Hoist on His Own Petard? Kentucky Attorney General’s Apparent Plan to Settle Landmark Pension Case Mayberry v. KKR Likely to be Undermined by Discovery

The Mayberry v. KKR situation has developed not necessarily to Kentucky Attorney General Daniel Cameron’s advantage.

As we’ll explain in more detail, a legal move that made sense only as a political gambit now is at serious risk of backfiring on Cameron.

Last July, a hard-fought case, Mayberry v. KKR, appeared dead as a result of the Kentucky Supreme Court dismissing the complaint over standing by applying rulings made in other jurisdictions after the original case has been lodged.1 Attorney General Cameron unexpectedly intervened as the counsel for the original plaintiffs reconfigured their arguments to deal with the standing issues. As we noted then:

The politics of this move are extremely perplexing. Cameron is a protege of Mitch McConnell, and two of the defendants in this suit, Steve Schwarzman and Henry Kravis, are not just Republican heavyweight donors; they are (or at least have been) specifically top McConnell funders. What gives?

Cameron’s filing was almost entirely dependent on the original plantiffs’ documents. It’s become increasingly evident that Cameron never intended to litigate. The best guess is that Cameron needed a distraction from bad Brionna Taylor headlines, and also saw the Mayberry v. KKR case as an opportunity to engage in a little shakedown by making a potentially explosive case go away via a cost-of-doing-business settlement.

But Cameron appears to have badly underestimated his opponents, led by the formidable attorney Michelle Lerach and her husband, the disbarred but still very much feared Bill Lerach, who acts as a consultant. A quick and cheap settlement can occur only if the defendants can escape what they fear most, discovery. But the latest order from Judge Philip Shepherd shows he is moving forward with the reconfigured case, now involving “Tier 3” beneficiaries in a hybrid plan that does not have a state guarantee. That upsets Cameron’s plans to settle the case before the Tier 3 plaintiffs go going, which would allow his to go lowball based on public information and the limited discovery to date.


Mayberry v. KKR is a high stakes case, confirmed by the legal scorched earth tactics of the defendants, Blackstone, KKR/Prisma, and PAAMCO, along with key principals, including Blackstone founder and CEO Steve Schwarzman and KKR co-founder and CEO Henry Kravis. The case was first filed in December 2017 derivatively, on behalf of eight beneficiaries of the fabulously badly managed, corrupt, and underfunded Kentucky Retirement System. The plaintiffs alleged that that Blackstone, KKR/Prisma and PAAMCO had each sold KRS high fee, high risk customized hedge funds that they falsely billed as the impossible combination of “low risk, high return,” contradicting what their own SEC filings said about the very same products. The Kentucky Retirement System made a sudden, large commitment to all three funds and even added to the pot despite underperformance. As we explained:

The fund managers allegedly focused on KRS and other desperate and clueless public pension funds who were unsuitable investors, particularly at the risk levels they were taking. KRS made what was a huge investment for a pension fund of its size. $1.2 billion across three funds all at once, in 2011, roughly 10% of its total assets at the time. They all had troublingly cute names. The KKR/Prisma funds was “Daniel Boone,” the Blackstone fund was “Henry Clay” and the PAAMCO fund, “Colonels”.

In the case of KKR/Prisma, the fund had installed an employee at KRS as well as having a KKR/Prisma executive sitting as a non-voting member of the KRS board. The filing argues that that contributed to KRS investing an additional $300 million into the worst performing hedge fund even as it was exiting other hedge funds.

The ante is much higher than the potentially meaty recoveries. Private equity and hedge funds fetishize secrecy because too often, their conduct will not stand up to scrutiny. The giant fund managers are almost certain to be most afraid of discovery, since they sharp practices they used with Kentucky Retirement Systems were very likely to have been replicated at other public pension funds. Even the limited discovery so far uncovered more misconduct and allowed the plaintiffs to add to their claims.

The Kentucky Retirement System stated it endorsed the case but would not formally join it.

