Half-Baked Plan to Institutionalize CalPERS’ Kangaroo Court by Board President Priya Mathur and General Counsel Matt Jacobs Suffers Embarrassing Rejection by Board; Instigators Unduly Eager to Revive It

As we’ve covered, CalPERS has used banana-republic level, legally-dubious procedures, like leveling charges in secret, to try to silence board members who are trying to serve the public and monitor staff, rather than act like rubber stamps.

In the face of critical press over these staff-serving campaigns to dirty up tough-minded board members, CalPERS Board President Priya Mathur looks to have teamed up with General Counsel Matt Jacobs in institutionalizing anti-beneficiary practices to allow staff to continue to run a $350 billion pot of money with no effective supervision. And make no mistake, CEO Marcie Frost is also responsible for this legally and morally dubious scheme.

Fortunately, this effort fell flat on its face at Tuesday’s CalPERS Board Governance Committee meeting, which was supposed to approve this shiny new tool for railroading board members and then send it to the full Board of Administration for a sign-off. That failure was due in part to the planned kangaroo court, presented in the Trojan horse of an anti-harrassment policy, being incredibly poorly and incompetently drafted.

But a significant number of board members were also concerned about overreaching provisions, such as relying on in-house lawyers for the investigation, and a failure to specify what potential sanctions might be. The latter matters because many of the planned punishments, like removing a board member from certain committees, would interfere with their ability to perform their fiduciary duty.

In addition, an unusually large number of prominent members of the public, such as Tim Behrens, President of California State Retirees, sDonna Snodgrass, an officer in the Retired Public Employees Association, board candidate Jason Perez, and former board member JJ Jelnicic, spoke out in public comments against the measure. This show of opposition is particularly impressive since key participants told me it was not orchestrated.

However, this rancid measure is not dead. Its backers are reformulating it and bring it back to the board. And we will discuss below, they are so eager to do so that they are trying to modify the long-set CalPERS board calendar to get to a new vote faster. The unseemly sense of urgency makes it all too clear that this plan is not about having sound policy in place, but giving a power faction that is starting to lose its control over events new weapons to deploy against perceived threats.

Background: How CalPERS Has Targeted Diligent Board Members

Board member Bill Slaton, backed strongly and completely inappropriately by General Counsel Matt Jacobs, ambushed board member JJ Jelincic at a January offsite last year, claiming Jelincic engaged in abuses that were never specified. As law professor and former general counsel Bill Black wrote in CalPERS Seeks to Destroy Its Most Effective Director:

First, while Slaton provided zero evidence of any wrongdoing by Jelincic, he demanded that that the board act “as soon as possible” to consider Slaton’s demand that the removal of Jelincic from the board. (A director that cannot take part in the closed board meetings cannot function as a director.) Without any showing by Slaton of anything remotely approaching an emergency, the board appears to be expediting its effort to muzzle Jelincic.

As a general counsel, I would have responded immediately to Slaton at the board meeting. First, I would have emphasized that Slaton had presented nothing to warrant the board considering such a drastic sanction against another director. Second, I would have stressed that Jelincic’s request that Slaton notify Jelincic’s of the specific charges was an absolute necessity… Third, I would have called attention to Slaton’s refusal to provide any facts…

We know is that CalPERS’ general counsel responded in a very different manner ….

Matt Jacobs, the General Counsel did speak up, but solely to implicitly support throwing Jelincic under the bus…. Jacobs failed to note that the board did not have the power under the powers he had just read, to impose Slaton’s proposed sanction.

To make a very long story short, CalPERS initially said it would give Jelincic a public airing of charges as he demanded. The pension system then reneged on this commitment and moved the process behind closed doors. Months later, they gave Jelincic the weak sanction of making him attend a course he said he would have wanted to attend had he known about it.

As we recounted earlier this year, CalPERS again tried to intimidate the new self-procliamed watchdog board member Margaret Brown via a private sanction. The implicit threat was that CalPERS could bring the matter public, and that that threat served as leverage. Brown herself instead exposed the sanction, over the alleged misuse of a scanner by a friend without Brown’s knowledge.

As Los Angeles reporter Mike Hiltzik noted in April:

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 on 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.

CalPERS Board Rejects Shoddy, Overreaching Official Kangaroo Court Policy

We’ve embedded the draft policy that the board voted down at the end of this post. If you view the video of the board session embedded below, you will see Matt Jacobs at 3:55 saying, “We think it’s pretty clean, and happy to entertain any discussion or comments, questions about it.”

