CalPERS Hides Bogus Persecution: Promised Public Hearing for Lone Effective Director Held in Secret

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Thanks to an audience member making a video of a CalPERS board meeting in January that would otherwise have gone undocumented, we were able to publicize that the giant public pension fund was launching a full bore attack against JJ Jelincic, the only board member who does his duty by asking questions of staff. That appears to be a hanging crime in Sacramento.

This plan was so clearly dubious that not only did former general counsel, now law professor Bill Black savage the conduct of CalPERS’ board and its general counsel, Matt Jacobs, but reporter Mike Hiltzik of the Los Angeles Times also criticized CalPERS, in an article titled, One CalPERS board member asks tough questions about its investments. Why are his colleagues trying to muzzle him?

The only potential check on this kangaroo court was that Jelincic asked for and was promised a public process.

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 we wrote then:

This plan would have started and might have proceeded entirely in secret, save for the fact that that Jelincic not insisted that the annual board peer review be held in an open session. CalPERS scheduled the meeting to discuss stripping Jelincic of power at an offsite in Monterey, away from its Sacramento board room. Jelincic had no warning that it would include a proposal to push him off the board.

Moreover, CalPERS neither recorded a video, as it does for all open sessions in Sacramento and for most of the sessions its offsites, nor did it make a transcript for this illegitimate procedure. But we have a bootleg video, and we’ve uploaded the key section to YouTube. We have embedded the transcript at the end of this post. We’ll discuss the details shortly.

This campaign against Jelincic is proof of diseased governance. And that is no surprise since the foxes are in charge of the henhouse. CalPERS’ staff is not accountable to anyone save its board, and once in a great while, the court of public opinion. And as we have documented over the past three years, the only board member who stands up to staff is Jelinicic. The other members of the board, rather than admitting to themselves that Jelincic is doing what they all ought to be doing, instead see him as a threat and are determined to beat him down.

As CJ Latsa, a board member at Ohio’s state pension fund, Ohio PERS, wrote:

This is potentially a very serious situation. It is my hope that any trustee would be considered innocent until proven guilty and an investigation would include adequate checks and balances. Without a fair and impartial review, a board could in effect act as judge, jury, and executioner. Considering the worst case scenario, it would be a travesty if a board mistakenly unelected the people’s choice without due cause.

And from Bill Black:

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.

Here is the kangaroo nature of the proceedings at CalPERS, revealed in an excerpt from the transcript of a public board meeting.   It is typical of a broken organization. Bill Slaton is a CalPERS board member.

Bill Slaton: Mr. Jelincic, I’m going to address you in this – that as I’ve observed, you’ve taken unilateral actions that to me are clear violations of fiduciary duty, and by implication placed our fiduciary duty as a board at risk, and the common theme is the disrespect for the governing rules of the organization.

To be more specific, I’m talking about the disregard for confidentiality of materials or decisions reviewed or made by this board…. [T]here are in my view only two possible solutions to protect the fund from the risk of continued fiduciary violations. The first would be for Mr. Jelincic to voluntarily resign his board position.

If he chooses to remain on the board, I ask the board president to place on the board agenda as soon as possible an action item regarding a sanction or sanctions to be imposed by this board, and one sanction I ask to be considered would prohibit Mr. Jelincic from attending any closed sessions conducted by any committee or the full board while he remains a member of this board due to his repeated unauthorized disclosure of confidential material.

At this point in the transcript, we have Slaton attacking Jelincic in a manner one virtually never witnesses in a boardroom. What we do not know is what “confidential” information Jelincic supposedly “disregarded.” Jelincic’s reputation is for pushing boards to act aggressively to fulfill their fiduciary duties, so it is bizarre for Slaton to be seeking to muzzle Jelincic’s efforts to improve the board’s performance of its fiduciary duties on the grounds that (in some unstated fashion) doing so will improve the board’s fiduciary performance.

Jelincic, as one would expect, asked what specific “confidentiality” he was “disregarding” so that he could respond to Slaton’s attacks. Slaton provided no specific charges, making it impossible for Jelincic to respond with any specific denials.

