SEC Looking into Kentucky System Placement Agent Activity

October 10, 2011 ( - The U.S. Securities and Exchange Commission (SEC) wants to depose officials at the Kentucky Retirement System as part of its "informal inquiry" into the role of placement agents at the $13 billion pension fund.

The Lexington Herald-Leader reports that several current and former KRS executives have received subpoenas from the SEC, and all members of the KRS board of trustees since 2007 are expected to be deposed as well, KRS Executive Director William Thielen said. Attorneys for KRS are trying to negotiate a deal with the SEC so the interviews are conducted in Kentucky rather than forcing everyone to travel to New York at considerable expense, KRS board chairwoman Jennifer Elliott said, adding that “our plan is certainly to cooperate with them.”  

The SEC opened an inquiry last year into the millions of dollars in fees paid to placement agents, the middlemen who help private investment companies sell their products to KRS. The fees are paid by the investment companies, who then are paid by KRS.   

Placement agents have led to political pay-to-play scandals in other states (see “Special Review” Outlines Private Placement Problems at CalPERS). The SEC has considered banning the agents, the news report said.  

In June, state Auditor Crit Luallen issued a report on business practices at KRS that revealed nearly $11.6 million in fees paid or committed to placement agents from 2007 to 2010 (see KY Audit Details Questionable Placement Agent Activities), and called out one placement agent in particular.  

The SEC did not return a call from the Herald-Leader seeking comment.