CSU Council Calls for Investigation of CalPERS CEO Marcie Frost’s Hiring

CalPERS CEO Marcie Frost no doubt assumed that she had managed to ride out the fact that she made misrepresentations about her educational history and work experience, going back to 2013 in Washington State, where she made false statements in her own hand on a gubernatorial questionnaire filed under penalty of perjury.

After her annual review, in which it was clear that the board decided to do nothing, State Treasurer John Ching issued a press release calling for an independent investigation. And more shoes seem to be dropping. For instance, the head of an important stakeholder organization remarked to someone who had supported investigating Frost, asking for reassurance that they hadn’t given up on getting rid of her.

As you’ll see below, the lead story in the California State University Emeritus and Retired Faculty and Staff’s November newsletter is: “Council Calls for Investigation of CalPERS CEO Marcie Frost’s Hiring.” Key section:

CSU-ERFSA’s State Council on October 13, 2018 approved a motion from its legislative committee strongly recommending that a letter be sent to all members of the CalPERS board, as well as to appropriate legislators, supporting the call of Board members John Chiang and Margaret Brown for an independent investigation of the hiring of CalPERS CEO Marcie Frost.

On page 8, the newsletter reproduced part of the public comment by former CalPERS board member George Diehr:

My name is George Diehr, Emeritus Professor at Calif StateUniversity, San Marcos; a retired member of CalPERS; and a former Board member serving from 2003 through 2014. I am here to present my concerns about the hiring of now CEO Ms.Frost.

In brief, the key issue is Ms. Frost’s misrepresentation of her education—specifically, claiming for several years that she was pursuing a program at Evergreen State College that would lead to both a bachelor’s and master’s degree. That was and is simply not true. She started 2 writing courses but turned in no assignments
from either one. She was never enrolled in a degree program there.

Ms. Frost originated this myth many years ago and repeated the claim on her application to CalPERS. The claim was posted on line by CalPERS and Board members repeated the myth to constituents. Even after she was hired she did nothing until very recently to refute or correct documents and a press release that perpetuated the myth. It seems reasonable to believe that if Ms. Frost had been truthful and completely upfront about her actual college experience she might not have been hired.

Criticism has been leveled at the original source of information about her misrepresentations—the Naked Capitalism blog— essentially charging it with “fake news.” This is shooting the messenger. The majority of NC’s assertions have been validated by Bloomberg and others. Sunday, Michael Hiltzik, a Pulitzer Prize winning LA Times journalist, wrote an article titled “Pension fund CEO’s murky hiring.” As a CSU professor put it: “Ignore Hiltzik at your peril.”

If this issue is ignored, it will return to haunt CalPERS with the next attack on public pensions—most likely when there is another downturn in financial markets.

I conclude that it is essential that a thorough investigation be conducted; and that it be conducted by an independent, external organization, not one selected by CalPERS Board, which is so heavily invested in their decision and in the CEO. In addition to the misrepresentation, the investigation should determine why,
for example, a bachelor’s degree was not a mandatory requirement as is the case with most pension system CEO searches. Given the debacle in the hiring of the previous CFO, this investigation should also recommend changes in the CalPERS hiring process to ensure that this situation does not repeat.

Editor’s Note: In spite of our and other entreaties about CalPERS CEO Marcie Frost, the Board of Administration gave her a vote of confidence at its meeting September 24, 2018, along with an $84,873 bonus. Her base pay is now $330,720. CSUERFSA, along with others, has called for an investigation into Frost’s hiring. Some of the Frost controversy seems to have been fueled by her urging the Board to approve a new organizational scheme for private equity investing, which some consider to lack accountability.

If you are in California, I hope you’ll circulate this post, or alternatively, the newsletter widely, calling attention to page 8 as well as the lead story.

CSU Reporter-Nov-2018
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  1. The Rev Kev

    I’m going to go with the idea that the CaLPERS Board brought this all down on their own heads when, after the controversy of Frost lying her *ss off on her resume came out, that the Board gave her a vote of confidence as well as an $85 thousand bonus. It might have been smarter for the Board to pull their horns in but no, they told all their critics what they could do with themselves as well as the horses that they rode into town on. This pushback is not going to go away and I am seeing more and more stories appear in main stream media publications. It is also never a good sign when you appear in the cross-hairs of a Pulitzer Prize winning journalist either. Expect to see more stories like this over time as the pressure slowly starts to ramp up.

