Lawsuit involving Missouri state employee pension losses spurs side fight over budget
There's a bitter fight underway in
The main arena is a
A side arena is the
Although it was filed in late 2020, lawyers are still arguing preliminary matters in the the lawsuit where MOSERS accuses Catalyst of "fraud, deception, willful misconduct, self-dealing and gross mismanagement" resulting in "hundreds of millions of dollars in losses to innocent investors, including MOSERS."
A trial is months, if not more than a year, away.
But the state budget for the coming year will be settled in four weeks and, from the money set aside for future benefits –
McIntosh was hired in
"I was really on a mission of peace and the more the spending occurred the more questions it raised in our minds," McIntosh said. "It started to become rather apparent that there were extraordinary expenditures made on the legal side."
So far, McIntosh estimates, MOSERS has spent about
The legislative language each year sets an amount for "administration of the system, excluding investment expenses."
MOSERS contends the spending McIntosh targets is either one-time costs to update its computerized benefits system or to administer individual retirement accounts for state and higher education employees under its responsibilities separate from the general pension accounts.
The financial statements verify that costs are allocated properly, MOSERS spokeswoman
"We are aware of the narrative that
The lawsuit
Last Thursday, for more than 90 minutes,
Attorney
Catalyst purchased shares in
"Defendants did not manage investments honestly, or with anything close to due care," Grable said in court.
MOSERS has not provided The Independent an accounting of returns on its investments in Catalyst and one has not been filed among the public court documents in the case. One aspect of the case is the heavy censoring of public filings and the large number of documents filed under seal.
MOSERS entrusted a total of
"There were terrific losses in association with these investments as alleged in the complaint and detailed elsewhere," Grable said. "It's MOSERS position that there was a lot of wrongdoing in connection with these
If MOSERS' attorneys want to subpoena records from
"It is not appropriate for us to go and collect these documents for MOSERS," he said.
A major part of the case is that the apparent early success helped persuade MOSERS to subscribe
In an
"MOSERS asks the court to protect it from the consequences of its own decision," Beetem wrote.
In the decision, Beetem also cast doubt on many of MOSERS claims about the connections between Catalyst and
MOSERS backed down, made the
Over the past five years, Catalyst has received
On Thursday, Grable also argued that MOSERS should be allowed to pierce attorney-client privilege for Catalyst because it is a partner in the fund organized as a limited partnership.
MOSERS wants to see the advice Catalyst received before investing in
"The
Catalyst claims those documents are privileged, Grable said.
"When they sought that advice, they were seeking the advice in order to manage the investments of the limited partners," he said. "So they're not allowed to do that."
Hatfield spent many years working as chief of staff in the
"It's kind of strange to me that MOSERS is making the argument that under
If he asked for privileged information as a beneficiary, he said, he would be refused "and they should."
Budget fight
The examination of the system's spending grew out of frustration that MOSERS was blocking access to the bills for legal work in the lawsuit, McIntosh said.
McIntosh's associate,
McIntosh enlisted lawmakers to submit records requests to MOSERS. In each case, MOSERS responded with cost estimates ranging from
"They fought us tooth and nail on the Sunshine lawsuits," McIntosh said. "So we said, we'll give up on that. State agencies must tell the legislature how much they are spending."
The most significant increase in spending by MOSERS has been on legal services,
That kind of expense, McIntosh said, should require justification that the lawsuit will recover at least that amount.
"The legislature should start to ask some really, really, hard questions," McIntosh said.
The legal costs are an allowable investment expense, covered by the budgetary exemption, Smith, MOSERS' spokeswoman, wrote. The system has always counted legal costs related to investments as exempt, she wrote in an email to The Independent.
"MOSERS' board actively oversees the system's business, including this litigation and the associated legal expenses," Smith wrote. "The board believes that the legal fees paid for prosecuting its claims against Catalyst in this complex litigation are incurred in the best interest of its members."
Hoskins, a member of the
"I am just trying to find out exactly what is going on, if they are overspending their budget authority or not," Hoskins said.
The 11-member
That is appropriate oversight to keep the budget within the legal limits, Smith wrote.
In fiscal 2022, with complete information available on actual spending by MOSERS from its audited financial statements and proposed 2024 budget, MOSERS actually spent
The audited financial statement shows just under
For fiscal 2022, the cap was
McIntosh contends the legal bills should count as administrative expenses, as should costs for buying capital assets. The cost of pursuing the suit should be weighed against the market returns on the same money invested, he said.
By his analysis, MOSERS is overspending its allowance by as much as
"You can't play hide the ball and not tell them what you are spending," McIntosh said. "What is not OK is not telling the legislature what you are doing."
Hoskins said he has spoken to McIntosh about the analysis but hasn't drawn any conclusions. If the budget allowance should be increased to reflect what MOSERS actually spends, he said he is open to that.
"I would have to take a look at what that number is and what their reasoning is for why that number should be increased," Hoskins said.
He did not like being asked to pay to access records, Hoskins added.
"I disagree with state agencies charging legislators to do our jobs," Hoskins said. "We ultimately are in charge of protecting taxpayer funds and monitoring revenue and expenditures. I would expect they would make every effort to comply without charging for information."
Charging lawmakers fees for accessing public records they request has become more common as those information requests are formalized as Sunshine Law inquiries. McIntosh, who was the principal staff member for Democratic House Majority Leader
"It is a complete constitutional abomination," McIntosh said. "That is not how government works nor should it be how government works."
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