Cameron Flips Judge Shepherd the Bird

With Mayberry v. KKR sent back to his court, Judge Philip Shepherd made clear he was eager to move it along. He originally set a date of February 1 for the Attorney General to make a new filing. Among other things that the Tier 3 plaintiffs were pressing to be heard by the court. In a January 12 order, following a January 11 hearing, Judge Shepherd instructed the Attorney General to file his amended compliant by February 1 so he could assess the motions the Tier 3 plaintiffs and any other intervenors in light of that. Shepherd gave the Tier 3 Group, as he called it, until February 11 to file its motion to intervene, and set a hearing date for February 22. 2

Late on January 29, literally the latest possible moment before the February 1 due date, Cameron blew off Judge Shepherd, filing a motion asking for an extension of time. Cameron said he’d been getting his mind around the case by having tea and cookies meeting with the defendants. He asked for ten more weeks to get up to speed, even though he’s had since last July, and then wanted the Tier 3 plaintiff’s filing deadline to be set two weeks after his new due date.

The centerpiece of the attorney general’s argument for delay was that he’d gotten the Kentucky Retirement System to agree to spend up to $1.2 million on an outside law firm to do some poking around. We’ve embedded their proposal at the end of this post. The typo in the very first paragraph does not speak well to their attentiveness. Nor does the fact that the firm is newly formed and none of its attorneys have meaningful relevant experience. As one prosecutor snorted:

This is ridiculous. The terms are left undefined: “specific investment activities” and “any improper or illegal activities” need to be called-out in the contract. The parties haven’t even defined who decides which “specific investment activities” to “investigate”!

This reeks of “the horse left the barn 10 years ago.” It’s just cover for Cameron. Now that we’re being sued, we’d better get on this…

Even more damaging was the argument from Michelle Learch at a February 8 hearing. She pointed out that KRS had already hired independent counsel to investigate years ago. That firm had found significant wrongdoing and had endorsed the legal team (then Anne Oldfather and Michelle Lerach) as eminently qualified to pursue the claims. Moreover, she pointed out the Attorney General’s office was in no position to pursue the matter. His staff did not have relevant expertise and his office could only hire outside attorneys on one year contracts and then at pay scales that made it impossible to secure and keep a team that could purse this sort of complex litigation.

In other words, there was no way Cameron was going to find anything new via his KRS-paid runway extension.

Judge Shepherd issued a short order on February 12 approving a request by the defendants. The Tier 3 plaintiffs’ counsel continued to send in filings, which they may regard as love letters but I suspect Shepherd might find to be a bit much. On February 15, they sent in a “Memorandum in Support of Motion for Entry of Pre-Trial Order No. 1.” This was a fairly long missive arguing, with the usual citations, that there was boatloads of precedent for public-private litigations to go forward and models for how the court could manage them. I gather the point was to show Shepherd that lots of courts had found ways to let cases proceed in parallel and he didn’t have to let the Attorney General go first just because he wanted it that way.

The second filing, “Memorandum In Support Of The Tier 3 Plaintiffs’ Motion for Accounting” falls into the evil genius terrain. Normally, this sort of document would be filed as part of the prospective settlement conference which is normally required once a suit gets past summary judgment, but before full-blown discovery. The Lerach team pulled it out now to preempt a cheap settlement by Cameron.

It blows up the idea that the Attorney General could settle the case without doing actual discovery. It provides an estimated range of what the hidden hedge funds fees might be, based not only on academic studies but estimates by KRS’ own consultant, the authoritative CEM Benchmarking. We’ve embedded it below.

The defendants howled and quickly filed a “Combined Response” basically arguing that the Tier 3 “individuals” weren’t parties to Mayberry v. KKR (following the attorney general, the document depicted them as “non parties”) and the Judge Shepherd should tell them to cut it out. However, some things cannot be unsaid, and in keeping, the defendants didn’t (and presumably could not) demand that the filings be stricken from the record.

Judges do not have to rubber stamp settlements. Judge Jed Rakoff famously rejected several post-crisis settlements as being inadequate and ordered the parties to trial, which usually resulted in meatier settlements. So the Motion for Accounting is a huge impediment if Cameron’s plan is indeed to settle on the cheap.

