“Heads Should Roll at CalPERS”: Who Should Be Held Accountable for Massive Copyright Infringement?

As we wrote in a companion post today, CalPERS has engaged in systemic, massive copyright infringement for the better part of a decade. Based on the scale and the willfulness of the theft, the two biggest victims, Dow Jones and the New York Times, are each likely to secure eight-figure settlements were they to pursue their claims. Other publications have the potential to win large settlements. Given how starved newsrooms are for revenue and how flagrant CalPERS’ misconduct has been, it is hard to image that CalPERS will not have to write some very large checks.1

CalPERS seems to have relied on the idea that no one would discover its intellectual property theft. This is a remarkable and reckless justification for misappropriation from publishers. CalPERS did not password protect its Daily News Summary site, so anyone who had the address could view it, as we have since at least 2015. CalPERS should have recognized that former employees and others familiar with the site could pass on the address. In other words, not only was CalPERS a brazen and large-scale crook, it was a stupid one as well.

This incident provides yet another example of failed governance at CalPERS, both at the executive and board level. Given how many employees CalPERS has, and the importance of intellectual property rights, it is inconceivable that professionals at CalPERS, particularly lawyers and information technology specialists, could not have noticed that articles were being reproduced in full with no evidence that CalPERS had any right to do so.

As media and whistleblower lawyer Jim Moody wrote:

Heads ought to roll at CalPERS. I wouldn’t want to blame a low level guy in the IT department, but even someone who was putting this site together should have said, “You know this isn’t right.” And the general counsel when he came in should have done an intellectual property audit, just the same as doing an asset audit when he took over, and put a stop to it immediately. Similarly, any head of IT knows to do a license audit to make sure you are making payments on all the licenses you should have for the software you are using. And the board members are also remiss. The audit committee is supposed to make sure controls were in place to prevent this sort of thing from happening. Lots of people are really sloppy.

CalPERS will be inclined to throw the current head of the Communications and Stakeholders, Brad Pacheco, who is a direct report to CEO Marcie Frost, under the bus. That would be scapegoating. The news site was launched in 2009, long before Pacheco in charge of the communications function. The media department did not launch its Daily News Summary in the dark of night. Its budget had to have been approved at a higher level and the development of the site fell to IT personnel, or in current CalPERS-speak, members of the Operations & Technology Department.

Moreover, Pacheco is not an attorney. His former boss and predecessor, Robert Glazier, was an attorney and was in that role from at least 2012 through 2015. The former Chief Executive Officer, Anne Stausboll, was also an attorney. Even if Pacheco thought something was improper about cutting and pasting articles from sites that were copyrighted, he may have thought that there was career risk in rocking the boat, since the legal ramifications were over his pay grade and merely linking to outside articles would be perceived to be a downgrade of the service.

In other words, even though Pacheco is technically responsible, media relations is politically weak and not a control function. Even if Pacheco had cleared his throat, the odds were high that he’d be accused of being a worrywart.2

Where Should the Buck Have Stopped?

The most clearly culpable party is the General Counsel, Matt Jacobs. He joined CalPERS in July 2014. One of his most important duties as incoming General Counsel was to review the adequacy of controls. As we stated in our companion post, an intellectual property audit is a standard housekeeping procedure in any well-run large organization. For non-tech companies, the main purpose is to assess the exposure to intellectual property claims from outside parties and take preventive steps.

And independently of an IP audit, it is inconceivable in the course of the last three years that Jacobs did not see the Daily News Summary. His failure to take notice of the flagrant copyright abuse is incompetence of the first order. His lack of vigilance is now likely to cost CalPERS tens of millions of dollars.

Bear in mind that tomorrow, the board is scheduled to authorize an increase in Jacobs’ compensation increase, a precursor to an expected pay raise. We’ve chronicled Jacobs’ numerous performance failures and called for him to be fired, most recently for his role as ringleader in the censure of board member JJ Jelincic, which law professor and white collar criminologist Bill Black called a “kangaroo proceeding”. If he instead gets a pay boost, this will prove that CalPERS is beyond redemption and that Marcie Frost herself needs to go for rewarding such incompetence.

