Remember my doubts on the mysterious disappearance of Chief Investment Officer John Krimmel in April of last year.
Now Texas Public Pension officials appear to be doubting the truth in Kentucky’s official financial statements regarding the resignation of Krimmel.
This latest revelation was spurred on by The national Trade publication Pensions & Investments (P&I) published “Kentucky fund audit cites flaws” in June 2007.
Kentucky Retirement Systems was criticized in a state audit report for inadequate internal controls. The audit, released by Crit Luallen, Kentucky’s auditor of public accounts, said the $16 billion fund needs to take steps to prevent executive officers from overreaching their authority…., “During the fiscal year ended June 30, 2006, two officers of Kentucky Retirement Systems’ executive management, the CIO (John Krimmel) and Chief Operations Officer (Gordon Mullis), circumvented internal control policies and procedures related to an alternative investment made by the (systems’) insurance fund,” the audit said. The two officers had failed to perform adequate due diligence and exceeded their investment authority, and had commingled pension and insurance assets in violation of … the Internal Revenue Code,” the audit said. Messrs. Krimmel and Mullis both resigned last year. (pg.143 of audit)
This story in P&I resulted in a nasty letter from KRS Ex. Director Bill Hanes published in P&I in July.
The articles state, “Kentucky Retirement Systems, Frankfort, was criticized in a state audit report for inadequate internal controls.” This statement is completely false and inaccurate. ……….. It was the conclusion of both (auditors) that the internal controls were adequate; however, the internal controls were overridden by two former members of executive management. I agree that the state auditor’s report was critical of John Krimmel (former chief investment officer), and Gordon Mullis, former chief operations officer, but not with Kentucky Retirement Systems as a whole. As noted in Statement on Standards for Attestation Engagements AT501.14, as published by the American Institute of Certified Public Accountants, “controls can be circumvented by the collusion of two or more people or management override of internal control.”
Hanes clearly shifted the blame 100% back to Krimmel & Mullis, and that they colluded together to commit this act.
Meanwhile back in Texas, John Krimmel is acting as the leading advisor on alternative investments to the State Pension plans.
Robert Elder one of the leading public pension writers noticed the P&I story and started asking questions in his August 5th article.
Reissman (Texas Chief Investment Officer) said Callan Associates told her of the allegations in June 2006, around the time it hired Krimmel. Callan executives "felt they were baseless, and we've been asking them to keep us posted on what happens there," she said. Reissman said she has confidence in Krimmel because she has known him for 10 years. Another point in his favor, she said, is that he is serving a two-year term on the advisory group for the federally created Public Company Accounting Oversight Board.
The story was picked up by the AP and got 17 major media hits in Texas 4 largest newspapers 13 TV stations
Krimmel was on the hot seat early this week at the Texas ERS meeting, and he reluctantly gave the Texas Retirement board his story at their open meeting and basically blamed Mullis.
Krimmel, who had not spoken publicly about the allegations, told the board he had a very limited role in the Kentucky systems’ purchase of land. He said the systems’ former chief operating officer did most of the work on the land deal. Krimmel said his role was essentially limited to overseeing a loan his part of the Kentucky pension operation made to a related-party real estate affiliate so it could buy the land.………
The Kentucky auditor of public accounts later found that Krimmel and Mullis “circumvented internal controls” to buy the land. Krimmel said it was not his job to do any due diligence on the purchase, only to make sure the related party could repay a loan to the pension. He acknowledged his staff improperly commingled funds to finance the deal, but said that error was quickly corrected at no loss to the pension fund.
If Krimmel was framed as many people think, why would he not want to defend his reputation by standing up and publicly saying what he has said privately that he was framed by KRS?
One theory on why he has clammed up is a bit disturbing, remember KRS spends millions on lawyers, one being Ice Miller of Indianapolis.
Ice Miller is known to have prepared a severance agreement for the Chief Investment Officer of the Indiana State Plan, in which she received $212,000 with the caveat that she not be allowed to talk publicly or to the press about any of the corruption or ethical problems with the plan.
Is it possible that Ice Miller did the same with Krimmel in Kentucky?