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State worker retirement system alleges funding supervisor has sample of monetary malpractice

Share this…FacebookPinterestTwitterLinkedin The state worker retirement system is alleging an funding supervisor mismanaged its funds in a grandiose vogue and…

By Staff , in Investments , at December 23, 2021

The state worker retirement system is alleging an funding supervisor mismanaged its funds in a grandiose vogue and hid a historical past of doing so from the state.

The allegations of misuse embrace $57,000 flights on non-public jets and $9,000 lodge suites that have been paid for by non-public funding funds run by the identical firm MOSERS trusted with $175 million and is now suing.

MOSERS, the Missouri State Workers’ Retirement System, filed an amended petition Dec. 16 in an try to reinvigorate a lawsuit from October 2020. The petition was filed in Cole County Circuit Court docket with Decide Jon Beetem 


The case had a movement for dismissal made final month, and the courtroom has sided in opposition to MOSERS in two earlier motions.

The state worker retirement system is now alleging Newton Glassman, founder and managing companion of Catalyst Capital Group, and his firm used cash MOSERS contributed to funding funds to develop an “affiliate” firm — Callidus Capital — and hid the self-dealing practices.

The amended petition alleges 10 counts in opposition to Glassman, Catalyst Capital Group and its related funds. The fees embrace violation of state statutes, unjust enrichment, breach of contract and fraudulent inducement, amongst others.

“This can be a case about fraud, deception, willful misconduct, self-dealing and gross mismanagement by an funding fiduciary charged with managing investments for Missouri state workers,” the amended petition begins. “On the middle of the case is a personal fairness supervisor who believes the foundations don’t apply to him — that he can do and say no matter he needs, no matter his prior representations and guarantees, with out penalties. This case seeks to carry that man and his corporations chargeable for their misconduct, which has triggered a whole lot of thousands and thousands of {dollars} of losses to harmless buyers, together with MOSERS.”

Between 2010-12, MOSERS contributed $50 million to at least one Catalyst Capital Group funding fund and $25 million to a different. A couple of years later, MOSERS invested $100 million into a 3rd funding fund after Catalyst Capital Group offered “a sequence of false and deceptive statements and materials omissions,” in response to the courtroom submitting.

Across the similar time, Glassman was rising Callidus Capital, the “affiliate” of Catalyst Capital Group, and the quantity it was offering in loans. Callidus Capital is a 

Canada-based specialty finance company that supplied bridge loans to corporations conventional lenders would normally move on.

“Glassman fueled this development with cash from buyers in Funds II, III and IV,” the courtroom submitting states. “Every of those funds bought massive ‘participation pursuits,’ wherein the Fund primarily funded all or elements of loans Callidus made. By 2014, Funds III and IV have been owed almost $400 million by Callidus for participation pursuits in excellent loans originated by Callidus.”

The amended petition additionally alleges Glassman and Catalyst Capital Group repeatedly violated outlined focus limits, which might’ve prevented investing greater than 60 p.c of a fund’s belongings in its prime 5 investments.

MOSERS’ amended petition included a 2018 deficiency letter and a preliminary examination of Catalyst Capital Group from the U.S. Securities And Change Fee.

The preliminary examination discovered not less than 4 cases wherein Catalyst Capital Group used cash from funding funds to pay for lodge suites with nightly charges of not less than $5,500. It additionally discovered not less than 5 cases wherein investor funds have been used to pay for personal jet flights costing not less than $10,800 and as much as $57,850.

Though MOSERS didn’t contribute to the fund that paid for these lodge rooms, the SEC letter states non-public jet journey was usually improperly charged to funds, together with those MOSERS invested in.

MOSERS authorized illustration is utilizing the SEC deficiency letter and examination as proof of mismanaged funding funds it contributed to and to argue there’s a longtime sample of monetary malpractice.

Based on the amended petition, the letter and examination findings have been beforehand withheld from buyers, together with MOSERS, and didn’t develop into publicly out there till they have been filed earlier this 12 months in a pending Canadian lawsuit.

In an announcement, Catalyst Capital Group stated MOSERS has misplaced each problem it has introduced earlier than the courtroom and is trying to desert prior allegations and “repackage some outdated information” to keep away from the case from being dismissed.

Catalyst Capital Group moved to have the case dismissed final month after the courtroom blocked MOSERS’ motions for a short lived restraining order and preliminary injunction.

The courtroom has famous the “shaky substance of MOSERS’ claims” in earlier movement rulings.

For the reason that case was first filed, MOSERS has dropped its request to keep away from making future capital calls, permitting the state retirement system to maintain its funding in a Catalyst funding fund whereas the case is pending.

Moreover, Catalyst Capital Group stated the preliminary SEC examination MOSERS references in its amended petition don’t symbolize the fee’s findings.

“After the preliminary issues have been raised, the SEC carried out a radical examination of Catalyst and determined to not take any actions in opposition to Catalyst,” the corporate assertion stated. “That’s as a result of the Catalyst Funds are well-run and proceed to supply returns for his or her buyers.”

MOSERS is the one investor to have filed a lawsuit in opposition to Catalyst Capital Group, the assertion continues, regardless that a whole lot have invested into the varied funds.

“MOSERS’ actual downside is that it has mismanaged the investments of state workers,” the assertion stated. “Now MOSERS seeks to shift the blame for its personal errors.”

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