Board Member Margaret Brown Sues CalPERS, Board President Over Gang-Style Retaliation for Efforts to Oppose Its Incompetence

Pulitzer Prize winning reporter Mike Hiltzik has criticized the CalPERS board for “acting childishly” and wasting energy on “intramural bickering” and imposing sanctions on its pro-transparency, pro-accountability board members, first JJ Jelincic, more recently Margaret Brown rather than engage in oversight of the giant fund.

But rather than focus on executing its fiduciary duty, the board has doubled down on acting as the staff’s enforcer and attacking dissidents who call out incompetence and abuses. The campaign against Brown has risen beyond petty harassment, like locking her out of her office, to measures that look designed to undermine her ability to perform as a board member and negatively effect her campaign for re-election.

Brown has apparently had it with the CalPERS’ and its captured board’s range war and has filed suit, which we have embedded below. The form is a Writ of Mandate, which is a petition to the court to compel a government body either to undertake an action or stop taking certain actions.

The Brown Writ, is parsimonious and describes how CalPERS has instituted a “discipline” process for board members that makes kangaroo courts looks good; it’s the sort of thing you see in gangs and fascist regimes. It gives the board president, currently Henry Jones, the power to make charges and levy punishments, with no fact-finding, opportunity for rebuttal, independent adjudication, or appeal. In keeping with the totalitarian nature of the process, there is also no notion of the sanctions being proportional to the alleged offense; recall again that Hiltzik criticized CalPERS for even bothering to take action against board members for trivial lapses.

And in this case, the “lapse” was created by CalPERS.

One of the ways that CalPERS’ staff seeks to exercise control over the board, when the board is supposed to be in charge, is through restricting their communications.1 Brown’s alleged offense was using a Twitter handle @calpersmargaret, which CalPERS claimed was impersonating CalPERS. This strains credulity, since the name is clearly that of an individual, not an institution. CalPERS’ vendetta against Brown is even more obvious given that CalPERS hasn’t acted against former and other current board members who use “CalPERS” as part of their Twitter name:

Other active Twitter accounts with CalPERS in them include @calperswatchdog, @Calpers_Andy, @CALPERSRND, @Calpers10 and @Calpers15.

Brown had had her account up for over eighteen months and had seldom tweeted (Facebook is her preferred social media platform). What apparently triggered official ire was Brown encouraging CalPERS beneficiaries to vote in the last board election! This was her final tweet:

Brown was supporting former board member JJ Jelincic, who was seeking to return. Given that other board members had endorsed the incumbent, the very Henry Jones who upon his being chosen as board president, then sanctioned Brown, his action looks like revenge, particularly given that the basis for the move was fabricated.

CalPERS did send Brown a cease and desist letter regarding her allegedly impermissible Twitter handle, But less than 24 hours after sending Brown that e-mail, CalPERS had gotten Twitter to suspend her account. That suggests that CalPERS had never intended to give her the opportunity to “cease and desist”; its demand to Twitter had to be close to simultaneous with their demand letter and may well have preceded it.

That also means the claim that Brown didn’t comply is bogus because she was denied the opportunity to comply. So the action against her is on fabricated grounds.2

CalPERS’ assertions about Brown’s actions, presented in its letter dated September 16, 2019 which we have embedded below, don’t hold up to scrutiny. As one CalPERS insider wrote:

CalPERS makes arguments beyond absurd. Their first argument is that Brown is violating the law that makes it illegal to use public resources for political campaigns. What they are saying is that the word “CalPERS” is a public resource. However, among the many problems with this are:

California law requires all candidates for public office to use the name of the office (and the election year) in their campaign committee name. So Joe Smith running for the CalPERS Board would have to have a committee name along the lines of “Joe Smith for CalPERS Board 2020.” Further, California law requires all electoral candidates to have the name of their campaign committee on their campaign materials. So, by CalPERS’ standard, no candidate for the CalPERS board can avoid running afoul of misusing the CalPERS name for campaign purposes.

