Fiduciary Breaches Alleged in KY Retirement Systems' Property Purchase

October 9, 2006 ( - The Kentucky Retirement Systems filed an insurance claim alleging that two former system officials breached their fiduciary duties during the process of a questionable property purchase earlier this year.

The Lexington Herald-Leader reports that the $600,000 claim was filed by Eric Wampler, general counsel for the retirement systems, and says the breaches of fiduciary duties by Gordon Mullis Jr., former chief operating officer, and John Krimmel, former chief investment officer, have resulted in monetary damages to the health insurance trust administered by the system.

Specifically, according to the Herald-Leader, Wampler said Krimmel’s breaches of duties “involve the failure to ascertain the value of the (Holly Hill) property, to evaluate its potential for current and future investment return, to exercise due diligence in the purchase of the property and the expenditure of funds, to adequately negotiate concerning price, fees and expenses, and exceeding the authority provided by the investment committee of the board of trustees.” The purchase is being reviewed by state auditors, the state police and the attorney general’s office, the news report said.

The claim relates to a purchase of land for $725,000 from someone who paid $450,000 for it less than two months earlier. In May, retirement system officials announced they were investigating the purchase (See KY Retirement System Questions Property Purchase ), and specifically had questions about a portion of the sale price, $25,000, paid for “personal property” that staff officials have been unable to identify, and a $28,000 commission paid to a Frankfort realty company. Wampler said at the time many documents required for the transaction were not produced, such as a bill of sale, inventory or valuation regarding the $25,000 of personal property, or contract regarding a $28,000 real estate sales commission.

In December 2005, a woman bought the property from a church for $450,000, with the intention of putting an animal hospital there, but failed to win a local zone change in January. She agreed to sell it for what she said was a total of $725,000 after she was approached by retirement systems officials.

Records show that Mullis and Krimmel wrote a recommendation on behalf of the staff to purchase the property for up to $700,000. Mullis resigned in April and Krimmel resigned in May.