The Los Angles Times’ Pulitzer-Prize-winning reporter Mike Hiltzik confirmed our reporting on the misrepresentations and discrepancies in the resume of recently-hired CalPERS Chief Financial Officer Charles Asubonten and called on the board to investigate. If you managed to miss the series, you can find the links to them at the end of this post.
But what is particularly surprising about his article, Questions about new CalPERS CFO’s background and experience should be taken seriously by the pension fund, is that the CEO Marcie Frost and Asubonten spoke together to Hilzik on the phone and yet did not deny any of the issues raised in our series (to be clear, talking around a problem does not amount to disproving or denying it). Hiltzik may have covered more points with them than he discussed in his article; I pinged Hiltzik to congratulate him on the piece and he mentioned not being able to cover certain discrepancies due to space constraints.
It is even more surprising that Frost decided to act as her own flack rather than get a professional involved when neither she nor Asubonten have disputed any of the facts presented in our series of articles (and bear in mind, they had more than a week between when I e-mailed the board with a detailed outline of most of the misrepresentations and when I launched the series.
I urge you strongly to read Hiltzik’s article in full, but in case you are time pressed now, here are the high points.
Frost and Asubonten effectively admitted to resume discrepancies. Hiltzik’s story focused on two of Asubonten’s major claims. One was that he was responsible for what he stated was a 70% CAGR increase in the stock price of Palabora Mining Company. Hiltzik confirmed what we had found, that the stock price was in the upper 40s when Asubonten joined versus the 20s that he had put on his resume, and never fell that low the entire time he was there.
Hiltzik also questioned the premise that any mid-level manager could have the impact that Asubonten asserted that he had. He also mapped Palabora’s stock price against the price of copper, showing that the commodity price moves alone largely explained changes in Palabora’s stock price.
The second major claim that Hilzik investigated was one that both Asubonten and later CalPERS made, that he had been the managing director of a private equity firm. Frost in attempting to defend Asubonten admits that our assessment was accurate, that Asubonten was never a private equity professional, as in employed in an asset management firm that was investing money on a discretionary basis. Frost stated that Asubonten’s company was a consulting firm.
As we pointed out more than once, consultants to investors, including very prestigious ones like McKinsey, BCG, and even ones whose business is primarily that of consulting to investors like Houlihan Lokey never call themselves private equity firms. Even worse, Frost said that per Hiltzik, “her understanding” was that Asubonten’s firm was a consulting firm that advised international investors. That strongly suggests that even in the face of the controversy over Asutonten’s truthfulness, Frost has made no effort to make any independent verification of the questionable claims on his resume, and on top of that, is trying to rationalize ones that clearly were misleading. Hiltzik observed that CalPERS’ parroting of Asubonten’s dodgy “private equity firm” claims would probably not pass muster with the SEC if CalPERS were a public company.
Asubonten made a new claim that does not match up against public information. Marcie Frost told JJ Jelinic that Asubonten admitted to a period of unemployment, which we had assumed was after he was terminated from Palabora Mining Company at the end of 2009 through at least the end of 2010, since according to the suit he filed against Palabora in South Africa, he was looking for a job then.
This is what Asubonten told Hiltzik:
He said the employment gap on his resume covered a period in which he was working with a consortium on an ultimately unsuccessful effort to buy the copper mining company.
That does not hold water. As you can see on the resume embedded at the end of the post, at the top of the second page, he depicts himself as having been involved in his private equity activities staring in 2010 to 2012. Asubonten told the Los Angeles Times that that “employment gap” was occupied by working with unsuccessful bidders to buy Palabora.
But Palabora was not put up for sale until early September 2011. Moreover, having participated in mergers and acquisitions at Goldman, later running a mergers and acquisitions business, and subsequently worked regularly with investors, typically on the buy side, it is clear that Palabora’s majority owners Rio Tinto and Anglo American put the company up for auction, which is how companies are sold to get the best price.