Judge Shepherd issued an order on the 18th which further complicates matters for the Attorney General. As you can see from the final embedded document, Judge Shepherd is not letting the Attorney General dictate the overall timetable, which is in the hands of the court (Shepherd did say in the February 8 conference that he was inclined to grant the Attorney General’s request for more time). The order states that the Tier 3 plaintiffs’ arguments, that they don’t need to wait on the Attorney General investigation to proceed, and that the Attorney General represents different interests than the Tier 3 plaintiffs, is sufficient grounds for their motions to proceed independent of the Attorney General’s research project. Judge Shepherd also reiterated his frustration with the delay.

Judge Shepherd cancelled the February 22 conference, granted the Attorney General an extension until April 12 to file his Amended Compliant, gave those who wanted to oppose the Tier 3 plaintiffs Motion to Intervene until March 2 to respond, and gave the Tier 3 Plaintiffs until March 8 to file their rejoinder. Judge Shepherd will determine how to dispose of the Tier 3 two February 15 motions after he rules on their motion to intervene. The next conference is April 19. Expect fur to fly!


1 Those decisions, subsequent to the filing of the litigation, found that the defendants in defined benefit plans did not have standing because they have not suffered a “particularlized,” as in actual, loss. Not only are the pensioners still getting full benefits, but their pensions are (supposedly) also backstopped by the state. Kentucky has adopted Federal Article III rules which makes this standard germane. Note that this would not apply in states like California that have not adopted Article III.

2 From Judge Shepherd’s order:

The Court believes that the Civil Rules require the Movants (state employees with defined contribution, rather than defined benefit pensions, or “the Tier 3 group”) to obtain leave of Court under CR 24 in order to assert their claims in this action. The Court cannot adequately evaluate the factors for intervention under CR 24 in a vacuum. The Court cannot rule on the motion to allow the Tier 3 Group to intervene and assert claims until it knows the nature and scope of the
claims that will be asserted by the OAG in its proposed Amended Intervening Complaint under
CR 15.

00 KRS legal investigation contract
00 Brief re Motion for Accounting
00 Feb 18 Shepherd Mayberry v. KKR order
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  1. The Rev Kev

    Maybe I shouldn’t but I found this post very funny to read when I imagined the reactions of people like AG Cameron. I mean, can you imagine? I have the impression that he has found himself entirely boxed in so unless somebody has a good buddy in the Biden administration, this case is going to make major appearances in the main stream media as the discovery process turns up one thing after another. Might be unintentional good news for CalPERS here. I predict that there will be so many juicy morsels coming out of Kentucky that California might be put on the back burner for awhile.

    All we need now is a zoom conference for all parties in Kentucky to proceed with someone slipping in a kitten filter for Cameron and the picture will be complete.

  2. David in Santa Cruz

    Thanks for presenting this Yves. Your analysis seems to be spot-on.

    It appears that Cameron intervened in order to publicly make a big splash against his Democrat rivals who had been running the KRS into the ground, while privatelly settling with his mentor Mitch McConnell’s funders “on the cheap” without exposing them to civil discovery. However, the trial judge can see right through Cameron’s delay tactics.

    Kentucky courts, like those in most U.S. jurisdictions, abhor a wrong without a remedy. Cameron failed to see the importance of amending his complaint to take into account the intervention by the Tier 3 defined benefit plaintiffs. Since his failure to file as directed by the court signals that he he can’t or won’t represent their interests, the judge is going to give them their day in court — with discovery of the unconscionable fee structures that wipe-out returns and simply serve to corruptly loot the savings purportedly being invested on behalf of hard-working civil servants.

    Very poorly played by Mr. Cameron. The McConnell slow-walk may work in congress, but it is never going to be a good look in a court of law.

  3. Susan the other

    Didn’t they (US House spokesperson) just itemize a set-aside amount of money in this 1.9bn emergency money to go to state retirement funds? I can’t remember who pointed this item out – but wondering if it is in fact earmarked for KKR and the various defendants in these cases. It makes sense that if more retirement funds file law suits against the investment funds who effectively stole hundreds of millions from retirement beneficiaries who can (now) bring court action independently or in a class action – then the big losers eventually will be the investment funds. So, true to form, Congress is bailing them out by making retirement funds whole? Sounds quite possible.

  4. Watt4Bob

    If only the reasons for the miserable prospects facing Kentucky’s retirees could be revealed to be connected to Mitch’s relationship to his campaign funders.