  2. Bob

    Hmm. Looks as if Marcie is going to be tossed under the bus. And I’d bet that she will be strung along to continue to divert attention from the board.
    Any guesses if CalPERS will continue to pushing the present investment strategy.?

  3. divadab

    This point has been made in this venue before but I think it bears repeating – this CalPers fiasco has all the hallmarks of a “rotten borough”-type political organization, where candidates for public positions are selected by hidden powers to be attractive and compliant. And due to the diffuse and indifferent stakeholder group (clearly since the voter turnout was only 6%!!!), it is easy for the hidden powers to get whichever unqualified but attractive and compliant person they want in key jobs.

    Marcie Frost is a symptom, so obviously unqualified that it seems the hidden powers are losing their grip. SO who are these hidden powers – cui bono from the appointment of a tool rather than a competent manager? This seems to me to be the key question.

    1. mle detroit

      Thanks. divadab. Cui bono is always a key question; it’s why I enjoy mystery novels. (And thanks to Yves for this ongoing saga.)
      I suggest looking first at the last five years of all CalPERS board members’ so-conveniently-pre-signed T&E reports. Between Kwame Kilpatrick and the city employees pension board members, the results of being wined and dined and otherwise entertained was a huge part of Detroit’s bankruptcy.

      1. JTMcPhee

        I believe Orange County, CA, suffered from the same disease. https://www.nytimes.com/1994/12/08/business/orange-county-s-bankruptcy-the-overview-orange-county-crisis-jolts-bond-market.html

        Would it be endemic, or epidemic? And is there any cure, or only palliative measures and occasional excisions of particularly nasty boils?

        Frost, as noted, is just a symptom. One wonders (not very seriously) why all the diseased tissues are not abated — from legislative enabling to “staff” to “the board” and those hidden “deciders” posited above. Purely rhetorical question, of course, in light of the cui bono point. The bigger the fraud and theft, the less likely that any remedy will be applied — money = power and impunity.

        1. blennylips

          > I believe Orange County, CA, suffered from the same disease.


          The Gray Lady missed the best variation of this particular outbreak:

          Pay-to-play, psychics: https://www.highbeam.com/doc/1G1-17952170.html

          more, via duckduck, like

          Man blamed for Orange County bankruptcy dies – USA TODAY
          Jan 17, 2013 · ORANGE, Calif. (AP) — Robert L. Citron, the Orange County, Calif., treasurer-tax collector whose bad investments forced the county into bankruptcy in 1994, has died. He was 87

  4. flora

    Very good.

    I believe Mr. Diehr is correct when he writes:
    If this issue is ignored, it will return to haunt CalPERS with the next attack on public pensions—most likely when there is another downturn in financial markets.

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

  5. Matthew G. Saroff

    Someone at CalPers, is clearly profiting from these shenanigans.

    My questions are who is/are this/these person/people, and how are they profiting?

    That’s the unanswered question so far.

    My (completely uneducated) guess is that the PE firms make a habit of hiring CalPers staffers after they retire, and so it is what I call back loaded bribery, but there has to be a pattern for the current insiders to see in order for that to work.

  6. HotFlash

    Thank you for this, Yves. I always get a fresh cup of coffee when I see a CalPERS post and settle in for a good read. Well, *two* mugs later — I read the CSU-ERFSA Reporter top to bottom, fascinating! — I am once again impressed with the reporting and the strategy. I believe that both Yves and Bill Black favour the method of catching a small fish dead to rights and getting them to flip on their higher-ups, thence up the chain of command. Harder to do when your main tool is public shaming, as opposed to a subpoena and statements made under oath, but with an official investigation coming up, perhaps that might happen. I look forward to it.

    In addition to the entertainment value for those of us who are neither beneficiaries of CalPERS nor CA taxpayers, it is a lovely object lesson in the necessity of citizen supervision of public institutions and a blueprint for doing it.

  7. Susan the other

    The board serves in a fiduciary capacity and their decisions must be based on factual data. They should all be in defensive mode about now. Marcie herself has no excuse for her misrepresentations and it can be assumed that if she lied about her qualifications she is also ready to lie for her management decisions. Not to mention how costly PE investment has been for CalPERS. Add to this the possibility that Marcie could be defrauding CalPERS and/or accepting gifts from PE firms, etc. Well it just is a bad situation all around. If the board does not have clear guidelines for hiring well qualified CEOs and management personnel, it really should not be a legal issue at this point, because Marcie lied. And that’s the bottom line. She won’t have a case against the board for firing her for cause. They can always help her save face by saying she is resigning to finish her masters degree! and further her career.

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