Mind you, virtually all divisions of large companies are sold via auction. The only time a seller, particularly a seller that is a public company, might deviate from that practice is if a public sale could damage the value of the asset, if there were some critical senior executives who might bolt in the event of a public sale and would therefore have a major say on who the new company owners would be. or there were competitive considerations. None of these would apply to a relatively small, non-strategic operation like Palabora.
It is similarly inconceivable that Rio Tinto would have been engaged in any serious discussions with potential buyers prior to putting the company up for sale. It’s too well demonstrated that auctions yield the best price for corporate seller to engage in a preliminary time-wasting exercise when a property eventually be sold publicly in a highly structured process. Similarly, any serious buyers would know they’d at best be setting up a public sale if they were to approach a possible seller. Thus, the usual practice among possible purchasers is simply to let a potential seller to be sure to include them in any future buyer solicitation rather than put any energy into putting together an offer.
Having said all of that, it is credible that Asubonten did get himself a consulting assignment with one of the groups that was kicking Palabora’s tires. As a former CFO of the unit, Asubonten could present himself as having inside information about the operation and knowing its cost structure particularly well. But even with established clients (as in they know my price and terms and have accepted my standard agreement), I’ve never had it take less than a week and a half to firm up arrangements on an assignment. So charitably, the earliest Asubonten could have been engaged to work on a purchase of Palabora would have been mid September 2011. That leaves a full 20 1/2 months of unemployment in 2010 and 2011.
Hiltzik dings the board for behaving “childishly” and shirking its duties. From the close of his article:
…the board has shown itself to be one of our less impressive public bodies. Just a year ago, as I reported, the board was bogged down in intramural bickering and attacks on one of its most tough-minded members, J.J. Jelincic.
As recently as last month, this behavior surfaced again, when board President Priya Mathur locked board member Margaret Brown out of CalPERS premises over what appeared to be a minor infraction. Moreover, according to a letter sent to Mathur last Friday by James Moody, an attorney for Brown, and reported by Webber, Mathur or CalPERS staff under her direction have been diverting mail addressed to Brown at CalPERS—and apparently to other board members as well—and in at least some cases not sharing its contents with the addressee….
All this suggests that the CalPERS board members need to be given something serious to work on so they have less time to act childishly. A good place to start would be to inquire just how one of the system’s most important executives was recruited and hired, and whether he’s everything his CEO says he is.
Since as Hilzik points out, neither Marcie Frost nor the board seem inclined to ask the questions they ought to be asking about Asubonten, CalPERS beneficiaries and California taxpayers need to give them a nudge
Here are the members of the Senate Standing Committee on Public Employment and Retirement:
Here are the members of the Assembly’s Public Employees, Retirement, and Social Security Committee:
And here are the contact details for the two elected state officers who also sit on CalPERS’ board:
Mr. John Chiang
California State Treasurer
Post Office Box 942809
Sacramento, CA 94209-0001
Ms. Betty Yee
California State Controller
P.O. Box 942850
Sacramento, California 94250-5872
Naked Capitalism reader have have an impact when snail or e-mailing California state officials on CalPERS matters. I hope you’ll rise to the occasion again.
If any of the legislators above represent your district, I would write them expressing your concerns about governance at CalPERS. Or you could write all the members of both committees and tell them you have friends and family in their districts and plan to call their attention to the festering problems at CalPERS. If you are a CalPERS beneficiary, be sure to mention that.
If CalPERS can’t respond properly to the LA Times saying that its CFO’s resume doesn’t add up, and is not even allowing board members to get its own mail (link to our post yesterday), how can it possibly be up to the challenge of handling its underfunding crisis? Tell them the board governance is so clearly inadequate that they need to create an inspector general for CalPERS to provide badly-needed supervision. Copy Yee and Chiang, who as statewide officials are also sensitive to constitutent letters.
Thanks so much for your interest and efforts!