Mind you, despite the promise of a public process, a further discussion was never put on a CalPERS board agenda. As indicated above, the next play was for CalPERS to call for an private discussion in early April, a move that I am perplexed that Jelincic and his counsel agreed to.

And CalPERS continues to resist any pretense of being transparent, despite its earlier promise to Jelincic. See the exchange below starting at 43:45 (you can also view it here):

Michael Flaherman, Visiting Scholar, UC Berkeley: I’m Michael Flaherman. I’m a retiree of CalPERS. I’m also a visiting scholar at UC Berkeley.

The reason I wanted to address you this morning is that I see that you’re about to have a briefing on cybersecurity, and I want to call your attention to a an alert that was put out by a major law firm Kirkland and Ellis, which advises probably a third of the private equity managers you do business with. And I’m just going read just a couple of sentences. The title of this portion is called “Drawdown Scam”.

“Kirkland has recently been made aware of cyber criminals targeting private equity sponsors and their drawdown practices. That’s calling capital from you. In these attacks, the prevalence of which is unclear, cyber criminals have hacked into sponsors systems…” sponsors meaning private equity firms “…and obtained drawdown notices and LP information. The criminals then used fake drawdown requests with changed bank account details in an attempt to steel funds from LPs.”

There are two reasons I bring this up. First, you’re having this cybersecurity briefing. But the second reason I bring it up is because I called Mr. Jelincic’s attention to this about a month ago, when I first became aware of it. And I’m concerned that if he chooses to raise the issue in closed session, this could become another of these very strange situations, where he’s accused of leaking something that was actually told to him, but it appears to you that he’s telling it to others.

That’s a great concern. I’m also here, I guess, to raise the larger issue that I’m quite perplexed about the status of his censure. It’s been, I think, more than three months since he was promised a public process. And I think we’ve all been waiting to see the charges, to see a public process, and nothing has happened.

Could…could some kind of statement from the Board president be made about the status of what’s going on with that?

Board President Robert Feckner: There will be one, when I’m prepared to do so…

Flaherman: So you’re not prepared to make a statement.

Feckner: I am not.

Flaherman: So we have a situation of secret charges, and a secret trial, and…

Feckner: No, I said when I’m prepared to…

Flaherman: Well, that’s very unfortunate. Thank you very much.

Feckner: Yes, sir. Thank you for your comments.

It is important to understand the significance of Flaherman feeling compelled to notify the CalPERS board that he had provided Jelincic with information, even public information like the Kirkland & Ellis client alert.

From the statements that CalPERS has made to the media and Jelincic, it is apparent that they have a bizarre view of confidentiality. While it is true that the contents of the non-public portions of CalPERS board meetings are confidential, it is also a well-settled legal principle that information that is public cannot be made private simply by trying to assert that it is confidential. Thus, for instance, the board regularly reviews the status of litigation in which CalPERS is involved. However, for cases already filed, those discussions are almost certain to include material that is in court documents. For a board member to discuss something that is already a matter of public record would not be a violation of confidentiality, yet members of CalPERS’ board seem to believe otherwise.

And of course, you can see Feckner stonewalling Flaherman, which is hardly a demonstration of good faith or fair dealing with Jelincic and the public at large.

The board’s deeply misguided sense of priorities strongly suggests that rather than find a way to beat a quiet retreat, they will instead persist in trying to find a way to smear Jelincic, no matter what the cost to their and CalPERS’ reputation.

This entire procedure is shameful. The board owes Jelincic an apology. But even if some board members now recognize that they will do themselves more harm if they allow this bogus procedure to continue, too many board members seem obsessed with punishing Jelincic rather than doing a better job of overseeing staff. And bear in mind, they can’t hide behind the excuse that this train wreck is Slaton’s and Feckner’s doing. Feckner is proceeding with the delegated authority of the board. He is their operative and they all bear responsibility for the outcome.

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  1. Quanka

    We need more Michael Flaherman’s in California right now, it seems to be the only way to put the brakes to this out of control locomotive.

  2. diptherio

    Somebody start a petition to remove all of the directors except Jelincic. This is just blatant corruption.

  3. flora

    That’s some “transparency”. The next step, of course, is for all the board members except Jelincic to wear masks at their public meetings. That would give the appearance of transparency without individual board members risking personal accountability. That does seem to be what they’re trying desperately to avoid – accountability.

