CalPERS and Board Come Out Losers Over Kangaroo Court Against Its Most Effective Board Member (Updated)

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As we wrote earlier this week, it was troubling to see CalPERS Board President Robert Feckner refused to make any comment whatsoever at a public board session when asked about the persecution of, um, disciplinary process against fellow board member JJ Jelincic. Recall that Jelincic had been promised a public airing of the charges, the opportunity to review the evidence against him and a public process for considering the charges.

The day after our post ran, as we’ll discuss in more detail below, CalPERS took the astonishing step of announcing, via responses to Los Angeles Times reporter Mike Hiltzik, that it was punishing Jelincic despite never having told him what he did supposedly did wrong. Jelincic said, “I have been found guilty of unspecified secret charges based on unspecified evidence.” It would be hard to find a better example of a kangaroo court.1

As Hiltzik wrote in CalPERS’ credibility takes another hit as a board controversy blows up in its face:

The affair now appears to have reached its dismal conclusion. CalPERS Board President Rob Feckner has determined that Jelincic did disclose nonpublic information, but won’t say what it was. The punishment, according to sources, is that Jelincic is to attend a one-day public conference by the California State Bar on the state’s open meetings and public records laws already scheduled for May 19 at UC Berkeley Law School.

As “discipline” goes, that’s risibly meager. “If I’d have known that conference existed,” Jelincic says, “I probably would have asked to go to it.”

Jelincic indicates that he and his attorney were presented with some instances of his supposedly leaking confidential information. He and his attorney explained how each of those supposed breaches in fact all involved information that was already public. Even worse, Ashley Dunning, who had been engaged to act as the Board’s attorney, said CalPERS had not made any actual or even potential charges against Jelincic. Yet CalPERS was clearly determined to sanction Jelincic, evidence and facts be damned.

The members of the board are such cowards that after years of attacks on Jelincic,2 they weren’t capable of relenting from bullying and fighting fairly. Nor were they willing to give up on their vendetta against Jelincic, a board member who is very popular among beneficiaries and held up by experts as an example of a courageous board member. It is important to understand how outrageous both the allegations and the process were. We summarized the situation earlier this week:

Apparently CalPERS is determined to censure Jelincic yet recognizes that its charges and procedures won’t stand up to scrutiny. The result is that CalPERS reneged on its promise to Jelincic and the public and insisted on a secret process. CalPERS even tried to gag Jelincic by cheekily asserting that an early April meeting was attorney-client privileged even though Jelincic had his own counsel and his interest was clearly adverse.

Keep in mind that CalPERS has been trying to find a way to neutralize Jelincic for a very long time. As we wrote in 2015:

This section of the Governance Committee meeting clearly shows that the board, aided and abetted by [fiduciary counsel Robert] Klausner, is in the process of establishing a procedure for implementing trumped-up sanctions against Jelincic, presumably so as to facilitate an opponent unseating him in his next election. But Jelincic’s term isn’t up until 2018, so from their perspective they are stuck with an apostate in their ranks for an uncomfortably long amount of time. Part of their strategy appears to harass him into compliance with the posture the rest of the board, that of ceding authority to staff and conducting board meetings that are largely ceremonial.

Now for a recap of the latest chapter of this sorry saga. In January, board member Bill Slaton made an astonishing attack on Jelincic at an offsite, demanding that the board strip Jelinicic of substantive authority unless he resigned. Not only does the board lack the power to do that, but on top of that, Slaton failed offer a single specific example of misconduct. Yet showing that CalPERS lives in an Alice in Wonderland, “Sentence first, verdict later” realm, general counsel Matt Jacobs swung into support behind Slaton.

As Hiltzik pointed out:

The outcome suggests that Jelincic’s offenses must have been minor indeed, certainly not warranting his resignation. It also suggests that Slaton was out of line in publicly lodging explosive but unspecified accusations against Jelincic in public.

Another troubling aspect of this episode is that the CalPERS board and staff no doubt are congratulating themselves on having scored some sort of win by being able to depict Jelincic as having been sanctioned. But as Hiltzik stressed, all this episode does is further diminish CalPERS credibility when it and other pension funds are under attack. Now more than ever, CalPERS needs to be an exemplar of good governance, yet is it behaving in a more reckless and high-handed manner with every passing day.

At least as important, sanctioning Jelincic when he has never been told what exactly he is being punished for and no proper process for review is a patently illegitimate procedure. Jelincic’s real sin was standing up to a weak, lazy, and captured board. But this will backfire against them and CalPERS, potentially sooner rather than later.

With the board members having either embraced the witch hunt against Jelincic, or merely sat pat, anyone can now be targeted for trumped-up charges to discredit them, even if they happen upon corruption or other serious improprieties. For CalPERS’ board to throw its weight behind stymieing asking perfectly reasonable questions of staff, which seems to be Jelincic’s actual sin, less than a year after its former CEO was sentenced to over four years in prison, is a clear dereliction of duty.

And what is the board’s rationalization?