Another group that bears direct responsibility for the huge bills that CalPERS is likely to face comprises the board members on the Risk and Audit Committee. Their duty is to make sure that CalPERS has adequate controls in place. CalPERS appears to have neither an intellectual property nor an information technology audit.

And it isn’t as if this is the only place CalPERS has been dropping the ball. CalPERS manages over $300 billion of funds, yet has glaring holes in its financial risk controls. As we wrote in CalPERS Uses Unqualified “Expert” to Validate Its London-Whale-Style Deficient Risk Management:

CalPERS has the foxes running the henhouse. It has the unit that is tasked with “overseeing” compliance and risk management for investments, which is clearly the biggest area of risk for CalPERS, in fact supervised by the parties it nominally oversees. What this means is that the joint investment risk management/compliance function (already an irregular arrangement; they are generally kept separate since the expertise required is different) reports to the Chief Investment Officer. Worse, the CIO also sets the compensation, including bonuses, of the managers in this unit.

This structure is so clearly bogus that CalPERS has objected to it in the past at other investment firms.

Since we published that post, the Wells Fargo fake accounts scandal became national news. Wells had precisely the same defective risk management structure, that of having the risk control function report to business unit heads, which in this case included the executive running the Community Bank, Carrie Tolstedt. Yet despite the obvious danger this poses to CalPERS, as well as, ironically, the managers who oversee these entities (Tolstedt, like as the JP Morgan Chief Investment Office, Ina Drew, was forced out), the giant pension fund refuses to put sound risk controls in place.

Moreover, this deficient arrangement has already failed at least once. Not only did the improperly embedded compliance unit fail to catch insider trading, but two employees who tried escalating the matter were fired, leading the SEC to review the case. But even more troubling, as we recounted in our post, Matt Jacobs misrepresented both securities law and the implication of the SEC’s intervention to the board. This behavior is totally inconsistent with what his job should be, which is to protect the organization, most importantly, the beneficiaries. Instead, Jacobs clearly sees his role as all about protecting the incumbents and preserving the staff’s freedom to operate without interference from, meaning proper supervision by, the board.

The members of the Risk and Audit Committee are:

Dana Hollinger, Chair
Ron Lind, Vice Chair
Rob Feckner
Richard Gillihan
Priya Mathur
Bill Slaton
Betty Yee

While all of these individuals are guilty of dropping the ball, the ones who deserve the most opprobrium are Dana Hollinger, who is an attorney, and Betty Yee, the State Controller, who are or at least should be savvier than the other committee members. It is appalling that no one on this committee, but these two above all, even thinks to question the existence of the news site, particularly when the media department e-mailed all board members about the new releases every business day.

It is also shameful that Board President Rob Feckner and Bill Slaton made a priority of hounding the one board member who is at all vigilant, JJ Jelincic, over trumped-up charges, while presiding over what will probably a hugely costly dereliction of duty in their own back yard.

There is a special irony here. Jelincic was punished for allegedly “leaking,” meaning sharing confidential information with the public. Note that Jelincic has repeatedly insisted the information was already public. He has been subjected to the equivalent of a gag order which prevents him from rebutting the secret charges made against him.

We now know that CalPERS itself engages in sharing — unlawfully — on a scale orders of magnitude greater than anything Jelincic was ever accused of doing. There has never been an iota of evidence that any of the charges against Jelicic, even if true, harmed anything other than board and staff egos. The piffling sanction against him was consistent with that. By contrast, the lead actors in the campaign against Jelincic, namely Bill Slaton, Matt Jacobs, Rob Feckner, and Priya Mathur, all grotesquely neglected their duties to CalPERS while harassing the lone board member who is serious about protecting the institution.

Moreover, in its ongoing effort to muzzle Jelincic, later this week the CalPERS board will debate a rule change subjecting to censure any “Board member wishing to share an article or other item with fellow Board members” unless the sharing occurs with the permission of the organization CEO after “the CEO independently determines that the item will contribute to the board’s understanding of a matter that is within the subject matter jurisdiction of CalPERS.”

