CalPERS Doubles Down on Its Illegal Election, Makes “Absurd” Claim That It Is Above the Law

CalPERS has just put out a document attempting to defend its election practices. It has only dug its hole deeper. Its memo is a tissue of lies. We’ve embedded it at the end of this document.

Among its ludicrous and verifiably false claims:

1. “CalPERS does not administer the voting process.” Sorry, but no one can fob off their legal responsibility by hiring a contractor. By that logic, CalPERS does not administer pension funds either since it contracts most of the fund management out.

2. CalPERS is trying to maintain that one of its election vendors, Integrity Voting Systems is certified by the State of California. As we showed in our post earlier today, it was IVS that was awarded a contract with CalPERS along with another vendor, Everyone Counts. As you can see for yourself by looking at the Secretary of State’s website, IVS has no certifications whatsoever and its parent, K&H Printing, is certified only to print and finish some types of ballots used in certified California voting systems. CalPERS is not using any of these voting systems for this election. It is thus utterly false to imply that the Secretary of State has certified anything that any of the election vendors is doing for CalPERS.

The only certification IVS has is a SOC certification from a mid-tier accounting firm and it applies to IT controls only, and not business processes generally. Thus the handling of paper ballots would fall out of the ambit of the certification, making it irrelevant to this election.

3. CalPERS falsely asserts that putting a signature on the ballot is legal when the California election code explicitly states otherwise. Per The CA Elections Code §14287:

No voter shall place personal information upon a ballot that identifies the voter. “Personal information” includes all of the following:
(a) The signature of the voter.

4. CalPERS has acknowledged that the paper ballots have already been processed, an admission that it has been violating its own election regulation which states that the paper ballots will tabulated on a date specified in the notice of the election, not on an ongoing basis. From CalPERS’ embedded memo:

The public can view the paper ballot process at IVS/Everyone County’s facility.
Public viewing is allowed Monday through Friday, 8:00 a.m. – 5:00 p.m. PST, from
September 1, 2017, to October 2, 2017.

5. CalPERS has flat out lied about the handling of the ballots, insinuating that they have been held in compliance with election law (why is that suddenly relevant?) in a secure cage. That is not the case. As board candidate Margaret Brown learned when she visited the Integrity Voting Systems facility on September 15, the ballots were not kept securely. She and her witness saw that were out in the open in a room that had one door propped open and a second door that opened to the parking lot. Proper handling of mailed ballots is for them to be kept sealed in a cage, and opened and tallied only at the close of an election, and then only in public. The notion that allowing the public to drop in at random times during an insecure process could ever amount to adequate oversight is insulting.

6. CalPERS is effectively claiming that it is subject only to the Public Employees’ Retirement Law, and not other parts of California law, including the California Constitution. That is absurd. CalPERS is subject to all sorts of California statutes in addition to the PERL, including the state civil service code, the state’s evidence laws, the Administrative Procedures Act, the Public Records Act, and the Bagley-Keene Open Meeting Act.

CalPERS cites a precedent to try to justify its absurd claim that it has unlimited authority to set its own election regulations. The court in that case did not rule on anything remotely approaching the issues as hand. The court in fact made clear that CalPERS was not allowed to change the method of election. The change at issue then was that previously, the candidate that got the most votes be deemed the winner, even if it was short of a majority. CalPERS changed its process to having a runoff if no one got a majority. The court deemed that that did not amount to changing the method of election and hence was permissible. The very fact that the court had to decide this question in fact means CalPERS does not have unlimited scope to change its election rules, which is the opposite of what CalPERS is trying to claim.

Board candidate Mike Flaherman sent this e-mail to CEO Marcie Frost and the board debunking CalPERS’ continued efforts to defend its travesty of an election. One of the key points he makes is that CalPERS own notice admits that it has changed election procedures midstream:


I just received the attached, updated CalPERS pamphlet about the election process. This document contains numerous factual errors, some of which I unpacked in my previous letter to you. I am also re-sending that letter as an attachment, given that I believe that some of the other candidates have not received it previously.