    This may seem obvious to NC readers, but I’m not holding my breath.

    The efforts by the GOP to place the blame for all that goes wrong in our country, firmly on the shoulders of ‘Liberal Democrats‘ has been so successful, that to paraphrase Trump, “The GOP could pile all Kentucky’s employee’s retirement contributions in the middle of the street, and light them on fire, and they wouldn’t lose one vote.”

    Tonight, I’ll pray I’m wrong.

  5. drumlin woodchuckles

    If AG Cameron ever had secret dreams of becoming America’s First Black Republican President some day, this may sink that.

  6. Bluegrass Morass

    My understanding is that the former Atty Genl (now governor) and the current Atty Genl Cameron both passed on offers to join with the plaintiffs to pursue recovery of these lost and/or stolen billions … as did the KRS Bd … the entire population in Denmark must be thinking “something’s rotten in Kentucky!” My take is that they’d all like this litigation to go away via a polite admonishment for the defendants, a modest settlement coupled with the proverbial ‘consent decree’ allowing the Wall St monoliths to cop to ‘neither admitting nor denying any liability.” Schwarzman (net worth $18B) and Blackstone ($564B in AUM) have emerged at the GOPs top political donor providing at least $27MM last year and then there’s the unknown dark money and super PACs etc.

    The stakes are enormous in that all these defendants have infiltrated dozens of public pensions funds throughout the land. When the US Supreme Court and KY Supreme temporarily derailed this case, the Blackstone defense firm posted a Client Memo on their website boasted that they won a ruling valued at $50 Billion stating in a footnote that several other of their client’s funds were “underperforming” in many other enumerated states. Multiply that by the other defendants and we are talking some serious, epic and towering piles of US currency!
    May Justice prevail for the public workers who put their faith and career contributions re their lives and livelihoods into the Kentucky Retirement.

  7. Stupendous Man - Defender of Liberty, Foe of Tyranny

    This is all good news … in the trial court. Eventually, though, it will end up in the Supreme Court of Kentucky (SCoKY). I fear it won’t fare well. Judges in KY are elected (which means selection of jurists barely [if at all] rises above the standards for high school popularity contests) and KY voters have been shown to make poor, uninformed choices.

    Your FN 1 makes reference to KY recently adopting standards on standing similar to Federal Article III standards (See Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992), et. al.). The recent SCoKY case is Commonwealth of KY. v. Sexton, 566 S.W.3d 185 (Ky. 2018). The opinion, authored by Chief Justice John D. Minton, Jr., made several gaffes, most relevant here being:

    “Kentucky courts have seemingly created a judicially — as opposed to constitutionally — imposed standing requirement.” See Sexton, supra, at 194.

    In support the Chief Justice relied upon two (2) paragraphs of Wyatt Sassman’s recently published “A Survey of Constitutional Standing in State Courts,” 8 Ky. J. Equine, Agric. & Nat.Resources L. 349, 369-70 (2016). I’d have preferred he rely upon the state constitution.

    It is indisputable that KY has had a constitutionally imposed standing requirement, per § 14 (and that since at least 1891) which states in toto:

    “All courts shall be open, and every person FOR AN INJURY done him in his lands, goods, person or reputation, shall have remedy by due course of law, and right and justice administered without sale, denial or delay.” [emphasis added]

    That’s the Chief Justice. Moving on …

    On January 1, 2021, having prevailed in the November 2020 election, Judge Robert B. Conley was sworn into office as Kentucky Supreme Court Justice, 7th District. Prior, on September 9, 2020, Judge Conley was issued a two (2) page “Public Reprimand” by the Judicial Conduct Commission, stating in part:

    “Judge Conley presided over a revocation hearing in a flagrant non-support case styled Comm. v. Furner, Greenup Circuit Court, Case No. 15-CR-00035. After listening to the Defendant explain why he had not made the required payments, Judge Conley advised the Defendant that he should shut up. He continued to question the defendant as to whose responsibility it was to keep up with his payments. When the Defendant attempted to answer, judge Conley banged his gavel and ordered the bailiff to ‘send him to jail.’ However, Judge Conley failed to conduct a hearing or make a written finding of contempt. Judge Conley then intemperately admonished everyone in the courtroom that speaking over him was contemptuous and would be treated as contempt by the Court. The defendant spent three days in jail.”