Note that this proposal did not result from a sudden concern that articles could be passed around without proper regard for copyright. Perish the thought! This is the CalPERS board, having seen what independent oversight looks like in the person of JJ Jelincic, continuing to surrender what shreds of authority it retains for the sake of preventing Jelincic from showing them embarrassing news stories about themselves.

What You Can Do

CalPERS’ members and beneficiaries, and ultimately state taxpayers, will be stuck with the cost of this fiasco. I strongly urge you to circulate this post. As you have demonstrated in the past, writing and calling state officials is effective. Please urge everyone you know in California to take action.

Dana Hollinger and Bill Slaton were both appointed by the Governor Jerry Brown. Hollinger’s term expired in January but she has yet to be replaced. Even though Slaton’s term does not expire until 2019, if the Brown were to tell him to resign, it would be difficult for him not to comply.

Please write or call Brown’s office. Tell him that governance at CalPERS has become a travesty, with the cronyistic conduct of Slaton and stunning oversight failings of Hollinger and Slaton as prime examples. Brown bears significant responsibility for this scandal by appointing board members who were all too happy to defer to CalPERS’ staff.

Governor Jerry Brown
c/o State Capitol, Suite 1173
Sacramento, CA 95814

Phone: (916) 445-2841
Fax: (916) 558-3160

E-mail contact form: https://govnews.gov.ca.gov/gov39mail/mail.php

Please also contact the two elected officials on CalPERS’ board, John Chiang and Betty Yee. Both are at risk of incurring the wrath of the powerful media and technology companies whose patents and licenses are often critical to their profits and even survival. Having a high profile state agency caught stealing intellectual property on an unprecedented scale on their watch says they can’t be bothered doing their jobs. If they can’t be trusted at CalPERS, why should anyone vote for them ever again?

Mr. John Chiang
California State Treasurer
Post Office Box 942809
Sacramento, CA 94209-0001
(916) 653-2995
E-mail: john@sco.ca.gov

Ms. Betty Yee
California State Controller
P.O. Box 942850
Sacramento, California 94250-5872
(916) 445-2636
E-mail: b.t.yee@sco.ca.gov

Finally, alert your state Assemblyman and Senator, and demand that they launch an investigation. The legislature is the only thing CalPERS fears, so it is productive to tell them how troubled you are by the rampant governance failures at CalPERS. Point out that they should be deeply concerned about how CalPERS’ unprecedented intellectual property theft will raise hackles in Silicon Valley and Hollywood if not addressed quickly and decisively.

Even though board member Ron Lind, appointed as a public representative by the Senate Rules Committee and Speaker of the Assembly, has questioned staff more often than most of his peers, he needs to up his game in a big way or leave the board as well.

You can find you Senate and Assembly representatives here.

As the former co-head of McKinsey’s organization practice, Doug Smith, summed up this sorry situation:

CalPERS does not get some sort of free ride or pass with regard to basic controls — even hygiene — regarding intellectual property rights. Look, there are manifold risks confronting complex organizations such as CalPERS: IP risks, risks of staff misusing technology, risks of technology breaches, risks of terrible or even self-dealing/bribe based investment decisions, risks of any number of personnel related wrongs, risks of accounting fraud, risks of exposure from handing over too much to private equity, risks of poor hiring — and the list goes on. It takes work and discipline to have controls in place to manage these risks. And the General Counsel, CEO, senior executives and Board ought to know that neither laziness nor stupidity is a defense.

CalPERS has demonstrated repeatedly that its current executives and board are unwilling to reform their conduct and see themselves as accountable to no one, including the law. The only hope for desperately needed change is if culpable key players, such as Jacobs, Hollinger, and Slaton, are forced out and replaced with leaders who are willing to do the hard work of turning around CalPERS’ toxic culture. And if CEO Marcie Frost is not willing to accept this responsibility, she needs to go as well.

____

1 CalPERS’ legal team may seek to give top executives and board false assurances. We describe in our companion post how the copyright is a strict liability statue and CalPERS can have no reasonable expectation that it could win in court were it to fail to reach a settlement with any aggrieved publishers that have copyrights for the purloined articles registered with the Copyright Office. Because CalPERS has taken its website down and may have already tried to destroy those records, its staff may also claim there is no evidence of its abuse. As we describe, we downloaded all of 53,113 articles as in their original HTML format from inception of its news summary site through June 9, 2017 and can show the provenance of the downloads.