I am writing to you now, however, in response to two alarming additions to the text that have been made.  First, on p. 2, under the heading of “The Board approved the 2017 voting process,” the language has been changed to assert that the Notice of Election official election calendar, which was adopted into regulation [CCR §554.8(5)(b)], allows the ballot tabulation to occur anytime before November 10th, so long as balloting has been completed on October 2nd. This assertion is patently absurd, and I invite all readers to look at the official election calendar to see that it plainly states that “Paper, online, and telephone ballots will be tabulated” on October 2nd:

I call the attention of the board members, whom I have copied on this email, to the fact that your staff is now pointing a finger at you, claiming that “the Board approved” such a preposterous schedule, which you clearly did not.  I also want to emphasize the critical importance of adhering to a publicly-promulgated schedule, not as a matter of convenience for the candidates, but is a matter of election integrity. This is true because imposing an unalterable schedule of ballot tabulation, which contains no periods where ballots sit idle, significantly reduces the opportunity for ballot tampering.

I also call the board’s attention to the patently absurd argument, laid out in the email exchange below, where your staff claims legal authority for tabulating the ballots as late as November 9th. We see this over and over, where individuals asking that CalPERS faithfully administer the law are treated like adversaries in a legal proceeding. Bludgeoning the public with absurd legal arguments, as we see here, may seem to help in the short-term, but, I am certain, at great cost over the long term, as institutional credibility and support for CalPERS continues to erode.

The second change to the election information pamphlet is at the very end of it, where it describes the ballot tabulation process. It states in part:

Paper ballots have been converted to digital images, and will be tabulated by the Election Administrator [in La Jolla, CA] using the eLect Admin software. Hard copies of the paper ballots will remain in Washington state, until they are transfered [sic] to the California State Archives.

This statement acknowledges that CalPERS will tabulate facsimiles of the paper ballots, not the paper ballots themselves.  As I noted in my attached letter, CalPERS’ own regulations plainly call for tabulation of the paper ballots themselves [CCR §554.8(5)(b)]:

On the date specified in the Notice of Election at the location designated by CalPERS, the validated paper ballots shall be tabulated publicly by an independent, neutral agent appointed by CalPERS for that purpose.

In the world of election administration, the substitution of a facsimile or reproduction for an original paper ballot is treated as an inherent threat to the integrity of the votes cast on that ballot. Election regulations generally only allow reproductions or facsimiles in special situations, such as when a ballot has become mangled. The reason for such safeguards is obvious: the substitution of a reproduction for the original introduces the opportunity for mischief or mistake. That’s why your regulations read the way they do in requiring that the paper ballots shall be tabulated.

Your decisions regarding election administration shock the conscience. I urge you to reconsider before it is too late.

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  1. Jess

    This comes as no surprise. A friend of mine, whose wife spent the better part of 30 years as the chief aide to former Sec of State Debra Bowen (and former Assembly person and state senator), CalPers has always thought they were above the law, immune.

  2. flora This is bare-knuckles politics designed to stop accountability…. in a supposedly enlightened democratic state – California.
    CalPERS is making a lot of bogus legal claims I assume are approved by their legal council. Disbarment for egregiously misleading client is a thought that comes to mind.

    This is the kind of cronyism, patronage, and self-dealing corruption the progressive movement from last century worked to stop. Back then there were no laws against this kind of campaigning or election rigging. Now there are laws against this. So, CalPERS is acting much worse than the old machine politics because CalPERS is attempting to break CA laws to run this election.

    Thanks for your continued reporting on CalPERS.

    1. flora

      adding: this effort to keep two, financially literate newcomers off the board seems too extreme if all CalPERS staff is worried about are questions and challenges to its PE investing. This extreme effort to keep Brown and Flaherman off the board seems, to me, more like fear that the two will dig into areas the staff wants to keep hidden.