Objective parties begged to differ. As Tim Behrens, who has considerable experience in EEO matters, said in his public comment at 25:43:

This seems like an ill-conceived document. I see no due process for the accused. You see that happens fairly often. I would urge this committee to put more thought into this language.

Similarly, board candidate Jason Perez stated at 40:33:

I’m kind of surprised it’s this sloppy coming to the table. I applaud you all for giving pushback on it.

It takes only a casual reading of the document to see obvious problems.

The entire premise of the policy is bogus. The very first paragraph states that the policy is to implement the “CalPERS Harassment, Discrimination, and Retaliation Prevention Policy.” There is no such policy.

The Office of the General Counsel is to perform the investigation. As Board member and head of CalHR Richard Gillihan pointed out, you can’t have staff investigating board member and his agency refers matters like this to independent counsel.

The sanctions were not specified, which leaves considerable room for mischief. As Board member Margaret Brown and the Treasurer’s designee Steve Juarez argued that many of the contemplated punishments could constitute violation of fiduciary duty and could therefore be challenged legally

One of the eye-rolling parts took place at 14:00 when Jacobs is trying to beat back the idea of having an independent party handle the process and keeping it in house, meaning under staff and the power faction on the Board’s control:

The Section B, this is 3B on Page 2, talking about – distinguishes between preliminary investigation and formal investigation and it says upon determining it formal investigation is warranted, the general counsel shall, with concurrence review panel appoint an invest gator who may or may not be a CalPERS employee. I’m personally completely happy with outsourcing this, but I’m also concerned about the cost to the agency of doing that when, if you farm it out, you can end up spending a lot of money because someone takes – you have seen some of the special counsels on a national level, spend millions of dollars. I’m not suggesting anything on that scale, but you, at least for the purposes of the preliminary investigation, there is some value in maintaining that within CalPERS, not necessarily the office of the general counsel, but within CalPERS. As I read this, the way it reads to me, at that point, if the GC, with the concurrence, of course, of the review panel, think that a formal investigation is warranted, they could assign it to an investigator. I think that is the point at which the determination Mr. Gillihan was making can be made about – with the concurrence, who ought to be doing this. I think the board members will have the sensitivity to know when that ought to be farmed out and when it can be effectively done in-house.

Help me. First, it isn’t a good look for Jacobs to be depicting the cost of the Mueller investigation in a Democratic-party-owned state.

Second, there is no way to pretend, as various parties pointed out, that an in-house investigation amounts to due process. And Jacobs actually gives a tell on this point. Notice his use of the word “sensitivity”. When did we hear that last? From Priya Mathur, when she was defending CEO Marcie Frost’s inaction on the evidence of resume misrepresentations, and still defending him. From the Sacramento Bee in April:

Board President Priya Mathur said Frost is “handling this matter with all due diligence and sensitivity. What I have seen of Charles’ performance is that he has been a very effective CFO since joining CalPERS.”

In other words, “sensitivity” is CalPERS-speak for going easy on favored parties.

Third, the idea that independent counsel could run up ginormous bills is ludicrous. When JJ Jelincic demanded and got his own counsel for the trumped-up non-charges against him last year, Jacobs set a budget of a mere $3500, which is tantamount to zero. The attorney complained and the ceiling was increased, but not all that much.

As the discussion went on, the normally chipper Priya Mathur started looking less and less happy. And the statements in public comments were deadly, particularly the one by former board member JJ Jelincic, which starts at 26:55:

JJ Jelincic:This strikes me as the perfect Mathur/Jacobspolicy. Does anyone really believe Ms. Mathur and Ms. Brown will be treated equally under the policy? I know what the public answer is. I ask you to look into your heart of hearts.

It purports to enforce the CalPERS Harassment, Discrimination, and Retaliation Prevention Policy. I’ve been around 30 years, seen policies dealing with all those subjects that I do not remember seeing anything ever being called the CalPERS Harassment, Discrimination, and Retaliation Prevention Policy.

I’m very bothered by the fact a board member may not have the right to a public statement of the charges and a public hearing. What will happen is there will be a public finding that the member somehow violated this nonexistent policy and the following discipline has been imposed. The board member is left to deny they’re guilty of this unspecified charge. I’m very sensitive to this because of my own experience.

Bill Slaton publicly accused of me of leaking confidential information but refused to disclose what I supposed disclosed. Roy Cohn – I’m sorry, Matt Jacobs, made up the charges. I believe that in order to protect his own incompetence or complicity, asserted the charges were secret and attorney-client privileged. The board’s fiduciary council said the privilege belonged to the board. However, board members who asked were denied access to the charges. The charges were so secret that the client couldn’t even see the attorney-client privileged document.

