CIO Skips Town Weeks Before Scandal Revealed

Almost 4 years ago I called into question the hiring of Kentucky Retirement Systems (KRS), Chief Investment Officer (CIO) Adam Tosh. The soon to be released Audit by Kentucky Auditor of Public Accounts Crit Luallen will hyper focus on his 4 trips to the United Kingdom in less than 1 ½ years and another trip to Dubai on the KRS dime.

However, there are much more serious and costly conflicts that need to be explored.

While all of KRS management was aware of the placement agent scandal in January 2010, they waited several weeks until after Chief Investment Officer (CIO) Adam Tosh left to even inform the Trustees on the audit committee that they even used placement agents in early August 2010.

It seems they needed a few weeks after Tosh’s departure to cook up the internal secret audit in July to partially blame Tosh before they revealed it to the Trustees in August.

While the internal audit points out a relationship between Tosh and placement agent Glen Sergeon the placement agent who received over $5 million, other placement agents made millions years before Tosh ever got to KRS.

Let’s go back to the beginning.

One theory is that Tosh was hired, with his suspect background, because KRS wanted a CIO who would look the other way at things like placement agents. This same theory points to the fact that the last CIO Krimmel would not look the other way, so he was framed with the bogus land deal so he could be replaced with someone more pliable.

In our previous post the KRS February 2007 press release on the hiring of CIO Tosh implies that he came from the Pennsylvania Retirement System.

While he had worked in Pennsylvania several years prior his last employer was a firm MDL. MDL went bankrupt after pushing a hedge fund fraud on a Ohio Public Plan, and eventually their founder and President Mark Lay was convicted of securities fraud and is currently serving a 12 year term in Federal Prison.

As soon as he was hired Tosh started hiring managers using placement agents with over $3 million in his first full year in 2008. With one large Vendor he appeared in an infomercial for them, and in the same year he negotiated a secret multi-million settlement after they lost $48 million in securities lending in 2009.

CIO Adam Tosh conveniently disappeared in late June 2010 before Trustees or others even knew of the existence of placement agents and could ask him questions.

Tosh hints in the first Forbes article that some of the Trustees had a relationship with Sergeon.

“Adam Tosh, Kentucky’s chief investment officer until a few weeks ago, said Sergeon was able to command the attention of the fund board based on the performance of investments he has recommended in the past.”

Speculation is that Tosh may have signed a non-disclosure agreement when he left KRS, but hopefully this would not prevent the auditor or Securities and Exchange Commission from getting his full cooperation.

While the auditor may focus on overseas trips paid for with State dollars what is more troubling is how much travel was off the state books and paid for by placement agents.

While Tosh clearly was involved it is also clear that he could not have operated without at least tacit approval from the Chairman of the Board of the Kentucky Retirement Systems