>> two million for arrowhawk. he brought in some other invements to the total of si million. >> smith: but at the time of the vote, the board didn't know there was a placement operating in the background. >> it was never disclosed in, financial statemen was never disclosed anywhere that... even the existence of placement agents. >> i think that one of the key issues is disclosure of placement agent fees. >> smith: tobe then hired ted siedle, a financial crimes investigator. they eventually filed a 32-page complaint to the s.e.c. >> so i thought it was a good case. >> smith: the s.e.c. and stateti auditors invted and found no laws were broken. but the auditors did conclude that tosh violated krs's disclosure rules. tosh left kentucky and has not returned our calls. sergeon has since died. what's the headline here? >> well, the headline was that there werthese abuses involving placement agents, $14n million had beaid to undisclosed individus for doing little or thing. it was happening all over the country. public fu

krs eventually recouped it money from arrowhawk.nother hedge fundve ment involved the camelot camelot had a manager o, in a separate case, was crged and pled guilty to personally pocketing over $9 million of investors' money. despite this, krs would continue to invest in more hedge funds. >> it was a great big "put all of the chips on the red seven." that's what wee gonna do with pension money for firefighters and cops and janitors. >> smith: ann oldfather is a louisville attorney who represented firefighters ina nsion-related lawsuit. >> they decided, "we're not going too public, we're not going to say we need help. we're going to try to save our rears and this'll work." isn't that what the gambler always dreams? and so they start the beauty contest, and they have perhaps 15 hedge fund managers that they interview and meet with, and talk to, a whittle it down to the final three winners.on (car hornsng) >> smith: the winners were pacific alternative asset management company, or paamco, prisma capital partners, and blackston alternat