A well-respected CalPERS system beneficiary has written a letter to the president of the board of CalPERS and given us permission to reproduce it.
I strongly suggest you read the letter in full. Tony Butka, now retired, was California’s Presiding Conciliator of its State Mediation & Conciliation Service. Butka states that his reason for concern is that CalPERS’ stonewalling my request for private equity data looks to be repeating the exact sort of behavior that the giant pension fund system vowed to renounce after it was mired in a private equity fund-related scandal that became public in 2009. He says he’s filed a Public Records Act request that duplicates mine and says he believes the fund should give him the information as part of its fiduciary duty to system members.
In 2010, Federal prosecutors launched a criminal investigation into a possible pay-to-play activities at the giant pension fund’s private equity investments. CalPERS’ top placement agent, Arvco Financial Ventures, had received nearly $60 million in fees. It also happened to be headed by former CalPERS board member Alfred Villalobos. A short recap from City Journal:
Yet another feature of CalPERS that has cost taxpayers is double-dealing by the board, ranging from awarding contracts to political donors to alleged outright corruption. In 2010, Jerry Brown, California’s attorney general at the time, launched a lawsuit accusing Alfred Villalobos of trying to bribe current board members (including Charles Valdes) to win investment business for his clients, mostly large financial firms that wanted a piece of the huge CalPERS portfolio. Villalobos pulled in $47 million as a go-between, the suit charged. A month after the lawsuit was announced, Villalobos filed for personal bankruptcy, temporarily blocking the suit. In 2011, the Internal Revenue Service accused him of intentionally depleting his assets while in bankruptcy, including gambling some away in Nevada casinos. News reports revealed that Villalobos had previously filed for bankruptcy, a decade before serving on the CalPERS board.
The lawsuit also accused former CalPERS chief executive Fred Buenrostro of accepting gifts from Villalobos. Separately, a Securities and Exchange Commission lawsuit filed last year accused Buenrostro of forging a document to help Villalobos win a big payment from a client. An internal CalPERS investigation quoted Buenrostro’s wife as calling her husband a “puppet” of Villalobos. The report also pointed out that Buenrostro often intervened with the CalPERS staff on behalf of his acquaintances in the investment world— “friends of Fred,” as the staffers called them.
A Federal grand jury indicted Vlllalobos and Buenrosto in early 2013 on charges of fraud, conspiracy and obstruction of justice.
CalPERS hired a law firm, Steptoe & Johnson, to investigate the improprieties and issue a report. We’ll discuss that report at length in a separate post; suffice it to say that when companies hire law firms (as opposed to less costly consultants or accounting firms) to conduct investigations, the intent can be assumed to impede rather than promote disclosure, as the Treasury Inspector General believed was the case with the JP Morgan investigation into its dealings with Bernie Madoff. And it is not encouraging to see that while the internal investigation was underway, CalPERS entered into a policy of destroying all but the most critical e-mails after a mere 60 days. As the Los Angeles Times noted in 2011:
The California Public Employees’ Retirement System has begun automatically deleting any emails older than 60 days, raising concerns among watchdog groups that the giant pension fund could be destroying evidence of misdeeds….
The email deletion policy was put in place last year but was disclosed only recently in response to a Public Records Act request from the Los Angeles Times…
Under the policy, the nation’s largest public pension fund ordered its 2,300 workers to save only those emails with “administrative, legal or archival requirements” — but left it up to them to decide exactly what documents to ditch. Any emails older than 60 days would be deleted automatically.
Look at the timetable. The LA Times says “automatic” deletion policy was instituted in 2010. When did the Federal investigation begin? 2010. Now, CalPERS issued a rebuttal to the LA Times, saying they initiated this policy in 2000, but one wonders how much it was observed as the cost of storage continued to drop.
No wonder retirees are alarmed when CalPERS acts like it might be up to no good. The behemoth fund’s history says there’s good reason not to give CalPERS the benefit of the doubt.
Again, please read Tony Butka’s letter in full. It is well written and to the point. And I want to thank him personally for his support of our effort.