Missouri’s largest state employee pension fund can’t recover losses from investments in Ontario-based capital funds, a Cole County judge ruled last month as he closed out a five-year court battle.
The Missouri State Employees Retirement System, or MOSERS, spent at least $21 million pursuing the case accusing Catalyst Capital Group Inc. of mismanaging $175 million entrusted to its care. In a Dec. 19 decision, Circuit Judge Daniel Green ruled MOSERS failed to prove its allegations of misconduct against Catalyst and ordered MOSERS to pay the defendants’ costs to contest the lawsuit.
The ruling comes as lawmakers return to the Capitol this week to start working on the state budget for the coming fiscal year. MOSERS is again asking for an increase in the pension contribution rate — to 32% of state payroll costs — as investment returns lag behind increases in promised benefits.
For fiscal 2027, which begins July 1, MOSERS is asking lawmakers for $864 million, including $533 million in general revenue. The total request is almost $330 million more than the state’s contribution for fiscal 2023.
The final ruling from Green came after several preliminary decisions pared the lawsuit down by dismissing several claims. One barred MOSERS from seeking damages on behalf of other investors because MOSERS had not attempted to make other investors, including the University of Missouri, parties to the lawsuit.
Chuck Hatfield, the attorney representing Catalyst, said the decision vindicated the investment group’s actions. MOSERS claimed losses linked to three funds created by Catalyst that have purchased companies like Cirque du Soleil and Canada-based Gateway Casinos were due to misconduct by fund managers.
“These funds all still own companies that are not sold yet,” Hatfield said. “When they do (sell), MOSERS is probably going to make a fair amount of money on that sale.”
MOSERS filed the lawsuit in 2020 when Catalyst called for the pension system to fulfill $10 million of its $100 million commitment to one of the three funds.
In a statement to The Independent, MOSERS spokeswoman Candy Smith said Green’s order didn’t address the merits of the allegations.
“The judge’s rulings did not evaluate the actual misconduct at issue,” Smith wrote.
The lawsuit outlined what MOSERS considered to be loans that were made to an insider at Catalyst that also put too much of the funds into a single entity.
The system’s board of trustees will consider whether an appeal has a likelihood of success, Smith wrote.
MOSERS is the general pension system for state employees, covering workers in most state agencies and state universities. There are 56,494 retirees and their dependents currently receiving benefits and 44,673 active state employees, with another 17,943 vested and scheduled to receive a benefit at retirement age.
According to the latest annual report, MOSERS had $12.1 billion in cash and investments at the end of June, with net assets of $9.6 billion. At the end of June, it had enough money to cover 55.4% of current and future obligations. That is down from 59% in fiscal 2021, when the lawsuit was filed.
During arguments in court, attorneys for MOSERS said it invested $120 million of $175 million in commitments to Catalyst Funds III, IV and V, pledging to invest up to $50 million, $25 million and $100 million, respectively.
At a hearing in 2020, MOSERS said it lost $34 million from $50 million invested in Fund III, $18 million from $25 million invested in Fund IV, and $7.2 million of the $45 million invested to that point in Fund V.
In the investment section of the most recent annual report, the market value of the funds were listed as $11.2 million for Fund III, $6 million for Fund IV and $61.2 million for Fund V. The report does not state how much has been received as distributions from those funds.
One reason MOSERS saw several of its claims dismissed in early 2025 was because its attorneys did not bring other investors into the case as co-plaintiffs. Instead, MOSERS sought to assert the claims on their behalf — and recover the damages — without their participation.
“MOSERS argues that defendants engaged in rampant, potentially criminal misconduct for the better part of a decade, and that such conduct caused more than $1 billion in damages to these investment funds,” Green wrote in the January 2025 decision. “If that were true, it is reasonable to think that MOSERS could muster evidence that even one other investor (some of whom contributed hundreds of millions of dollars to the funds) shared MOSERS grievances.”
Green refused to issue an order at that point to bring other investors into the lawsuit.
“The judge said they were a day late and a dollar short,” Hatfield said. “Many of their claims were time-barred and they should have known long ago. And many of their claims were just wrong on the law.”
Through the end of June, MOSERS had paid $20.6 million for legal help, including $15 million to the law firm Quinn Emanuel, $3.6 million to Thompson Coburn and $2 million for expert witnesses.
Changes in investment assumptions, not the payments to attorneys, are the reason MOSERS is falling behind in its actuarial evaluations, Smith said. The return on investments for fiscal 2025 was a strong 9.8%, she said.
The board “implemented positive changes to the funding policy, fully aware that these changes would cause a short-term decline in the funded ratio and an increase in the contribution rate,” Smith wrote, “but work toward the long-term goal of being fully funded.”