    …. on a more serious note, this is the kind of railroading and corruption the open meetings laws are designed to prevent.

    Thanks for your continued reporting on CalPERS, pensions, and PE.

  4. tegnost

    These board members are disgusting. Kudos to Jelencic for standing in the breach. A perfect microcosm of our poorly led county. Insiders rule.

  5. Brian

    There is the appearance that CalPers is desparate to hide information from the public. The purpose of CalPers is well known, and that they have been failing to meet their numbers for many years now due to Zirp and other tricks that the board doesn’t want public, even though we know from Yves and the SacBee that things are indeed amiss.
    So what are logical conclusions about the kangaroo court in the room?
    It would appear they are close to a failure to deliver. Why not CalPers when we know it is happening everywhere?
    Thanks Mr. Jelincic, you confirm that is is better to know than not to know, and that you work with others who do not share this sense of ethics toward those they are supposed to be protecting.

  6. Chauncey Gardiner

    Not a California resident, but it appears to me that the efforts to remove or neutralize Jelincic by senior staff members, some other members of the board, and perhaps outside parties, is detracting from and obfuscating where the focus should be placed. The casual manner at the beginning of the meeting in which Mr. Feckner announced cuts in pension benefits for retirees in a particular instance should raise a huge and very public red flag.

    I echo flora’s appreciation for your reporting on CalPERS, pensions and Private Equity “partnerships”. Similar situations could well exist in other states.

    1. Yves Smith Post author

      To your point, CalPERS’ tendency to obfuscate is making matters worse.

      The “cuts to retirees” are happening ONLY in pension plans that either withdraw from CalPERS or default on annual payments. CalPERS administers something like 2200 plans. CalPERS has the most complicated 1/3 are retirees. Of the remaining 2/3, the biggest groups in order are non-teacher school employees, state employees, and the employees of various government bodies that contract with CalPERS, most often local governments. It is only a tiny number of the latter that are defaulting and having their pensions reduced as a result.

  7. Todd

    I bet some of these board members have some great year over year growth in the their IRA accounts.
    I bet alot better than most people. Wink Wink

  8. reslez

    This is my favorite topic covered by NC. Amazing that the board is so clueless and acts with such malicious impunity, completely contrary to the interest of their beneficiaries. All this while the former CEO of CALPERS is doing time for taking bribes! These people need a supersized amount of sunlight on all their actions. Huge thanks to Yves for giving us more updates.

    It’s extremely isolating to be the lone voice of sanity on a board packed with yes-men/women. I hope Jelincic gets the public support he deserves.

  9. Sluggeaux

    These clowns are no doubt joining in Mr. Trump’s efforts to repeal the First Amendment!

    But seriously, there is a reason that public pensions traditionally invested very conservatively: unlike businesses, their process is required by the state constitution and state statutes to be an open process. When they get in bed with slick actors, like so many public entities have in the age of ZIRP, they come under pressure to act without the required transparency, in order to “play ball” and get on the “inside” of the “secret sauce” behind beating the markets — the dream of every mark in every Ponzi scheme that ever was.

    No, I don’t want to hear how badly CalPERS is being burned — but CalPERS is part of the larger crisis perpetrated by the financial sector and their stooges in the executive and legislative branches of our federal government. We must upset the stifling complacency about $400,000 speaking fees — and it’s people like JJ Jelincic and Michael Flaherman who are going to force us to wake up and smell the smoke before the building burns to the ground with us in it.

  10. Adam Eran

    Public pensions are among the last defined-benefit plans available. These are roughly twice as remunerative as defined-contribution plans (IRAs, 401Ks). At one time 70% of American workers had defined benefit plans. Not any more. Big corporations (AT&T, Verizon, IBM, etc.) conspired to loot their pensions in the ’70s and ’80s to goose corporate profits and C-suite compensation. The government “watch dog” was silent, too. (See Ellen Schultz’s Retirement Heist for the footnotes)

    Meanwhile, my conservative friends cite union and pension corruption as primary evidence that government is under the influence of the left.

    So…pension corruption is a two-fer!

