By Charles Wilson
Associated Press
INDIANAPOLIS (AP) -- Indiana securities officials accused a financial adviser Wednesday of profiting by steering millions of dollars intended to help fund teachers' health care and disability insurance into risky investments.
Adding to the cloud of problems surrounding the ISTA Insurance Trust, the Indiana Securities Division levied the accusations against David Karandos, who advised the Indiana State Teachers Association while working for outside investment firms.
"Because of these irresponsible and deceptive actions, along with other misdeeds and mishandlings, we're forced to comb through a complex maze of ISTA funds in hopes of accounting for $23 million that ISTA admits is missing related to our federal litigation," Indiana Secretary of State Todd Rokita said in a statement Wednesday.
Rokita said the money, intended to help retired teachers and others with long-term care needs, should have been kept safe.
A message seeking comment left at Karandos' office in Indianapolis Wednesday wasn't returned.
The National Education Association took over the state's 50,000-member teachers' association in May 2009, after the state Department of Insurance said the ISTA Insurance Trust had a net worth of negative $67 million.
The trust paid long-term disability benefits to teachers in about 90 school corporations and health insurance in about 30 districts.
The state also filed paperwork Wednesday adding the national group to a list of co-defendants in a federal lawsuit over the handling of the trust. The lawsuit, which already named ISTA as a defendant, now alleges that its parent group bears a supervisory responsibility.
State securities officials filed an administrative complaint Tuesday that accuses Karandos, who advised ISTA while working for Morgan Stanley and UBS, of "unethical, dishonest and deceptive practices" and alleges 13 violations of the Indiana Securities Act.
The complaint alleges Karandos advised officials beginning in 2004 to put trust money into alternative investments such as hedge funds and private equity funds that had long-term risks but offered large upfront commissions. The complaint claims that Karandos also didn't tell ISTA about the risks or how much compensation he and his firm would receive.
ISTA spokesman Mark Shoup declined comment Wednesday.
An administrative hearing was scheduled for Jan. 25. If the allegations are proven, Karandos could be fined up to $130,000, ordered to pay restitution and be permanently barred from the securities industry in Indiana.
ISTA sued former officials and financial advisers in August 2009, saying they mismanaged the trust. The association also sold its downtown Indianapolis building to the National Education Association to raise money and laid off at least 40 employees.
Teachers already had filed a lawsuit seeking to recover damages from ISTA and many of the same defendants.
The federal lawsuit, initially filed in December 2009, alleges that ISTA told school districts that they would earn returns on any reserves left in the insurance trust. But that money was mixed with other funds, and that the teachers' association cannot properly account for $23 million intended for schools, according to the lawsuit.
Published: Fri, Oct 29, 2010