Why is this dangerous? Let me make up an example. I won’t violate the attorney-client privilege by talking about specific charge. Let’s say the Sacramento Bee wrote about an investigation in January of 2012. In May of 2015, a board member mentioned the investigation. A board member could be accused of found guilty of discussing confidential information but prevented from ever disclose the accusation or showing it was false or that the information was public and not confidential.

Members of the board, especially elected members, deserve a fair and public hearing in defense. Removal from a committee or blocking participation in board meetings may be more punishment for the CalPERS members and constituents than the actual public official.

Although it may make for more efficient railroad and lead to shorter meetings. I would encourage greater specificity about the privileges that could be forfeited. Does that include the catered meals behind the stage? Ringing the bell at the London stock exchange? Meeting with members? Although chief counsel has opined that doesn’t cover. Travel to training? Seems to be in doubt. I guess it will depend who’s being punished. I urge you to reject this policy. Thank you.

Jelincic’s abbreviated recap of some of the abuses he suffered included that he was artificially gagged by being faced with the claim that his censure was subject to the Board’s attorney-client privilege. That’s absurd since Jelinic was inherently adverse, had independent counsel and had even sent in a “Notice of Adverse Interests” before the process started. How his attorney Karl Olson did such a poor job of lawyering so as to let this stand is beyond me. Or did Jacobs succeed in neutralizing him by setting such a meager budget for Jelincic’s defense that Olson dialed it in?

In addition, Jelincic also effectively says that he was accuses of leaking confidential information when one of the instances was something that had already been made public in the Sacramento Bee. That should give any concerned citizen pause.

Donna Snodgress, an RPEA official who also has been an EEO investigator for California, raised concerns at 31:29 that the policy was designed to evade public disclosure under the Bagley-Keene Open Meeting Act, and also was deficient as far as due process was concerned. Al Darby, the president of RPEA, argued that the policy was off-kilter since it was based on a UC Regents misconduct policy, when CalPERS was attempting to craft an anti-harrassment policy. At 33:00, he too objected to due process failings:

I want to reiterate what the others have said, that there does not seem to be due process in this procedure. It doesn’t appear that the accused can face the accuser and get a clear understanding of what the context of the action was that caused the harassment to be charged or misconduct to be charged.

Will a Proper Policy Come Back or Not?

This plan suffered a second setback on Wednesday. At the Tuesday meeting, the Board Governance Committee had decided to allow staff to bring back a revised policy back directly for a vote of the full Board of Administration, short-circuiting the usual process of going to the Board Governance Committee first. Only when it is approved there does it go to the full Board of Administration.

However, at the Board of Administration meeting on Wednesday, Margaret Brown expressed concern over circumventing the usual process of having committees review and approve Board policies before being presented to and approved by the full Board of Administration. the State Treasurer’s representative Steve Juarez pointed out it would be setting a bad precedent not to trust the committees to do their work and pick and choose how to move various initiatives forward. The full Board of Administration thus failed to approve of the plan to review the revised policy without having it approved by the Board of Governance first.

Board President Priya Mathur and her allies appear to have an undue sense of urgency about getting their pet plan approved. There is no objective reason to give this policy such high priority, yet the board discussed to override decades of practice at CalPERS by forcing the scheduling of a Board Governance meeting for September, as if this policy represented some sort of emergency (the next had been set for December 2018). And Marcie Frost, who has managed to increase her control over CalPERS as well as her pay, continues to adopt the practice so common in diseased corporations, of wanting the kudos for being in charge yet pretending never to be responsible for anything in particular, including this fiasco.

1 We argued at the time that the claim that Brown had done something wrong was based on a willful misreading of statute.

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  1. vlade

    Oh, I think they have a reason for urgency – as more and more of CalPERS dodginess hits the wires (starting with you, but now making it all the way to SBee), it becomes more and more likely that someone in the legislature will see votes in it.

    So they see more and more need to squash any real scrutiny, and and the “enemies of the people” (well, sure, some very specific people..)

    1. flora

      This analysis of the reason for urgency sounds right.

      Thanks to NC for continued reporting on CalPERS, PE, and pensions.

      1. flora

        adding: I especially liked Mathur and Jacobs hiding behind Virtue’s skirts to push for a corrupt practice… and failing.

        “That failure was due in part to the planned kangaroo court, presented in the Trojan horse of an anti-harrassment policy,”

        1. flora

          adding: from J J Jelincic

          “Bill Slaton publicly accused of me of leaking confidential information but refused to disclose what I supposed disclosed. Roy Cohn – I’m sorry, Matt Jacobs, made up the charges.”

