It isn’t unusual in Kentucky to find corruption. What is unusual is the extent of the paper trial that shows the insider dealing in hiring tainted New York attorney Regina Calcaterra to conduct an at best redundant Kentucky Retirement Systems investigation.
Not only did Calcaterra not meet any of essential hiring criteria for the already-questionable Kentucky Retirement System investigation, but even a cursory background search shows that Calcaterra is up to her eyeballs in past charges and allegations of corruption and fraud.
The most infamous black mark is that the Department of Justice targeted Calcaterra for her role as Executive Director in the collapse of the Moreland Commission, launched by Governor Andrew Cuomo to investigate corruption in New York State. Numerous press reports, including an in-depth investigation by the New York Times, unearthed considerable evidence that Calcaterra had repeatedly intervened to squash any line of inquiry that might implicate Cuomo. But as we’ll explain below, that is far from the only one. Calcaterra considers herself so well protected that she’s even bragged about cheating on tests and had depicted lying as important to her career success. In other words, she’s open about her role as an unethical fixer.
The vehicle for this sordid tale coming to public and court attention is a series of filings by the so-called Tier 3 Plaintiffs in the public pension fund lawsuit Mayberry v. KKR. These plaintiffs provided extensive documents supporting their contention that the hiring of Calcaterra and her and the Attorney General’s subsequent actions were so suspect as to warrant making the investigation report public and preserving all of the supporting records. We’ve embedded the central filing, which includes the exhibits, at the end of this post. We’ll recap the key facts so far before discussing this expose in more depth.
Overview of Mayberry v. KKR
In late December 2017, attorneys filed a derivative lawsuit for eight Kentucky Retirement System beneficiaries against three fund managers, KKR/Prisma, Blackstone, and PAAMCO, that had sold customized hedge fund products which, contrary to their sales pitches, had high risk and underwhelming performance. The Kentucky Retirement System, at only 13% funded, is the most spectacularly underwater large pension fund in the US, despite Kentucky having some of the most stringent statutory fiduciary duty requirements in the US.
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.
The stakes here are 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 initial case was appealed before discovery had gotten meaningfully underway, an unusual sequence of events. The plaintiffs lost on what most independent lawyers thought was an extremely strained ruling. The case then went to the Supreme Court, which dismissed the case without prejudice on standing due to intervening appellate and US Supreme Court decisions.
The Kentucky Attorney general, Mitch McConnell protege Daniel Cameron, filed a surprise Motion to Intervene on July 20. Bear in mind the attorney general’s office could have intervened at any time to support the case but oddly chose to now. The filing was even more, um, striking given that two of McConnell’ biggest donors are Steve Schwarzman of Blackstone and Henry Kravis of KKR, both of whom are also named as individual defendants. Kentucky insiders believe that the filing was a twofer: a way for Cameron to get headlines other than for those of him going easy on the police after the Brionna Taylor shooting and a shakedown of Blackstone and KKR.
The Attorney General’s filing was also an obvious re-write of the earlier submissions by the private plaintiffs.
After a raft of oppositions, including multiple formulations by the somewhat reshuffled plaintiffs’ legal team (former lead counsel Anne Oldfather was replaced by her former co-counsel Michelle Lerach), Judge Shepherd issued an order on December 28. He rejected most of the plaintiffs’ reformulations to deal with the standing issues except having the so-called Tier 3 Plaintiffs effectively make their pitch. The reason the earlier case had been largely shot down was those intervening decisions (such as Thole v. US Bank) required that the plaintiffs have suffered a “particularlized” loss.1 The Kentucky Retirement System beneficiaries hadn’t yet, since the fund has not yet missed a payment and arguably even if the system does, the State of Kentucky is also on the hook.
By contrast, the Tier 3 plaintiffs had mandatory deductions from their paychecks for a hybrid pension which is not state guaranteed. Even though public pension plans are not subject to ERISA, they are often managed in accordance with ERISA principles. The Kentucky Supreme Court in fact used ERISA cases to guide its decision. Unlike a defined benefits plan, which is what the Tier 1 and Tier 2 plaintiffs have, the Tier 3 plan is a defined contribution plan. Extensive case law backs the idea that under a defined contribution plan, the employee has suffered when his account balance is impaired. So the standard for loss is completely different than for the original “Mayberry Eight.”