  3. steelhead

    I do not know if this applies to CALPERS , but there are many federal changes to defined benefit programs. Prior to 2012, there was a 25 year average of interest rates applied. Now it is 2 years average interest rates. Inverse calculations have taken funding with non adjusted rates from 91% fully funded to 105.4% and adjusted rates from 116% to 130%. “Kill me now” is the only phrase I can think of right now…

  4. Sluggeaux

    CalPERS may have an argument under Article XVI section 17 of the California Constitution that they are exempt from the provisions of the Elections Code, but they are not exempt from the Secret Ballot requirement of Article II section 7 of the California Constitution. They are a public agency and may not grant privileges or immunities not available to any other citizen of the state, nor may they deprive any citizen of due process and equal protection of the law. Their arguments otherwise are dim-witted, self-serving, conclusory nonsense.

    The Secret Ballot is sacrosanct under the California Constitution — and as Mr. Flaherman points out so eloquently — for good reason.

    1. The Rev Kev

      What if Donald Trump ordered the F.B.I. in? He would get to kick the Democrats in the guts as California is a Democrat state, by the same token he would be able to give Nancy Pelosi a kick as it is her state (guilt by association), he could also be seen as trying to protect pensions and be on the side of law and order for the little guy. It could be win-win for him right across the board.
      Just to be helpful, I see that CalPERS has its headquarters in Sacramento. So is a field office of the F.B.I. ( I’m sure the White House could dig up their phone number as it is in the book. He should ask to speak to the special agent in charge. I’m sure that they would take the call.

  5. George Phillies

    But is anything being done about the situation? For example, is the state attorney general getting certified mail letters whose first sentence is “this is a criminal complaint”, are process servers showing up anyplace, or are there newspaper editorials?

    1. Yves Smith Post author

      1. Remember that the candidates went into high gear only after Brown visited the IVS facility on Sept 15. The first step, even if you are going to sue, is to go to the party that screwed up and try to get them to fix it. Otherwise you look hysterical and as if you are more interested in hurting the institution than solving the problem.

      2. Next steps depend on what happens in 1. Now that CalPERS has lashed itself to the train tracks, the candidates can decide what to do. It would definitely help to mail or call relevant California officials, and we provided contact info here:

      So reader calls, e-mails, and/or letters would be a BIG help!

      3. The candidates have been trying to get press interest, which may finally be taking place.

      1. Lambert Strether

        A very important comment. And remember, it doesn’t take very many (courteous, well-reasoned, outraged) certified letters to make an impact!

        If somebody in your town were running for dog-catcher, and the town council were pulling shenanigans like this in that election, people would immediately see what was going on, and, with some effort and luck, stop the nonsense and ostracize the perps. But since CalPERS has its squillions, things are somehow different.

        1. George Phillies

          I agree the candidates are probably better off staying polite, but CalPers is holding money belonging to a fair number of people, some of whom have nothing to lose by being more emphatic in their complaints.

  6. Tom Stone

    CalPers may well be above the law, many are.
    How many bankers can you name that are above the law?
    And others, James Clapper, Eric Holder, Hillary Clinton…the list is a long one.
    These are relatively minor Kakistocrats as such things go, what happens to them will help clarify the caste system here in California.

    “American Citizens” now have fewer rights than a stray cat.
    Don’t agree?
    Try “Enhanced Interrogation” techniques on a stray cat and you will spend a few very uncomfortable years in prison.

    1. Yves Smith Post author

      1. Your list is of individuals, not institutions. The big TBTF did eventually pay large fines, but no where close to the damage they did. But there was at least a token effort to may them pay.

      2. The CalPERS CEO one before last is now serving 4 1/2 years in Federal prison for taking bribes, so CalPERS is not in the “too connected to be held accountable” list.

      1. Wisdom Seeker

        I realize this is a stale thread but as this appears to be the most recent post on this topic and the subject will get ongoing attention, I thought I should mention two points:

        Regarding “1. Your list is of individuals, not institutions. The big TBTF did eventually pay large fines, but no where close to the damage they did. But there was at least a token effort to may them pay.”