CalPERS claims that the Business and Professions Code 17533.6 “prohibits any person from using a state agency’s name, such as CalPERS, when the use could be construed as implying the state agency’s connection, approval or endorsement unless the person has the express authorization of the state agency.” However, this is flat out not what the law says. Instead, the law prohibits such use explicitly if the materials imply a government body’s “connection, approval, or endorsement of any product or service [emphasis added].” Brown is not selling anything, so this entire provision does not apply to her. Moreover, this provision of law contains an explicit safe harbor, where even if Brown were engaged in commercial promotion, it is only prohibited “unless the nongovernmental entity has an expressed connection with [emphasis added], or the approval or endorsement of, a federal, state, or local government, military veteran entity, or military or veteran service organization.” Since Brown clearly stated her connection to CalPERS in her Twitter account, this prohibition does not apply for this reason as well.

It is par for the course that the letter from non-lawyer operation chief Kim Malm also misrepresents the reach of CalPERS trademark.3 It is cringe-making to see Malm claim “….the use of the word ‘CalPERS’ for unauthorized purposes violates CalPERS federal trademark rights.” Really? Then pray tell how can critics and analysts talk freely about CalPERS? The CalPERS Ministry of Truth has not authorized anything other than happy talk.

In keeping with the discussion of the Business and Professions Code above, the purpose of a trademark is to identify and brand particular goods and services and to protect the company using the trademark from copycats.

There’s a long history of gripe sites that incorporate the name of the targeted company, such at www.goldman666.com, being recognized as non-infringing because they are clearly not competing with the business they are trashing. Indeed, as ars technica explained:

When we spoke with EFF staff attorney Corynne McSherry in 2007 about Lowes-sucks.com, she noted that “gripe sites like this are protected—in fact, [the courts] want people to speak freely and share information about their experiences with various companies.” She said that trademark holders sometimes lose sight of the point of trademark law, which is to protect consumers and provide them with good information about a company’s product. Gripe sites provide information on someone’s consumer experience, she said, which is not only allowed under trademark law, but protected by the First Amendment.

Jones is denying Brown reimbursement for CalPERS-related travel, such as to beneficiary meetings. This sanction explicitly negates her ability to execute important duties as a board member as stipulated by CalPERS

CalPERS has set forth board member obligations that are eligible for “release time,” as in CalPERS will reimburse any employer of a CalPERS board member for time spent on these tasks. From Item 6c at the Finance and Administration Committee board meeting on November 19, 2019, Board Member Employer Reimbursement:

The costs associated with employer reimbursements are based on the percentage of time the elected Board Member spends on his or her duties as a member of the CalPERS Board of Administration. he percentage is based on the elected Board Member’s time away from their regular work schedule to fulfill his or her responsibilities to the system….

The baseline hours represent the “routine” activities of Board Members, including offsites, workshops, and interviews; preparing for Board and Committee meetings; meetings with staff, consultants, beneficiaries, stakeholders, or industry experts; responding to individual constituency e-mail, telephone calls, or correspondence; and keeping current on pension fund and health industry issues.

See this worksheet from an April 2020 board meeting document. Virtually all of the items involve travel:

The travel ban clearly undermines Brown’s ability to perform her duty as one of only two board members elected to represent beneficiaries as a whole. Not only can she not meet with them in person to hear their concerns, but she is also being put at a disadvantage compared to other board members who can freely meet with beneficiaries.4

In addition, Brown is also being blocked from attending industry conferences. Brown has made a point of going only to forums in the US where she can obtain fiduciary duty training, Curiously, other board members see no incongruity in going on junkets to Europe, Australia, or South Africa despite the bad optics of such lavish travel when CalPERS is seriously underfunded.5

So it appears the CalPERS board and staff want to keep board members barefoot and pregnant uninformed and dependent on staff. Jones evidently does not want Brown to have information on which would help her evaluate the staff.

