Missouri State Pension Fund Launches New Attack on Investment Firm

The Missouri State Employees Retirement System is seeking to recover losses it attributes to the alleged deceptive and fraudulent conduct of one of its private equity investment managers.

The pension fund first sued Canadian firm Catalyst Capital Group Inc. last year, claiming it had mismanaged its investments. Much of the trial has been redacted.

New information that MOSERS says supports his allegations has since surfaced, including a 2018 letter from the Securities and Exchange Commission, which is included in an amended complaint filed Thursday in Cole County Circuit Court in Jefferson City against Catalyst and its founder Newton Glassman.

Catalyst counters that the amended complaint is a last-ditch effort by MOSERS to keep its litigation alive after adverse rulings in the original case and accuses the pension fund of trying to blame it for its own mismanagement.

Catalyst manages $175 million of the system’s $9.5 billion in assets — based on the fund’s market value for the last fiscal year — with investments in three Catalyst accounts.

“This is a case of fraud, deception, willful misconduct, insider trading, and gross mismanagement by an investment trustee charged with managing the investments of Missouri state employees” , indicates the amended complaint. “This case seeks to shed light on that wrongdoing and seek justice and redress for MOSERS and the other investors that the defendants willfully harmed.”

The system is 59% funded based on FY 2021 actuarial results and has $6.2 billion in unfunded liabilities, compared to $5.5 billion for 2020, with the funded ratio increasing from 61%. It serves nearly 43,000 active members, according to the 2021 valuation.

The fund’s health is noted in the state’s triple-A rated ratings reports. “Although Missouri has implemented comprehensive ADCs and several rounds of pension reforms, liabilities have grown over time,” a said Fitch Ratings in its latest review. “Asset gains that have lagged liability growth and the move to lower discount rate assumptions for all pension systems have contributed to this trend. The stabilization of net pension liabilities will depend on the ability of the systems to achieve targeted investment returns over time.

The pension fund accuses the firm of pouring too much money into Callidus Capital Corp., which resulted in “reckless exposure” to a “failing” fund. MOSERS claims he was misled about the company’s investments and what he calls reckless lending and collateral policies as Callidus floundered in an effort to keep Callidus afloat for the benefit of Glassman who held a stake in the company and was its managing director. officer.

The pension fund accuses the company of spending its money on “lavish” hotel rooms and flying friends and family on a private jet. “MOSERS is committed to holding the investment managers, who are responsible for investing in the system’s assets, accountable for the agreements and obligations they have with the system,” said Ronda Stegmann, executive director of MOSERS, in a statement.

“MOSERS lost all the issues they brought to court. They were denied a temporary restraining order and a preliminary injunction. In that ruling, the judge noted the ‘fragile substance of MOSERS’ claims,’” Catalyst spokesman Dan Gagnier said in an email.

Catalyst decided to close the case last month. “In an attempt to avoid another loss, MOSERS has dropped many of its earlier allegations and repackaged old news to try to avoid a full dismissal,” Gagnier said.

The various counts allege violations of state law, accuse the firm of breach of fiduciary duty, civil conspiracy, aiding and abetting breach of fiduciary duty, unjust enrichment, breach of contract, fraudulent inducement. She asks the court for a declaratory judgment in her favor.

The lawsuit seeks to recover what it describes as tens of millions in losses and hundreds of millions in losses suffered by other investors to be determined at trial.

Members of MOSERS include employees of the General State, employees of ten regional colleges and universities, members of the General Assembly and state elected officials, as well as judges and are governed by an 11-member council .

Among the new evidence cited by MOSERS is a May 2018 letter from the SEC’s Private Funds Unit to Newton and Steven Rostowsky, the company’s Chief Compliance Officer and Chief Financial Officer. The letter informs the company of “deficiencies” discovered by SEC staff during a review that required “immediate corrective action.”

The SEC staff’s finding, according to the letter that is Exhibit A to the amendment complaint, warns the company that “it appears that various statements and practices by the adviser may constitute violations” of various provisions of the Rules on securities relating to statements of fact, omission of material facts, information about fund performance and conflicts of interest.

The SEC letter was obtained after it was made public in a separate lawsuit against the company, according to the complaint.

The Catalyst spokesperson countered that the “SEC letter” represented preliminary representations from an examiner and that the SEC subsequently conducted a review of Catalyst and “decided to take no action against Catalyst. The real MOSERS’ problem is that it mismanaged the investments of state employees. Now MOSERS seeks to blame itself for its own mistakes.”

Dolores W. Simon