          Roy Cohn? ouch! For those unfamiliar with the Army-McCarthy hearings in the early 1950’s, which gave rise to the term ‘McCarthyism’, Roy Cohn was McCarthy’s chief council and gained special prominence during those hearings.

          1. Adam Eran

            JFYI, Cohn was Trump’s lawyer as he was coming up in the real estate world. One of his key bits of advice: Never admit you’re wrong.

  2. Tom Stone

    Watching the preening kakistocrats of CalPers service the public (Good and hard) is always entertaining.

    1. tegnost

      kakistocrats live in a kakistocracy….I’m waiting, but not holding my breath, for the leaked tape of leon black excoriating his bought staff member for not delivering the kaka. As Cali goes, so goes the nation, everyone should be worried in a way, but leading the nation in being exposed as kakistocrats could have some significant benefits.

  3. The Rev Kev

    So I was watching Matt Jacobs presenting that document and claiming that after researching, the only model that he could find that matched CalPERS requirements were from the University of California Regent’s policy. I do hope that he realizes that with a Google search that there are more than one page of results. Half-baked is right as the proposal seemed deliberately vague and incomplete. It might have been better to circulate this around CalPERS first to iron out any problems but I think that the intent was to ram it through and then add in any bits that they wanted later after it was too late. It didn’t work. I have commented in the past that CalPERS seems to get a lot of political coverage and I do note that with Jacobs, he is recorded as working for both the Department of Justice in Washington, D.C., and the U.S. Attorney’s Office in Sacramento so maybe he at least still has lots of buddies that still work there.
    Priya Mathur’s reaction to the whole thing was also interesting. She could have used an internal court like proposed here four years ago when she was stripped of her Vice Presidency, her chairmanship of the CalPERS Pension and Health Benefit Committee and vice chairmanships of two other committees as well as being fined $4,000 for failing to file timely campaign finance reports for 2012 and 2013. How she still made CalPERS Board President after that is a bit strange. That sort of stuff never looks good on your resume. If Jacob’s ideas were in use back then that issue would have been deep-sixed while J.J. Jelincic, who was in trouble at the same time for criticizing Ted Eliopoulos, might have got the boot.
    The term Kangaroo Court has been in use for a very long time internationally but maybe, after listening to Jacob’s ideas, it is time to introduce another Australian term-

    “Rafferty’s Rules”
    noun [ plural ]
    Australian/NZ informal

    A situation in which there are no rules; used especially when referring to a competition, system, etc. that is not well organized:
    It’s hard to regulate financial systems, but that’s not an argument for Rafferty’s rules.

  4. Brian

    “reporting by Webber” is mentioned on one line. I don’t know if there is a “Webber” in the board, so it sounds like Yves’ reporting they mention.
    This is looking more like a train wreck in slow motion.

  5. David in Santa Cruz

    Jacobs continues to show himself to be completely unethical. California State Bar Rules of Professional Conduct Rule 3-310(C) bars lawyers from representing adverse interests without informed written consent from all affected parties. Jacobs continued bullying of the Board is a clear violation of this Rule of Professional Conduct.

    One can only conclude that Jacob’s quite apparent task as a criminal defense attorney hired by CalPERS staff, is to cover up the diversion of assets by CalPERS staff to high-fee poor-performing investors who are willing to kick-back part of the money invested via lobbyists to politicians. He now wants to make the Board subordinate to staff via this kangaroo process. This is in direct conflict with the Board’s State Constitutionally-mandated duty of fiduciary oversight.

    Follow the money.

    1. Synoia

      File a complaint the the California bar.

      If you don’t live in CA and want standing in the state, any retiree or person who’s pension is held by Calpers probably has standing.

      I don’t know if any CA resident has standing.

  6. RUKidding

    I would love to be able to say that is “unbelievable.” Sadly it’s just par for the course and yet another day that ends in “y” at the corrupt Board and management of MY retirement funds.

    Keep up the good work and thank you for all you’ve done in this regard, Yves. My numerous letters to legislators and other CA “grandees” in government appear to have little effect.

  7. Synoia

    I’m a little curious. Apparently CAPERS executives as so successful at investing at growing the piles of money in their care, that they have all this spare time to introduce cockamamie schemes to avoid being rewarded, held accountable, for their success.

  8. ScottS

    No one else was tickled by the irony of CalPERS saying outside counsel is an unnecessary expense, but they have no problem throwing good money after bad at private equity?

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