The former chief financial officer for the Kentucky Public Pension Authority (KPPA) has filed a whistleblower lawsuit in Franklin Circuit Court accusing his former employer of firing him for calling attention to the embezzlement of millions in retirement funds.
Steven Herbert, who served in the position from January 2021 until his termination last June, said that the KPPA is in violation of the Kentucky Whistleblower Act. The act protects public employees from retaliation or punishment when they disclose or report things like violations of the law, mismanagement, fraud, waste or abuse of authority within public agencies.
In his former position Herbert was tasked with the oversight of $22 billion invested by the state and county employees, retirees and Kentucky State Police.
The lawsuit, which was filed on Friday afternoon by Herbert’s attorney, Thomas Clay of Louisville, stated that Herbert repeatedly tried to call attention to concerns over how funds were handled.
“Plaintiff’s efforts to clear up processes at KPPA were consistently slowed or blocked up to and including the highest level of KPPA’s organization,” the complaint states.
A representative of the KPPA responded to the lawsuit saying that Herbert’s accusations are false.
The statement read, “KPPA regrets that it will be forced to spend resources to defend against Mr. Herbert’s lawsuit, but we are confident in our defense of the claims he has asserted.”
The lawsuit states that Herbert conducted audits and saw discrepancies immediately with an account for Perimeter Park West, an entity created by KPPA in order to purchase their own offices at 1260 Louisville Road.
Herbert said that financial statements from the account did not have sufficient documentation and showed a deficit of $10 million.
Additionally the lawsuit states that KPPA Attorney Victoria Hale said the unaccounted for funds were embezzled by Perimeter Park West’s former management company, Crumbaugh, a Frankfort-based commercial property developer.
“When plaintiff suggested legal action against Crumbaugh Properties, his suggestion was denied because of ‘Crumbaugh’s connection with the Court system in Franklin County,'” the lawsuit said.
According to Herbert, Crumbaugh had access to Perimeter Park West funds and the ability to write checks from its accounts. When he called for all the funds to be returned to KPPA for management, he was refused.
In response to The State Journal’s request for comment, Crumbaugh’s attorney, Jason Nemes, sent the following statement via email:
“Crumbaugh Properties strongly denies the baseless allegations of criminal and fraudulent conduct alleged by Thomas Clay and Steve Herbert in the lawsuit filed against Kentucky Public Pension Authority in Franklin Circuit Court and looks forward to defending its name and longstanding reputation.
“Contrary to these defamatory allegations, Crumbaugh Properties never took any action that wasn’t authorized and approved by KRS and KPPA. And Crumbaugh Properties’ actions were later reviewed by an independent, external annual audit of all accounts. Crumbaugh Properties had no access to KRS/KPPA trust accounts and could not have accessed state retirement funds, making it impossible for it to have misappropriated any trust account funds for its own benefit.
“Crumbaugh Properties will pursue all legal avenues to clear its name and recover damages for loss of business and defamation from the blatantly false, libelous, and slanderous statements affecting its business and reputation.”
In addition to the Perimeter Park West, Herbert’s lawsuit said that County Employee Retirement Systems (CERS) CEO requested that he investigate allegations that pension funds were being wired to outside depository accounts without KPPA oversight.
As a result of that investigation Herbert wrote a memo that concurred with those of CERS. His lawsuit then alleges that David Eager, KPPA executive director, instructed Herbert not to disclose any information regarding that matter to investors without Eager’s approval.
Both an independent internal audit and one from the Finance Cabinet agreed that the wire transfers were not in compliance with statutes. As a result Herbert restricted number of officials who could authorize wire transfers to himself and his deputy.
Herbert says that he was fired without cause via a letter signed by Eager dated May 31.