Law professor and white collar criminologist Bill Black pointed out that excuse boards use to legitimate silencing board members who are trying to engage in supervision and oversight is – I am not making that up – they are violating norms of decorum. From his post:

I worked closely with board members in my role as the general counsel of Federal Home Loan Bank of San Francisco. It takes enormous courage to confront senior corporate officers or fellow-directors when they are maintaining a solid front. We had a good board, officers, and institution. In an institution with a deeply rooted, sick culture like CalPERS, everything works against forceful directors trying to cure the rot. They have to confront a phalanx of directors and officers who are genuinely horrified that someone would disturb the highly prized decorum of the boardroom. The officials maintaining that the sick culture is not sick become enraged at anyone that blows the whistle on their unwillingness to act aggressively to cure the sick culture.

CalPERS has had the great fortune of having a board member willing to take on its board and officers to insist on rooting out its culture of corruption. In doing so, JJ Jelincic discovered the great truth – no good deed goes unpunished. His fellow board members, with the clear connivance of the senior officers, are ginning up an effort to destroy his ability to continue to try to root out the rot at CalPERS. Neither Jelincic, who has among the greatest expertise of any board member in finance, nor the directors as a whole, knows what Jelincic is supposed to have done wrong.

Feckner’s comments are consistent with Black’s assessment:

Feckner told me by email that he decided that a confidential resolution is “the best way to provide leadership to the Board in terms of collegiality, civility and ethical conduct” and is “appropriate under the circumstances.” He concluded, “As far as I’m concerned, this matter is closed.”

If Feckner and the CalPERS board think this shameful affair is over, they are going to have a rude awakening. Stay tuned.

Update 11:50 PM: This post launched just as a reader sent me the Sacramento Bee’s report on the l’affaire Jelincic. The Bee has regularly takes CalPERS’ spin, and this is no exception. The headline depicts Jelincic as guilty even though, as we stressed, CalPERS own counsel on this matter said there were no actual or pending charges against Jelincic. So pray tell, how can one be guilty in the absence of charges? Apparently Jelincic is guilty simply by virtue of his existence, a special case of original sin from which the rest of the board has chosen to exculpate itself.

The story, while attempting to tell CalPERS’ story, shows how dubious the process was. Feckner adds a different allegation to the one he made to the Los Angeles Times: that Jelincic supposedly leaked information related to litigation. This gets back to the issue we flagged earlier: the board members are either not on top of the state of play and making unfounded charges against Jelincic, or are willing to make stuff up. It is perfectly kosher for any board member to tell members of the public about information that is already in court filings. Jelincic maintains he was strict in observing that rule: “I am absolutely certain that I have never discussed any information in a litigation with the public other than that which was already in the public record.”

Confirming that the charges against Jelincic were based on hearsay rather than actual evidence Feckener’s tries legitimate his arbitrary ruling by saying:

Feckner on Wednesday said Slaton raised concerns about Jelincic because several board members in anonymous surveys before the January meeting said they believed Jelincic had improperly leaked information.

We’ve embedded the board review document below. At the end of page 2, you can see no one offered any specifics, much the less any backup for their claims. This is persecution by innuendo.

Nevertheless, we do thank the Bee for citing Naked Capitalism and giving us a link for breaking this story. We very much appreciate getting credit where credit is due.

1 Hiltzik did confirm that two incidents that we had discussed on Naked Capitalism were among the bogus charges initially thrown at Jelincic:

He did confirm two specific charges against him that previously had leaked out, but that don’t make CalPERS look any better. He says he was accused of revealing in November the confidential information that CalPERS had adopted a new asset allocation — that is, had rebalanced its various investment portfolios. Yet that fact had already appeared on a board meeting notice and Chief Investment Officer Ted Eliopoulos had confirmed it in an open session of a board committee.

The second charge involves a consultant’s report the board commissioned to examine its private equity investments, a perennially underperforming portfolio about which Jelincic has been raising questions for years. One can understand why CalPERS wanted to keep this report under wraps, because it seems to have been overpriced and under-informative. Yves Smith, the ace financial commentator at, terms it a “garbage-in, garbage-out private equity whitewash” based on dubious methodology.

In any event, the report had been leaked earlier — Jelincic says not by him.

In fact, as we discussed, the FTI report was leaked by FTI itself. But since these had been rebutted by Jelincic, and separately we are in possession of CalPERS records that show they knew full well that FTI was the source of the leak, it is a remarkable show of bad faith that CalPERS continued to harass Jelincic about this matter.

2 For instance, one public board session was so clearly intended to harass Jelincic that a CalPERS retiree called it a “hating on JJ session”.

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  1. Howard Beale IV

    Seems like the entire CalPERS board is playing the role of Mr. Morden and Jelincic is the Centauri Asmbassador attache Vir Cotto from Babylon 5…..

  2. John Zelnicker

    Yves – Your teaser at the end to “Stay tuned” has me on the edge of my seat. This is really turning into quite the drama (unfortunately for those depending on an honest pension board).

    I hope there is some way for Jelincic to hoist these idiots on their own petard. Karma’s a bitch.