  11. NonFiction

    I find it astonishing that the the folks leaving comments on this article are blindly accepting its conclusions without critically thinking. There is no evidence at all that the reason Jelencic was targeted by Slaton and/or other board members is due to Jelencic’s actions with respect to PE or for any other topc. The claim by Slaton is an improper disclosure of confidential information. To conclude the attack by Slaton is based in some self-preservation of corrupt practices, is pure speculation.

    “For a board member to discuss something that is already a matter of public record would not be a violation of confidentiality, yet members of CalPERS’ board seem to believe otherwise.”

    Really, Susan? Do you know something that you chose not include in the article? Based on what you’ve written, this conclusion is not supported by the evidence. It appears that we do not know what the confidential information that Jelencic allegedly leaked was. We don’t know if the information was already a matter of public record; just like we don’t know if the information was highly confidential. Since we don’t know what the confidential information at issue is, it’s a shame that you brand board members as believing a public record disclosure amounts to a violation of confidentiality. What purpose does it serve you to dabble in speculation? It serves to diminish your credibility on topics that you do have valid criticism of.

    1. Yves Smith Post author

      My goodness, someone from CalPERS shows up after a thread has gone cold to try to impugn the post. I should be flattered since this reaction is proof that our work, which have been validated and amplified by Mike Hiltzik at the Los Angeles Times, is getting under some thin skins.

      Since I would assume that Matt Jacobs would not take kindly to CalPERS employees commenting on Naked Capitalism, I infer that the fact that you are doing so from a work computer means that either you were instructed to falsely create the impression that independent parties doubt our work or are senior enough to be able to assign that task to yourself with no internal repercussions. And yet you question our integrity?

      As for the particulars, you undermine your case on multiple levels.

      First, if you actually had been following our work on a consistent basis, you would know that I have been watching CalPERS’ efforts to muzzle JJ Jelincic for many years, including elements obviously orchestrated by staff (as attested by Priya Mathur looking to Jacobs, who was seated next to her, for further suggestions as to what if anything to add to a dubious criticism of Jelincic) and a board discussion led by Robert Klaunser that targeted Jelincic.

      Second, this article does not mention private equity save with respect to Flaherman informing the board of a new matter, a cybersecurity alert. It is revealing that you bring it in.

      Third, it is not my conclusion that CAlPERS’ long-standing campaign against Jelincic is evidence of a “culture of corruption”. That is the conclusion of white collar criminologist, former general counsel and now law professor Bill Black. It is also the conclusion of top management expert Douglas K. Smith, the former co-head of McKinsey’s organization practice. And I separately happen to be a management consultant that has worked extensively with major financial firms around the world and have published regularly in top management journals such as the Conference Board Review. So I am independently competent to render judgment.

      Fourth, you admit the charges were never aired. That is precisely what makes this proceeding illegitimate, particularly in light of the fact that Feckner promised Jelincic a public process and further acknowledged that the fact that any leak was by nature already public meant that there was no need to have a confidential process.

      Fifth, I am highly confident that Jeincic has been falsely accused, multiple times, of leaking information that was in fact already public. As a journalist, my sources are entitled to confidential treatment and bloggers are protected under New York’s tough shield laws. And as a CalPERS employee, you know or ought to know that not only as a matter of well-estalbished law but also CalPERS’ policy that information is not confidential if it has been released:

      PS: The faux familiar “Susan” is amateurish and telegraphs that you are operating in bad faith.

      1. NonFiction

        Operating in bad faith? I merely took issue with conclusions you reached without support. I didn’t attack you personally except to say that when conclusions are based on speculation, it diminishes your credibility on other topics you opine on. Based on my criticism, I guess I shouldn’t be surprised at your reaction.

        1. Yves Smith Post author

          Yes, you are commenting from CalPERS during day job hours. That means you are being paid by CalPERS while making your comments. This is no different than being a paid troll.

          The rest of your comment is broken recording, which is a form of bad faith argumentation and a violation of our written Policies, which you appear not to have read before you commented (if you had, that would provide further proof that your comments were in bad faith). The Policies section clearly states “Commenting on Naked Capitalism is deemed acceptance of these policies.” Broken record is listed first as a prototypical violation. Your other rhetorical strategy is concern trolling, and Lambert (who was blogging for years before I started) and I have never seen anyone operating in good faith use that approach.