2 However, anyone with survival instincts should have papered up a record raising doubts and recommending changes to prevent himself from being scapegoated if and when the chickens came home to roost.

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25 comments

  1. flora

    CalPERS: Slipshod due diligence with PE investments. Slipshod due diligence with IP rights.

    yikes.

    Thanks for these posts.

  2. Tom Stone

    After years of effort by NC this may finally be a big enough deal to force positive change at CALPERS.
    A lot of ricebowls are at risk!

  3. Lambert Strether

    Wowsers:

    Moreover, in its ongoing effort to muzzle Jelincic, later this week the CalPERS board will debate a rule change subjecting to censure any “Board member wishing to share an article or other item with fellow Board members” unless the sharing occurs with the permission of the organization CEO after “the CEO independently determines that the item will contribute to the board’s understanding of a matter that is within the subject matter jurisdiction of CalPERS.”

    Certainly an intriguing governance model…

    1. TheCatSaid

      Yeah, my eyebrows really raised at that one. Let’s hope they get rid of that proposed rule. What an impediment to an informed Board it would be, not to mention it would make the Board subservient to the CEO–a shocking proposal.

    2. diptherio

      The children are not allowed to talk to each other unless daddy says it’s ok. Nothing like a little infantilization really whip a BOD into shape…

    3. Andrew Silton

      The memo supporting this rule change cites Bagley-Keene for its authority. I’m by no means an expert on the public meeting law of California, but I quickly read the supposedly relevant sections, and it’s not readily apparent to me that Bagley-Keene supports this proposed rule.

      CalPERS describes itself as a leader in corporate governance. I can’t imagine how they’d react if one of CalPERS’s equity holdings proposed this kind of rule for its board.

      http://meditationonmoneymanagement.blogspot.com/

      1. Yves Smith Post author

        As I said on the other thread, you are 100% correct. The proposed rule change is a travesty.

        Bagley-Keene is meant to assure that deliberative processes take place in public, or that proper notice is made of any board deliberations that are private, which includes citing the statutory authority for taking it off line.

        Merely distributing articles, with no additional commentary, is not a meeting or part of a meeting, which is what Bagley-Keene is meant to prevent. JJ Jelinicic asked a deputy attorney general specifically about this issue and was told immediately that sending articles was perfectly fine.

        1. Kuhio Kane

          As the TBTF conglomerates have been working diligently to bankrupt defined benefit organizations as part of the neoliberal con game which gained traction with Bill Clinton’s corrupt presidency, it’s quite possible that such a major oversight did not just happen but was planned by Wall Street agency. It was Wall Street who sold toxic assets to the big retirement systems in an ongoing attack which is designed to bankrupt public retirement systems. A testament to the privatization model loosed on defined benefit plans. Why not connect the dots with a bit more vigor and find out who’s who in this debacle.

          1. perpetualWAR

            That is exactly why judges are screwing both the rule of law & homeownership.

            It is far worse than many of you know.

  4. Calpolitico

    As if timed to illustrate a discussion I have been pursuing as a CalPERS candidate , the notion that a courageous team of isolated Board members can get their hands around the problems at CalPERS does not match up well with the breadth and depth of problems at CalPERS. The closing passages of todayʻs insightful post echoes a central theme of my candidacy: solving the problems at CalPERS requires a larger political campaign. While such a campaign certainly includes alerting elected officials, it also demands a coherent plan extending beyond merely replacing individual Board members and selected managers – even while acknowledging the necessity of taking these steps.

    As a veteran of many political wars, I have witnessed sound critiques of individual decision-makers fail for lack of understanding larger structural issues, particularly the degree to which the corporate lobby has captured and shaped public agencies in California. As the contributors to Naked Capitalism have demonstrated, correcting the multitude of problems affecting CalPERS will require an intensive review that only begins with changing specific procedures and removing incompetent managers; larger issues beg directing further attention at the relationships that have grown up between CalPERS and a variety of financial interests.