The Dodgy New Kentucky Retirement System Investigation
Before the many years of procedural jousting that has kept Mayberry v. KKR from getting to discovery, the Kentucky Retirement Systems had formed an independent litigation committee to review the originally Mayberry v. KKR filings. As you can see from the second embedded document below, KRS took the unusual step of blessing the case while declining to join it, arguing they lacked the bandwidth and the resources. This move was nevertheless an important advance for the plaintiffs, since it confirmed that the filing had uncovered important new information and could produce significant recoveries for KRS, and strongly implied KRS would not fight discovery.
By contrast, just about everything about this new “investigation” stinks. Recall that on July 20, the Kentucky Attorney General filed his unexpected intervention. On July 29, the plaintiffs’ attorneys filed a motion asking permission to file a Second Amended Complaint on behalf of a rejiggered “Mayberry 8,” this time including three Tier 3 beneficiaries in place of three of the original beneficiaries.
On August 24, the Commonwealth of Kentucky solicited bids on a contract to ascertain “if there are any improper or illegal activities on the part of the parties involved,” meaning KRS and the Kentucky Public Pensions Authority, with a due date of September 14. Such a tight time frame that included the Labor Day weekend smacks of an intention to discourage submissions. We saw the same behavior when CalPERS was trying to hand its private equity investment program over to BlackRock, well, except that CalPERS provided for a four-week bid period, as opposed to three for the KRS.
How could a bona fide investigation question if there were any improper/illegal behavior when an independent litigation committee, much closed to the date of the alleged frauds, had concluded there was enough to take the virtually unprecedented step of endorsing litigation? One has to wonder it the plan was to have the report minimize misconduct so as to pave the way for a lowball settlement.
Calcaterra’s Shocking History of Sleaze
It’s difficult to see how anyone who cared about appearances, let alone competence, would consider Calcaterra. The filing contains pages and pages of derogatory material, all from press accounts. The centerpiece is her sabotage of the so-called Moreland Commission, established in 2013 to investigate corruption. It was shuttered with no report issued due to resignations and infighting. And that appears to have resulted from the heavy-handed interventions by Calcaterra on behalf of Cuomo. Note that Calcaterra was rewarded with a $175,000 a year job at a state insurance fund shortly after the Moreland Commission collapsed. As a source for the New York Post observed, “Anything in parole or insurance is a reward.”
The Moreland fiasco, or happy result, depending on your point of view, followed Calcaterra mismanaging an investigation into the Long Island Power Authority’s poor response to Hurricane Sandy. From the New York Times, as quoted in the filing below (emphasis theirs):
According to a New York Times investigation …. The conclusion appeared “dictated and predetermined because it didn’t match the findings in the report,” according to Matthew Cordero, a member of the LIPA board of trustees who also claimed that the executive branch, through Calcaterra, manipulated the public hearings to their benefit.
The filing also summarizes and quotes extensively from a major New York Times account, “Cuomo’s
Office Hobbled Ethics Inquiries by Moreland Commission, on June 23, 2014. The overview:
According to this NYT exposé (see generally Ex. 2 (NYT Article)), Ms. Calcaterra, as Executive Director of the Moreland Commission:
• interfered with and obstructed the investigation to protect a subject of the
• improperly communicated and cooperated with that subject while the investigation was going on;
• blocked subpoenas that subject objected to;
• edited draft reports to eliminate material that subject objected to;
• vetoed an independent author for the “preliminary” report, arranging for an employee of that subject of the investigation to draft it; and
• altered the issued report by deleting the language objected to by the subject, after the “preliminary” inadvertently contained such language.
The details are ugly. This comes directly from the Times story:
[A] three-month examination by The New York Times found that the governor’s office deeply compromised the panel’s work, objecting whenever the commission focused on groups with ties to Mr. Cuomo or on issues that might reflect poorly on him.
Ultimately, Mr. Cuomo abruptly disbanded the commission halfway through what he had indicated would
be an 18-month life….