        I appreciate your sentiment here, but be realistic: the crimes were committed by human beings, and the institutions were not punished properly. The bankers inside the banks didn’t pay those fines. The shareholders, including CalPERS beneficiaries among others, suffered the losses imposed by the fines. That isn’t justice. Although it is an incentive for shareholders to reassert power vis a vis boards and management, that’s not enough.

        “2. The CalPERS CEO one before last is now serving 4 1/2 years in Federal prison for taking bribes, so CalPERS is not in the “too connected to be held accountable” list.”

        Or at least CalPERS “was not” too connected. It will be telling whether this time they are held accountable, or not.

        P.S. I regret that I’m not a CalPERS beneficiary; I would be writing my certified letters if I was.

    1. Clive

      Couldn’t help but sit up in bed and (temporarily) put down my morning cup of tea and rush to comment here, although I do hope this isn’t the final word as readers’ input is important.

      Which is: so much of what ails us in our modern societies are diseases of complexity and complication (in the same way the health-impacting conditions are diseases of diet).

      The mere fact the everything is so flippin’ complicated and just as above all of the contractual, legal, technological, bureaucratic, legislative, procedural and so on threads have to be woven together to get an understanding of the problem, then similarly a lot of the big issues we face require similar levels of getting ourselves clued up.

      Is it just me that wonders if all this complexity is a feature not a bug? It doesn’t, in this case serve CalPERS’ beneficiaries. It does, most certainly, serve CalPERS. Which, I think, tells you all you need to know.

      So Clive’s rallying cry is “everyone, please put your collective brains in gear and try to follow the plot, only then can we know what is really going on and take action where needed”. No, it’s not as snappy as “Make America Great Again”. But it is, I think a prerequisite to “Stop America Getting Worse”.

      1. vlade

        the problem is there is too many of us. many parts that can interact even with simple rules equals complex system.
        this also generates ambiguity, which we try to resolve by rules, which get evermore more complex and ambiguous. i call this vlade’s law of conservation of complexity and ambiguity

        1. barefoot charley

          I agree that complexification is a dark art practiced by insiders to fend off attacks from their victims, who, without following the Rube-Goldbergian devices of the screwing, only know they’re screwed . A rhetorical solution goes like this:

          Me: The global banking collapse isn’t actually that complicated.

          Friend: Oh no, it’s very complicated.

          Me: Here’s a simple way to think about it: when the savings and loan scandals exploded, and we spent $250 billion bailing out the thrifts, 2500 executives were sanctioned or went to jail afterwards. When the global mortgage meltdown exploded, we spent 8 *trillion* dollars bailing out the biggest banks, and 8 years sniffing at the associated scandals. But not one banker went to jail. They all got their losses made good, while millions of borrowers lost their homes. It’s not hard to see who Obama was working for. Forget the complexities. Look at the results.

      2. flora

        “Is it just me that wonders if all this complexity is a feature not a bug? ”

        I agree. The old shell game comes to mind.
        “The shell game (also known as thimblerig, three shells and a pea, the old army game) is portrayed as a gambling game, but in reality, when a wager for money is made, it is almost always a confidence trick used to perpetrate fraud. In confidence trick slang, this swindle is referred to as a short-con because it is quick and easy to pull off.[1]”

        The movements in the shell game look complex to the onlookers and the marks – far too complex to involve any rigging or cheating. That apparent complexity is designed to fool the cheated.

        1. Clive

          I like the shell game analogy. As you say it movements disguise what the con is. Or a variation of the same technique is the distraction burglary.

    2. PlutoniumKun

      Its certainly very complicated, and I must admit I’ve mentally zoned out at some of the more detailed legal/financial posts, but despite having absolutely zero general interest in US Pension Funds and Californian election law I’ve found the whole saga quite fascinating. I think Yves does an excellent job of explaining what is going on to those of us without a specific legal or financial background to know quite how bad this is.