    The larger question regarding the extent to which CalPERS has become a captive of financial interests undermines the publicʻs ability to engage in the democratic rights to direct the nature and direction of Californiaʻs economy. The degree to which CalPERS has aided and abetted private sector activities circumventing public laws extending from combating wage suppression and the rights of organized labor to stemming the privatization of public sector activities to dismantling an economy steeped in toxics requires a larger political campaign. These are issues going well beyond the administrative problems at CalPERS. None of which argues against the need to immediately remedy the many specific problems identified in numerous reports cited in Naked Capitalism and its readers; the point is that such steps are only the beginning of a larger political campaign, the case for which can be found in my reflections on a career in California politics – The War on California: Defeating Oil, Oligarchs and the New Tyranny (Amazon.com).

    I wish to express my great appreciation to the editors and readersʻ commentary at Naked Capitalism for their excellent work with shedding light on the problems at CalPERS, but especially the ideas for crafting solutions.

    1. TheCatSaid

      The larger question regarding the extent to which CalPERS has become a captive of financial interests undermines the publicʻs ability to engage in the democratic rights to direct the nature and direction of Californiaʻs economy.

      Well said. I don’t know who you are, but good luck with your candidacy for the CalPERS Board.

      1. John Zelnicker

        @TheCatSaid – Bruce H. Jennings.

        “One of the most important conflicts of the twenty-first century is fought daily within the California Legislature: the ultra-hazards of fossil fuels. As one of the world’s largest economies, the outcome is crucial for the role of democracy and the future of the planet. For more than two decades as a senior adviser to the Legislature, Bruce Jennings has gained firsthand experience in this trench warfare between public and private interests.”

    2. Yves Smith Post author

      Calpolitico,

      This is not the dynamic at CalPERS. It operates with no interference, or even interest from “political lobbies” save the major unions, who do influence elections and can get the attention of the CEO, and perilous little interest from the legislature. CalPERS operates autonomously. Even during its pay to play scandal, no state officer, not even the state Attorney General, intervened. CalPERS merely conducted an investigation run by Steptoe & Johnson which was a cover-up.

      The problem with CalPERS is lousy governance combined with what has become a diseased culture. Basically, the poor response of former CEO Anne Stausboll has shown up in many symptoms, the copyright infringement being particularly blatant and easy for the general public to understand. She was an insider who was promoted as a result of the pay to play scandal. She could have gone for shakeup and radical transparency. Instead, she opted for prioritizing loyalty (a not uncommon reflex in Sacramento) and secretiveness. And she and her staff also set about to take power from the main body supposed to act as a supervisor of CalPERS, its board.

      It is hard to overstate how perverse it is that a scandal involving a former CEO, which resulted from inadequate board oversight, has led to vastly less oversight.

      Mind you, staff had always been engaged in a quiet power struggle with the board. But the board of the 1990s and early 2000s would slap staff down and even upbraid them at board meetings, behavior that would be simply unimaginable from the current board.

      So this has nothing to do with the influence of lobbies or outside forces.

      The second part is that CalPERS, like just about every public pension fund, as well as much better governed endowments like Yale, is also intellectually captured by private equity. Staff genuinely believes it must invest in private equity in a meaningful way or it will never have any hope of meeting its return targets, much the less recover from its funding shortfall. That belief has led to the other types of dysfunctional behavior that we’ve been chronicling.

  5. leapfrog

    “Given how starved newsrooms are for revenue and how flagrant CalPERS’ misconduct has been, it is hard to image that CalPERS will not have to write some very large checks.”

    Yet, not one television station here in the state capitol (Sacramento) has reported on the CalPERS scandals.

  6. Sluggeaux

    While I applaud Yves analysis, I tend to agree with calpolitico/Bruce Jennings that the horrible lack of governance at CalPERS is directly related to the capture of the current, post-Term Limits, iteration of California state government by corporate money — “needed” by political lily-pad-hoppers to fund the campaigns-without-end which resulted from Term Limits.

