Former Manager of Funds Tied to Kentucky Pension System Investments Pleads Guilty to Theft

Tommy Elliot, chairman of the Board of Trustees, and Executive Director Bill Thielen listen to a presentation during the meeting of Kentucky Retirement Systems on May 15, 2014.

Alix Mattingly/KyCIR

Tommy Elliot, chairman of the Board of Trustees, and Executive Director Bill Thielen listen to a presentation during the meeting of Kentucky Retirement Systems on May 15, 2014.

The former manager of a New York investment fund holding $24 million for Kentucky Retirement Systems has pleaded guilty to charges that he looted $9.3 million from the fund and falsified its financial records.

The guilty pleas were entered earlier this week in New York County Supreme Court by Lawrence Penn, a 45-year-old West Point graduate who founded the Camelot Group in Manhattan.

Until last year, Camelot Group was the general manager of Camelot Acquisitions Secondary Opportunities, a private equity fund that raised $120 million from investors.

KRS began investing in Camelot six years ago. Today, KRS values its stake in the fund at $12 million, having written off the other half before Penn’s indictment in February 2014.

Nearly 35 percent of KRS’ $15.5 billion in assets is tied up in these so-called “alternative investments,” many of which don’t publicly disclose precisely where the money is invested. The Kentucky Center for Investigative Reporting delved into the opacity of KRS’ investments last July. (Read “When it Comes to Investments, Kentucky Keeps Pension Holders in the Dark”)

About 340,000 state, city and county workers and retirees in Kentucky have stakes in KRS, one of the most underfunded public pension systems in the country.

On April 20, Penn will be sentenced to two to six years in prison and ordered to repay $8.3 million.

According to the New York District Attorney’s office, Penn transferred fund money to a shell company and laundered it though several entities and accounts he controlled with another defendant who has pleaded guilty. Penn then spent the money on credit card bills, cash withdrawals, a car, jewelry and rent, while duping investors and auditors with bogus statements.

KRS does not know what will become of its stake in Camelot Acquisitions. It cannot withdraw its money until the fund matures years from now, said KRS Chief Investment Officer David Peden. It could sell the stake on the secondary market, but terms would not be favorable, he said.

Last year, KRS Executive Director Bill Thielen said the pension system could recover all, part or none of its $24 million in Camelot.

Reporter James McNair can be reached at jmcnair@kycir.org and (502) 815-6543.

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