  3. laura

    JJ taught me how to read a public agency”s budget back in 2005. It’s possibly the most valuable of all the tools in my professional tool bag.
    The beneficiaries are justified in placing their trust in him, and after the scandals of the last several years, you’d think the Board would welcome a diligent and capable Member and seek more of that in the current Board and future Members.
    Instead, he’s been reduced to the status of a shit magnet and inconvenience to the PE looters.

    1. TheCatSaid

      I’d like to know more about what you’ve learned from JJ and others about reading public budgets. What are some of the principles you’ve found most helpful regarding what to look for?

  4. Todd

    I agree with John Z, can’t wait until the next shoe drops.
    Talk about a group, the CALPERS board” that has been captured by PE.
    Great Stuff!

  5. flora

    ” CalPERS Board President Robert Feckner refused to make any comment whatsoever at a public board session ”

    um… is he waiting for orders? ( kidding….)

    Thanks for continued reporting on CalPERS.

    1. flora

      Page 1, under Governance: points 1 and 2 contradict each other.

      Most members ” ‘take their fiduciary responsibility seriously’, except for one member” , but ” most members don’t do their homework.” Hard to believe they take their fiduciary responsibility seriously if they aren’t doing their homework.

      This could be read as saying that only one member does do his homework: the one member they are trying to censure.

    2. Yves Smith Post author

      Actually, he was. If you look at the tape, CEO Marcie Frost is sitting behind Michael Flaherman and nods her head vigorously to Feckner when he said that.

  6. cm

    For an interesting exercise in propaganda, check out the Wikipedia article for CalPERS — no mention that CEO Fred Buenrostro went to prison for taking bribes…

    1. Sluggeaux

      IIRC, Buenrostro is in prison for falsifying documents. He admitted taking kick-backs in his plea agreement to that charge.

      This appears to be at the core of the board’s heartburn with Jelincic: he has been calling out staff for hiding costs related to the investments that were placed as a result of the kick-backs. The “placement agent” who paid the kick-backs committed suicide, and the entire affair has been white-washed. Both the disgraced CEO and the placement agent were former board members, political hacks just like the majority the current board — many of whom had blithely approved the unconscionable fees paid.

      Unfortunately, the CalPERS board is designed to be dominated by political hacks, who then often use their “juice” to influence the elections to the open seats. In an era of constant political turmoil caused by term limits, recalls, and AstroTurf ballot initiatives, the corrupting influence of big money has become pervasive in California politics.

  7. RUKidding

    Thanks for keeping the heat on. It’s unfortunate the SacBee often carries water for the corrupt practices at CalPers. The LA Times and sometimes the San Diego Union Tribune tend to a better job and seem to indulge themselves in a bit more truly investigative reporting. What a concept!

    Keep up the good work. We are watching and paying attention.

  8. Scrooge McDuck

    The tragedy of the situation is that CalPERS and its Board in dragging Mr. Jelincic through the mud, to defend an asset class full of shysters, is destroying its reputation in the process. And in the end, CalPERS, along with many other pension funds, will have enabled the same clowns that it is protecting to pull the rug from under its feet by lobbying Trump to allow unsuspecting 401Kers to invest their nest eggs into PE. When that happens, CalPERS and the rest of the pension funds will be discarded like a used piece of toilet paper. And if you don’t believe that PE is largely a scam, look at what the smart money is doing, and rest assured that CalPERS is not the smart money in the room, if you don’t agree just read Yves’ posts on our good friend Réal Desrochers. The smart money, the family offices of the ultra rich, are dumping PE and doing it themselves.

  9. TheCatSaid

    Thanks, Yves, for the ongoing excellent investigation and reporting about CalPERS wrongdoing and incompetence–which is putting it nicely. These large money flows are inherently corrupting. It brings to mind the recent confession of that high-level Dutch banker. They are all compromised.

    Disengaging from the whole system before it crashes seems the only sensible strategy, at least as an individual.

  10. SurfPuppy619

    The fact is the CalTURDS Board of Directors owe a “fiduciary duty” to it’s membership. It appears from everything I have read (with the one exception being Jelincic) that the Board have breached that “fiduciary duty”; and the worst offender is CalTURDS Board President Robert Feckner.

    The entire CalTURDS Board of Directors can ALL be prosecuted, both criminally and civilly, for their breach of “fiduciary duty”. They will NEVER be prosecuted criminally, not by the state anyway because of political cronyism (although the Feds could step in), but they could be sued civilly by the membership. When the fund drops down to a 40%-50% funded level and haircuts are implemented that is when we WILL see the membership take such an action against the Board of Directors. And when a Board Director breaches their “fiduciary duty” they can be held PERSONALLY LIABLE.

  11. Don W

    Could the so called “discipline” backfire? Won’t sending Jelincic to a conference where he will get even more details on California’s public records and open meetings laws give him even more legal ammunition to call out CALPERS and the rest of the board for violating said laws?

  12. Steve in SoCal

    As a result of these posts it looks like Jelincic is going to be invited to speak at the Los Angeles Caltrans engineers quarterly lunch in the fall.

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