    Remember, the pay-to-play scandal at CalPERS involved the use of “Placement Agents” to launder hundreds of millions of dollars worth of payments to lobbyists who doubtlessly then paid political kick-backs to politicians, in exchange for CalPERS assets being funneled into certain investment vehicles, mostly Private Equity.

    While Andrew Cuomo, as New York Attorney General, did make an investigation into these activities, and some California lobbyists had their feet held to the fire in New York, neither then-California Attorney General now-Governor Jerry Brown nor his successor now-U.S. Senator Kamala Harris, ever lifted a finger to bring these people to heel — even after former-CEO Fred Buenrostro of CalPERS pled guilty in federal court. When the “Placement Agent” involved in Buenrostro’s case, Al Villalobos, committed suicide rather than face trial, Buenrostro’s sentencing was dragged-out for 18 months — but he evidently failed to cooperate or to throw-down on other “Placement Agents,” and the judge threw the book at him. Both Buenrostro and Villalobos were former CalPERS board members. Only the Sacramento Bee did any serious reporting on the scandal, and their archives have been subsequently wiped clean. Over $60 million in “Placement Fees” made to Villalobos by Private Equity players still partnered with CalPERS remain unaccounted-for to this day.

    These “Placement Fees” are part-and-parcel of the Private Equity fee arrangements which CalPERS staff and the board majority are attempting to cover-up. The copyright violations outlined here today are peanuts compared to the hundreds of millions in “Placement Fees” that have been funneled to lobbyists. The “laziness” and “stupidity” of CalPERS General Counsel and top staff are by design, better to distract attention from the comprehensive corruption of the state government, and of both political parties, in Sacramento. Likewise, the threat of higher contribution rates to CalPERS has silenced the employee and retiree groups who might have organized against poor governance — a hostage situation if ever there was one.

    This is fantastic investigative reporting — of the sort that our broke-ass oligarch-controlled California newspapers ceased doing 20 years ago, but if there was going to be accountability at CalPERS, heads would have rolled long ago. However, as a current CalPERS beneficiary, I will assuredly be voting for “outsider” candidates in the 2018 board election.

    1. Yves Smith Post author

      Sluggeux, with all due respect, you’ve got this largely wrong. And you know I have sources who see how this works.

      CalPERS has a very strong status quo orientation. The forces that drive that are two fold. The implicit or explicit orders given by the Governor to the staff of the appointees, who manage their nominal bosses, is “I don’t want to read about CalPERS in paper.” Those marching orders have become an excuse for extreme passivity by the board. The second is that most individuals themselves have a strong status quo orientation because if they push for change, it will make some people mad, and if the changes are significant, it will make some people really mad.

      Even with the scale of the Villalobos payment, most of it went to him. He was a huge gambler and compulsive spender.

      Blackstone’s lobbyist doesn’t think about CalPERS often. He swings into action on if there is a threat, like a bill on rental housing or the private equity transparency bill. The mechanism for private equity capture at CalPERS has nothing to do with the legislature. We have the intellectual capture and the perceived necessity of investing in private equity to make returns. Because private equity is a private club, investors worry that if they push back, they’ll be excluded from “good” funds, when the truth is no fund outperforms consistently. The exercise of trying to identify winners in advance is an exercise in futility.

      In addition, people in the public pension industry widely believe that private equity is powerful enough to get them fired even though this has never once occurred, and there are reasons it would take too long to explain why it would actually damage any firm that tried to do that that.

      1. Sluggeaux

        While there is a culture of extreme passivity on the CalPERS board, I wouldn’t be so certain that it wasn’t imposed on the appointee and ex officio members in order to cover for some rather corrupt practices. While Al Villalobos was certainly a compulsive gambler and blew a large portion of his fees, he wasn’t the only Placement Agent in play during the run-up in PE during 2007-2011. The amount of money that flows back to elected officials must be publicly reported and gets spread around. The lion’s share of Placement Fees paid have never been accounted for to CalPERS.

        The passivity of some CalPERS board members may well be down to “I don’t want to read about CalPERS in the papers,” but those who aren’t insiders are willlfully ignorant or are just plain dullards about where many of these fees are going. I also have my sources. Always ask the question: Cui bono?

