions were made, monitored, and questioned during the period in question, providing both litigation participants and taxpayers with documentary evidence previously shielded from public view.
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