    3. timotheus

      I for one have not found it overly complicated especially the balloting issues, which are disturbingly clear and suggestive of what is really going on. Sloppiness is an excellent smokescreen.

    4. Kim Kaufman

      Here’s what’s not complicated: CALPERS and board rigging election to make sure cronies get elected, not independents. This is easy and I think why it can get traction with media and public.

      Here’s what’s more complicated: board is lapdog to CALPERS not watchdog. To put this, in more specific terms, into a short paragraph that tells the story and grabs attention (I like details like former CEO in prison for taking bribes), I’m having a harder time with.

      Here’s what’s really complicated (to me): what is CALPERS doing that is hurting pensioneers, present and future? I was trying last night to put into a few sentences, or a paragraph or two, what that story is, in simple terms. I want to tell people why they should care about this election, why having an independent board will benefit them and what CALPERS, with the board’s complicity, is doing that affects them personally (or CA as a whole if CALPERS is unable to pay out its people) and why having an independent board will benefit them.

      1. Sluggeaux

        As I understand it, the problem couldn’t be simpler: ever since W’s 2001 tax cuts and post-9/11 military adventures were funded by Greenspan/Fed ZIRP policies, the boom-bust cycle’s frequency and amplitude increased, and savers such as pension funds have been unable to meet return targets. This has had two very serious consequences:

        First, government employers (overseen by short-termer politicians) and current government employees (and their unions) don’t want to have to increase current pension contributions in order to make up for lower returns in the Age of ZIRP.

        Second, in order to avoid these contribution increases, pension staff have gotten into bed with shady characters (mostly so-called Private Equity re-brands of Leveraged Buy-outs) in order to pump-up apparent returns in the near term, hoping that markets will “recover” back to pre-ZIRP levels in some imaginary future. Some of these politically-connected shady characters have been willing to funnel kick-backs to fund managers in order to steer fund money their way. The next-to-last CEO of CalPERS got caught with his hand in the cookie jar. The Board has been white-washing the investments he was steered-to ever since.

        The danger to pensioners is that if this denial continues, the fund won’t have the assets on hand to pay out promised benefits.

        1. TheCatSaid

          And the risk extends to all CA taxpayers. If/when CalPERS cannot pay its beneficiaries what they are due, CA state must pay the shortfall. IOW CA taxpayers will have to pay for the damage caused by CalPERS Board members that repeatedly fail to provide competent and ethical oversight of the incompetent and unethical CalPERS staff.

    5. Oregoncharles

      It was noted after the Great Financial Collapse that the extreme complexity of some derivatives was intentional; they were intentionally hard to understand, as a protective measure for fraud. I assume that’s a factor here, since it certainly appears that CalPERS has something to hide.

      More generally, the plague of complexity and ambiguity in our institutions serves as a guarantee of employment for various specialists, such as lawyers and, indeed, investment managers. That Yves is doing this work for little or no personal benefit (just supporting NC) is quite remarkable. And, of course, it’s an excellent way to cover up misfeasance. Not that we should underestimate mere incompetence or negligence.

      And speaking of lawyers, I assume they will quite soon be involved on BOTH sides, as Yves’ prior comment implies.

  7. HotFlash

    Just got back from the SacBee link, was disturbed at how, um, evenhanded it was. Fair and balanced. He said, she said. It was as if everything is a matter of opinion, that there aren’t actually any, you know, laws.

  8. James McRitchie

    Very troublesome. They argued that line with me too, Constitutional authority exempts them from laws. No, they can’t speed on the highways or ignore the APA. I appealed to the Office of Administrative Law and got regulations in 1999 and 2007 determined to be underground regulations. They were withdrawn by CalPERS. If anyone wants to use the same process to overturn these elections regulations, please feel free to contact me. I’m busy on corporate governance but could point you to previous determinations.

    When those at CalPERS think they are above the law, trouble follows. All the more reason to elect Brown and Flaherman to CalPERS

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