        1. Yves Smith Post author

          I also hate to tell but placement fees can be totally legitimate. The people running pension funds are the most heavily solicited people in America. Merrill Lynch has a business of raising funds for hedge and private equity funds. It’s a very big business. They used to get 1.5% of the amount raised; it may be lower now.

          Young-ish funds will hire these firms either to do some or all of their fundraising. Ditto some more established funds who have had trouble getting in front of certain investors.

          Merrill is not giving any of that dough to politicians. The firms keep it and the guys in that business are very well paid.

          1. Sluggeaux

            Of course placement fees can be totally legitimate! But when Sacramento-based lobbyists such as Villalobos and others began taking the sort of multi-million dollar placement fees normally reserved for business and finance organizations such as Merrill, eyebrows were raised. In New York, these same Sacramento-based lobbyists were forced to forego placement fees for steering New York pensions into PE and to pay substantial penalties. Not so in California.

            Do you think for a minute that these Sacramento-based lobbyists-cum-placement-agents stopped spreading the love after they were enriched to the tune of tens of millions of dollars by taking 1-3 percent on billion-dollar CalPERS PE introductions? I don’t. I have my reasons.

            1. Yves Smith Post author

              Sorry but your belief is based on a fundamental misapprehension.

              Virtually all of the fees came from Apollo, something like $48 million of the ~ $50 million total in the CalPERS scandal. Leon Black can get a meeting at CalPERS at any time.

              $50 million compares to the budget of the private equity industry’s lobbying group in DC of under $5 million. You don’t need to pay anywhere near this much to get attention in DC or in any state.

              This was 2008. Apollo had no pressing issues it was pushing at the time. It has also just raised very large funds.

              The only favor that Black could conceivably gotten that would be worth that much would be AT CALPERS ALONE, say disproportionate allocations on funds at particularly good terms. CalPERS has done “dedicated” funds where it was the sole investor. With four of thirteen board members who were also corrupt and probably slotted to get kickbacks from Buenrostro or directly from Villalobos once they delivered, Apollo could have reason to think the payment would be worth his while.

              1. Sluggeaux

                If Villalobos were the only Placement Agent with political/lobbying ties and Apollo/Leon Black the only PE fund looking to do business with CalPERS, you might have a point.

                But that wasn’t the case. And if $1 of CalPERS investment made its way into the campaign account of an elected official via a lobbyist acting as an unregistered Placement Agent, that would be quite embarrassing for that elected official, no?

                You assume that people such as Mr. Black were attempting to influence officials. Did you consider that maybe those officials, acting through lobbyists, were offering up multi-Billion dollar CalPERS investments in exchange for a little piece of the action? That this money trail might be why CalPERS is so uninterested in accounting for PE fees?

  7. Scrooge McDuck

    Great work, Yves.

    Of course CalPERS will view this new development as an attack to the institution and the public pension fund system in general. If this is the only conclusion that they can draw from this experience, then you can expect more blunders and incompetence coming out of Sacramento in the weeks/months/years to come.

    This whole mess could have been prevented had they seriously considered what NC, JJ and many others have been trying to tell them about their governance failures, lack of transparency, fiduciary blunders, lack of board oversight, ongoing unwillingness to push back on fees and expenses, etc. etc. Instead, they have opted to fight those who offer help and bury their head in the sand.

    As the biggest and most important pension fund in the U.S. CalPERS has a duty/obligation to set the governance standard for other smaller institution by leading through example. I hope they view this failure as an opportunity rather than a setback.

    As a starting point, CalPERS needs to purge itself of folks like Feckner, Mathur, Slaton, Jones, Jacobs, Bilbrey and others who have been at CalPERS for way too long and whose contributions have been counterproductive to progress. I’m certain that all of the above folks believe that they are doing God’s work, and there is almost nothing that will change their minds (either because they are too old or intellectually captured), so pushing them out is the only path forward.

  8. Todd

    Yves
    What would you recommend someone do if you have given Intellectual Property to Calpers in light of Calpers behavior toward intellectual property?

Comments are closed.