The recent collapse of the global cryptocurrency markets has exposed many previously hidden dangers related to these blackbox investments. Growing secrecy at our nation’s public pensions has turned these retirement plans into blackboxes themselves. Public pension officials have agreed to be kept in the dark about how much they’re poised to lose in cryptocurrency investments and aren’t eager to acknowledge the losses resulting from their gambling in crypto. No one knows for certain just how much blackbox cryptocurrency blackbox public pensions own.

What do the bankrupt crypto companies TerraLUNA3 +2.9%, 3AC, CelsiusCEL +0.2%, Voyager, and FTX have in common with our nation’s public pension plans? They all provide opaque financial products to unsuspecting investors that have massive hidden risks. Hailed by the mainstream media as “crypto-winter,” the gross mismanagement of the above five companies has substantially contributed to the $2 trillion collapse of global crypto markets this year. First to be included in the growing list of victims is Canada’s third largest pension fund, the Ontario Teachers’ Pension Plan.

Here in America, according to a 2022 study published by the CFA Institute, 94% of state and government-sponsored pension funds are invested in one or more cryptocurrencies despite the obvious risk. Due to an alarming lack of fiduciary oversight, most of these pensions have failed to monitor and have agreed to be kept in the dark as to their cryptocurrency holdings. Pension officals aren’t eager to publicly acknowledge losses resulting from their gambling in crypto.

Nevertheless, reports of cryptocurrency holdings at our nation’s public pensions are slowly surfacing. The Houston Firefighters Relief and Retirement Fund reportedly bought $25 million in cryptocurrencies, which was touted as the first announced direct purchase of digital assets by a U.S. pension plan. Two public pension funds for Fairfax County of Virginia reportedly indirectly invested over $120 million into funds that pursue opportunities in the crypto world, such as blockchain technology, digital tokens and cryptocurrency derivatives. A recent report shows the Minnesota State Board of Investment held small stakes in the crypto exchange Coinbase Global and bitcoin miners Riot Blockchain and Marathon Digital Holdings, as well as fixed-income securities from Coinbase. The State of Wisconsin Investment Board reportedly made purchases of Coinbase, Marathon and Riot Blockchain. New Jersey’s main state pension fund appears to have invested in some crypto-related stocks recently. Other public funds that have reportedly taken stakes in crypto firms include the Utah Retirement Systems and the Pennsylvania Public School Employees’ Retirement System.

Although the initial wave of public pension cryptocurrency disclosures involve relatively small sums—tens or hundreds of millions per pension, not billions—recent disclosures suggesting intentional fraud by FTX executives once again raise important questions about public pension investment decision-making and practices. For instance, how do government pensions perform due diligence on prospective investments, and can plan decision-makers be held accountable for reckless or negligent investments?

For U.S. private pensions subject to the comprehensive federal law, ERISA, the Department of Labor’s Release No. 2022-01 offers guidance about investing in cryptocurrencies. It cautions plan fiduciaries to exercise “extreme care” before deciding to offer cryptocurrencies because they present significant risks of fraud, theft, and loss to plan participants. As emphasized by the DOL in the Release, plan fiduciaries must act “… solely in the financial interests of plan participants and adhere to an exacting standard of professional care” that courts have commonly held as the highest obligations known to the law. Moreover, as detailed by the U.S. Supreme Court in Hughes v. Northwestern University (2022), ERISA-governed fiduciaries have a continuing duty to monitor investments, and to remove imprudent ones within a reasonable time. Any breach of these duties results in personal liability to the fiduciary for any losses to the plan, including for losses incurred as a result of investments in cryptocurrency.

To be sure, ERISA provides plan participants with a great deal of protection and avenues for recourse if fiduciaries violate their duties of care—protections government employees are not afforded in their retirement plans. Suing public pensions for failing to prudently vet or monitor investments in cryptocurrency (or anything else for that matter) is virtually impossible under state law.

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