    In my opinion the JCC fell far short of its obligations in the disciplinary action it took regarding Judge Conley.

    SCR 4.300, Rule 1.1 (which is the VERY first rule), states in entirety:

    “A judge shall comply with the law,* including the Code of Judicial Conduct.”

    * “Law” encompasses court rules as well as statutes, constitutional provisions, and
    decisional law. See Rules 1.1, 1.2, 1.3, 2.1, 2.2, 2.4, 2.6, 2.7, 2.8, 2.9, 2.13, 3.1, 3.4, 3.9,
    3.12,3.13,3.14, 4.1, 4.2, and 4.4.

    This is so clear, and unambiguous, the SC KY apparently didn’t consider there was any need whatsoever to draft comments in regard to the rule.

    When fundamental rights to life, liberty, and/or property, are involved the requirements of due process, and equal protection, are paramount. Judge Conley, as a sitting circuit court judge, either knew, or should have known, the Defendant was entitled to same. “[J]udges and justices are presumed to know the law and are charged with its proper application.” Burton v. Foster Wheeler Corp., 72 S.W.3d 925, 930 (Ky. 2002).

    The basics of due process are long standing, and well established. SCOTUS has held:

    “Many controversies have raged about the cryptic and abstract words of the Due Process Clause but there can be no doubt that at a minimum they require that deprivation of life, liberty or property by adjudication be preceded by notice and opportunity for hearing appropriate to the nature of the case.” Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950).

    SCoKY has held:

    “Ordinarily, notice and an opportunity to be heard are the basic requirements of due process.” Storm v. Mullins, 199 S.W.3d 156 (Ky. 2006) (citing Mullane).

    A little “icing on the cake” comes from our intermediate court of appeals, stating:

    “In a case well known to every first-year law student, Mullane v. Central Hanover Bank & Trust Co., the United States Supreme Court said courts must assess due process by determining ‘whether notice [is] reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action[[7]] and afford them an opportunity to present their objections.’ 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950).” Farmers Nat. Bank v. Com., Dept. of Revenue, 486 S.W.3d 872, 884 (Ky. App. 2015).

    This stuff practically writes itself.

    – Judge Conley is presumed to know the law.
    – Judge Conley is charged with correctly applying the law.
    – “[E]very first-year law student” knows the holding from Mullane.

    Reasonable minds can conclude only (1) that Judge Conley doesn’t know the law and therefore cannot properly apply same, or (2) that Judge Conley knows the law and intentionally violated the fundamental rights of Defendant. Neither of those reflects well upon the judiciary in the commonwealth. In the case of the former Judge Conley generally lacks the requisite qualifications to occupy any bench (yes, generally, as the fundamental requisites of due process, and equal protection, are present in almost every case [if not in every single case]), and in the case of the latter the “egregious error” standard articulated in the case Gormley v. Judicial Conduct Commission, 332 S.W.3d 717, 727 (Ky. 2010) could have, and should have, lead the JCC to sanctions more severe than a mere public reprimand.

    Worse, in my opinion, is that not only did Judge Conley blatantly violate the rights of the Defendant he did so through judicial trickery. First Defendant was ordered to “shut up.” Then (apparently pursuant to KRE 614) Judge Conley continued to interrogate the Defendant. When Defendant spoke in answer – AS HE WAS BEING PROMPTED BY JUDGE CONLEY TO DO – he was thrown in jail for three (3) days. Such trickery is demonstrative of a level of dysfunction that has no place whatsoever in any courts.

    Worse still, in my opinion, is that Judge Conley didn’t stop at violating one defendant’s fundamental rights through his dysfunctional judicial trickery. Nay. He went on to threaten every other citizen present in the courtroom who may have had an interest in asserting their fundamental rights with like kind treatment should they so advocate for themselves.

    This isn’t the metered, reasonable, and proper behavior of a jurist. It shares more in common with that of a bully.


    These are two (2) of the seven (7) jurists that are likely to be presiding when Mayberry v. KKR is ultimately kicked up to SCoKY.

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