          Commenting here is a privilege, not a right. We do not permit paid trolls to post here on any topic.

          I stated clearly I have sources supporting my conclusions. Given that you are from within CalPERS, and any sources who could confirm that I have a very solid basis for my conclusions would have to be insiders, you are asking me to burn my sources. That is not only potentially immediately dangerous to them but would damage my ability to do original reporting. This is a pretty transparent game you are trying to play. But it is typical for CalPERS to underestimate its opponents.

        2. Sluggeaux

          It is absolutely horrible that a public servant, who NonFiction does not appear to deny being, would make this sort of snide commentary using public resources. After serving as a public lawyer for 32 years before retiring as a CalPERS beneficiary, I find this conduct to be reprehensible. At least Donald Trump’s tweets are subject to open attribution.

          Given that Slaton’s demand was for the extreme remedies of resignation or exclusion from closed session of a duly elected member of the board, and the innocuous Bagley-Keene training ultimately agreed to by Jelincic, there’s a pretty strong disconnect here between the secret allegations and the statements of the board chair, which should be explained. Mr. Feckner’s cloak-and-dagger actions leave the public (and the Members and Beneficiaries) to speculate, when CalPERS should be striving for greater transparency in the wake of admitted criminal conduct by its CEO.

          Snide comments by evident insiders directed at well-informed reporters only serve to confirm that the lack of transparency at CalPERS only exists in order to cover-up wrongdoing and/or incompetence on the part of their very well-compensated staff.

    2. Sluggeaux

      REALLY? As a CalPERS beneficiary, I’ve watched the video of Slaton’s remarks slandering Jelincic, and they reek of Senator Joseph McCarthy waving around lists of “Communists.” The CalPERS board regularly violates the Bagley-Keene Open Meeting law as provided in California Government Code section 11123 and following, which requires that all board meetings be held in public. The exceptions are very strictly circumscribed under the Code — the only exceptions generally applicable to the CalPERS board being Personnel Matters and Pending Litigation, which are quite narrowly defined in California Government Code section 11126. There is no “investment strategy” exception, unless actual litigation is anticipated over the investment.

      The public has a right to know what exactly Slaton was referring to. A former CEO and CalPERS board member is currently in federal prison for corruption which took place under the watch of current board members and top staff. In the crazy-pants world of Sacramento the consensus appears to be that less board oversight of staff is the solution to this sort of criminal activity by CalPERS staff. CalPERS board members have a fiduciary duty under the California State Constitution to members and beneficiaries, not to staff — even if public confidence in staff is undermined as a result.

      Michael Hiltzik of The Los Angeles Times agrees with Yves and the commenters above:

      Feckner’s resolution leaves entirely too much under wraps. A board member still stands accused of leaking confidential information, but there’s no way for the public to assess whether his ostensible actions were serious, minor, inadvertent, or perhaps even justified. The propriety of one board member pointing a finger at another in open session remains unresolved. The board’s policy on what’s public and what should be confidential remains infuriatingly foggy.

      1. Sluggeaux

        Correction: Investment and Real Property decisions may be subject to Closed Session for purposes of pensions and endowments. However, these provisions may not be utilized to hide criminal wrongdoing or fraud.

    3. Scrooge McDuck

      My critical thinking tells me that if CalPERS really had something on Mr. Jelencic they would have used it to justify the sanction, but they didn’t, so my spidey senses also tell me that they have nothing. I would encourage NonFiction to step forward and enlighten us with any super duper secrete and highly confidential internal CalPERS information she/he seems to insinuate that CalPERS may have on Mr. Jelencic. The information appears to be so secrete that even Ashley Dunning, the Board’s attorney, has no idea what the heck CalPERS is talking about. This whole situation with Mr. Jelencic sickens me, particularly when I recall reading this article in the LA Times from a few years ago. If I recall correctly CalPERS stripped Ms. Mathur of some posts, but given the gravity of the violations it should have done a lot more… not sure why they didn’t… perhaps they like Ms. Mathur, but Mr. Jelencic not so much… he ask meanie questions and does not play well with the other kids on the Board.

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