As a result, the panel’s brief existence — and the writing and editing of its sole creation, a report of its preliminary findings — was marred by infighting, arguments and accusations. Things got so bad that investigators believed a Cuomo appointee [Executive Director Calcaterra] was monitoring their communications without their knowledge…
Mr. Cuomo said early on that the commission would be “totally independent” and free to pursue wrongdoing anywhere in state government, including in his own office …. In fact, the commission never tried to investigate his administration….
At the center of the battle between independent-minded commissioners and Mr. Cuomo and his aides were two hardcharging lawyers: E. Danya Perry, a former federal prosecutor who was the panel’s chief of investigations; and Regina M. Calcaterra, a former securities lawyer who, as the
commission’s executive director, routinely conveyed the wishes of the governor’s office…
[A]s investigators asked questions, they found themselves inquiring about matters related to the governor’s supporters. And this led to confrontations between Ms. Perry, the commission’s chief investigator, and Ms. Calcaterra, its executive director.
And from The Atlantic on July 23:
[The] Commission repeatedly pulled back subpoenas to companies that bought air time for the governor or donated to his campaigns, at the behest of … the commission’s executive director Regina M. Calcaterra — who worked closely with the governor’s secretary …. The governor abruptly disbanded the 18-month investigation in March, 10 months early.
I strongly urge you to read the filing. The text proper is relatively short and has lots of ugly details, directly quoted from newspaper stories.
The Sandy and Moreland fiascoes were simply the most recent and high profile instances in an openly slimy history. From the filing:
Calcaterra’s questionable past conduct was not isolated to the Moreland Commission investigation. Calcaterra has been repeatedly sued by the New York Board of Elections for violations of campaign-finance laws, i.e., failing to file required financial disclosures. She was disqualified from running for public office for not being truthful regarding her residency. And she has long been associated with dubious pension fund “pay-to-play” activities and key players — some of whom faced criminal investigations and convictions. She even admitted cheating on an exam to get a job she wanted.
Preet Bharara closed down a criminal investigation without filing charges because, according to a press release, there was “insufficient evidence to prove a federal crime.”
Calcaterra was also a subject of a study by the Accountability Project. Among other things, it cited the fact that she had been sued 17 times by the New York Board of Elections or campaign finance violations, had filed false residency documents when trying to run for public office, and had been a protege of Alan Hevesi, the former state controller convicted of fraud in his dealings with the state pension fund. From the Accountability Project:
Calcaterra cut her teeth in politics and government under Alan Hevesi, who would later become city and state comptroller and was barred permanently from public office in 2007 after pleading guilty to defrauding the government and served 20 months in prison after admitting in 2010 that he’d abused his stewardship of the $125 billion New York state pension fund (having approved a $250 million pension fund investment in exchange for $1 million in gifts to himself and his
In 2000, Calcaterra formed a lobbying firm, then went back into government just two years later at the largest pension fund controlled by the city Comptroller’s Office, the New York City Employee Retirement System. She jumped from there to a $175,000 a year gig at Barrack, Rodos & Bacine, a law firm that donated over $90,000 to Hevesi’s campaign for state comptroller in 2002, was hired that year by the state’s comptroller’s Office to lead litigation on a $6 billion lawsuit, and was retained by Hevesi after he took office in 2003. By 2010, Calcaterra took the revolving door for one more spin as she ran for office in the state Senate, piling up large donations from her previous state contractors employees, before eventually being removed from the ballot when she
was found in violation of the state’s residency requirement.
You get the picture.
Timetables Show Evidence of Dirty Dealing
Calcaterra established her new firm on April 24, 2020. It has all of three employees. Calcaterra and her partners had no experience in investigation, except interfering with them, and no experience in public pensions, save perhaps in learning how to steal from them by watching over Hevesi’s shoulder. Yet according to the filing,
Prior experience with public pension plans and prior “significant investigation” experience were the two most important factors to be “scored” to “evaluate’” any proposed law firm.
The contract was approved by KRS/KPPA on November 23, 2020 but did not become effective until it was approved by the state Finance Director in December.
The solicitation documents also designated a single non-lawyer contact, Cassandra Weiss of KRS, and forbade any law firm submitting a proposal from contacting any other individual in the state of Kentucky government about the proposal or proposal process. Bidders were also barred from discussing any portion of their proposal before a contract award was announced.
