The former employer of a Public Company Accounting Oversight Board (PCAOB) advisor has filed an insurance claim blaming the board member for breaches of fiduciary duties regarding a real estate purchase.
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However, it remains unclear whether John Krimmel, the former chief investment officer of the Kentucky Retirement Systems, resigned from that agency to protest the deal or because of it.
Krimmel, a member of the PCAOB standing advisory board, has not commented on the matter, nor has the PCAOB. He remains on the advisory board, which sets auditing standards. The PCAOB was established by the Sarbenes-Oxley Act (SOX) to set standards and police public accounting.
The Kentucky Retirement System, which manages $15 billion in assets, made the allegations against Krimmel in a $600,000 claim against its public entity fiduciary liability policy, the Lexington Herald-Leader reported. In a letter to Chubb Group Insurers in September, the KRS said that in February 2005 it purchased a commercial property adjacent to its Frankfort office building.
The purchase price was $700,000, the Herald-Leader reported. However, the property, an empty church on two acres, had been purchased just two months prior for $450,000, after sitting on the market for five years. The new owner had intended to build an animal hospital but could not get local land-use approvals.
Krimmel and another top KRS official resigned just after the deal closed. Krimmel resigned May 10. Chief Operating Officer (COO) Gordon Mullis had quit a month earlier, the Herald-Leader reported. It has not been publicly determined whether they left under pressure or protest.
The insurance claim is based upon alleged breaches of fiduciary duties by the two executive officers. “Kentucky Retirement Systems believes the breaches of fiduciary duties have resulted in monetary damages to the health insurance trust administered by Kentucky Retirement Systems in excess of $600,000, not including potential expenses and attorneys' fees," the letter to Chubb Group says, according to the Herald-Leader.
The newspaper quoted the retirement system’s chief counsel, Eric Wampler, as saying that Krimmel's breaches of duties "involve the failure to ascertain the value of the (Holly Hill) property, to evaluate its potential for current and future investment return, to exercise due diligence in the purchase of the property and the expenditure of funds, to adequately negotiate concerning price, fees and expenses, and exceeding the authority provided by the investment committee of the board of trustees."
Krimmel is now senior vice president and consultant at Callan Associates of Atlanta, according to his PCAOB advisory board listing. A spokesman for the board did not say whether any action would be taken, but issued this statement:
“As provided in the board’s rules, standing advisory group members are subject to certain sections of the board’s ethics code. While we are aware of the news reports, we do not comment on individual board members.”