Yet what do we see here? From the filing:
In September 2020, while the KPPA/KRS investigation solicitation process was still open — and no contract had yet been awarded, in a separate bid submission for work with Nassau County, New York,33 Ms. Calcaterra was asked to: “Provide names and addresses for no fewer than three
references for whom the Proposer has provided similar services or who are qualified to evaluate the
Proposer’s capability to perform this work.”
Ms. Calcaterra’s answer included:
Kentucky Retirement System
Vicky Hale, Counsel
1260 Louisville Rd.
Frankfort, KY US
There is no way to put a good face on this. The date of the New York application is September 16, two days after the KRS/KPPA deadline and more than two months before the contract was awarded.2
At a minimum, Calcaterra must have impermissibly told Hale about her proposal for the KRS/KPPA work. Even worse, it appears that Hale is a good enough friend of Calcaterra that Hale would lie to another pension and make it sound as if 1. Calcaterra had already been engaged and 2. Calcaterra was far along enough on the project that Hale could give Calcaterra a good grade.
This behavior also strongly suggests that 3. Calcaterra knew she would be awarded the contract even though no decision had been made.
Curiously, the exhibits to the filing show that Calcaterra applied for a name registration in Kentucky on August 12, 2020….12 days before the KRS/KPPA contract was put out for bid. She then filed for a Certificate of Authority for a Foreign Limited Partnership on September 21, 2020, which was issued September 29, 2020.
Frankly, I don’t understand how this is kosher. This is one of the few places where the filing underplays the seriousness of this issue. You can’t do business in a state, and soliciting business is “doing business” unless you have filed as a foreign entity or set up an entity in state. Calcaterra had not done so until after she submitted her proposal. The name registration form makes clear on its face that it is merely to make a reservation:
The documents they show in Exhibits 24 and 25 Even here in Alabama, you have to be incorporated or register as a foreign entity as a precondition to doing business. And here, that would include solicitations. But Calcaterra clearly does not care about legal compliance even if Kentucky is as buttoned down as Alabama is.
The final bit of dirty business is the KRS lying to Judge Shepherd about the Calcaterra investigation. Again from the filing:
The CALCATERRA FIRM Contract did not call for the CALCATERRA FIRM to investigate the Tier 3s’ claims asserted in the proposed Complaint in Intervention or the separate free-standing complaint they filed at the same time. Neither of those complaints existed when the Kentucky Contract was bid on or awarded. The Contract actually called for Ms. Calcaterra to
… investigate specific investment activities conducted by the Kentucky Retirement Systems to determine if there are any improper or illegal activities on the part of the parties
involved and produce a detailed report documenting their investigation and findings.
See Ex. 21 at 2. In a March 2, 2021 filing with this Court, KPPA/KRS stated:
Before the Tier 3 Individuals sought intervention here, Kentucky Retirement hired an independent third-party law firm to investigate the allegations contained in the proposed intervening complaint. Kentucky Retirement is investigating the allegations and will
rely on the results of that investigation in choosing a path forward.
And no, KRS could not have changed the contract without the Commonwealth being involved and signing off. From the description of the solicitation process:
No modification or change of any provision of the contract could be made unless agreed to in writing by the Commonwealth. “Clarification” or “correspondence” cannot be construed as an amendment to the contract
While the document below goes to great lengths to state that it doesn’t want to prejudge the final product, given the sordid history, one has to wonder if Calcaterra intended to produce any written product for the $1.2 million her firm was set to receive. Not only has Judge Shepherd now demanded to see it, but the plaintiffs have made a solid case for getting access to that and all the preliminary drafts and correspondences.
Pass the popcorn. The May 10 hearing, where the plaintiffs have asked for this motion to be considered, should be very entertaining.
1 Note that Thole v. US Bank does not apply to California pension funds, since California has not adopted Federal Article 3 rules of evidence, unlike Kentucky. In addition, California has very plaintiff-friendly qui tam statutes.
2 One would think if Calcaterra had no competitors, it would not take more than two months to award her firm the engagement.00 (2021-05-03) As-Filed Brief re Motion to Preserve Evidence
00 180419_Ptfs' and KRS' Joint Notice to the Court and Parties