Not that it even takes all that much know-how to be better informed than the CalPERS board. Today’s Wall Street Journal had letters to the editor on the Journal article last week on CalPERS’ reckless bet to pile on risk via more private equity, private debt, and fund-level leverage when asset valuations are at record levels despite poor prospects for the economy for the next eighteen months and quite possibly longer. They were all critical. One particularly damning missive from Mark Holmlund of Glenbrook, Nevada:

Compare Mr. Meng’s strategy with that of Stephen Edmundson, who runs Nvpers next door in Nevada and uses index funds almost exclusively. As of June 30, 2019, 46% of the Nevada fund’s portfolio was invested in an S&P index, 18% in the MSCI ACWI all-world ex USA Index, and 25% in a U.S. bond index. Only 10% of the portfolio was allocated to a mix of private equity and private real estate, and the fund uses no leverage. The portfolio’s one-, five- and 10-year returns as of June 30, 2019 were 8.5%, 7.1%, and 9.9%, respectively, compared with Calpers’s comparable returns of 6.7%, 5.8% and 9.1%.

All of this was accomplished at a fraction of Calpers’s cost and staffing.

It has to stick in their craw that despite their efforts to gag her, Brown was the focus of a prominent article in yesterday’s Financial Times: Calpers board member objects to $80bn leverage gamble. And as we’ve indicated, it’s appalling, yet at this point no surprise, that the rest of the board is so financially illiterate that they don’t share Brown’s alarm about the risks or having staff lie to them. From the article:

She added that when the board initially gave approval for adopting a 20 per cent leverage strategy, there was no discussion that most of it would be for private equity and private debt.

In other words, Jones’ and the staff’s juvenile campaign against Brown would merely be yet another pathetic proof of how far CalPERS has fallen were the stakes not so high.

I hope readers will consider donating to Brown’s litigation fund. Even a small contribution will help. And please circulate this post to California readers since bad CalPERS bets will come out of taxpayers’ hides. Brown is the only one on the board looking out for their interest, and it would be nice if they did more to protect her back.

_____

1 For instance, board members don’t have access to CalPERS letterhead; they are treated like children and have to submit the text of any missive to staff, which then prepares and sends the letter. Needless to say, this amounts to a review by staff of board communications and gives them the opportunity to object and delay. By contrast, as a newly-hired associate at Goldman, I was issued my own stationery with the firm’s logo on it.

2 Moreover, Brown was denied the opportunity to keep her old account up and redirect it to a new account, which is what CalPERS eventually asked of former board member Richard Costigan. Note that it taken no action against current board member Jason Perez’s offending account. Apparently current board members who side with staff get special breaks.

3 Further reflecting CalPERS’ state of legal confusion, in its letter to the board about Brown’s suit, CalPERS tried asserting that Brown violated CalPERS’ copyright when single words cannot be copyrighted.

Note the letter tried to depict Brown as a recidivist. Brown did attempt to use a modified version of CalPERS logo in her campaign. CalPERS objected and Brown promptly stopped. And it’s separately irrelevant to bring in disputed matters from before Brown joined the CalPERS board.

4 CalPERS staff is particularly eager to dislodge Brown, so it is conceivable that an elected incumbent in another seat for which Brown would be ineligible (such as the public agency member seat) would be persuaded to challenge Brown when Brown’s term is up.

5 Henry Jones has been to South Africa at least twice on CalPERS’ dime.

00 Brown Writ
00 Letter to Brown Sep 16 2019
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32 comments

  1. David in Santa Cruz

    Since when does a non-lawyer send cease-and-desist letters? No wonder Nevada outperforms these morons by using an index strategy. They’re covering-up something more serious than under-performance. The trust fund looks like it’s being systematically looted.

    Follow the money…

    Reply
  2. vlade

    “Their first argument is that Brown is violating the law that makes it illegal to use public resources for political campaigns”

    And the Perez tweet with Calpers in the handle and waaaay more political?

    In general, I do not believe CALPERS can be reformed anymore from the inside. It needs either a massive court case (which I’m not sure is entirely possible), or a government intervention (which is IMO by now in the realm of miracle working).

    Reply
    1. PlutoniumKun

      It’s unreal. I know Jordan Peterson isn’t a good source, but he did say something once about organisations that stuck with me – he said (paraphrasing) that its a very easy thing to make a good organisation dysfunctional. Its enormously difficult to make a dysfunctional organisation work properly again.

      It’s probably worse with an organisation like Calpers, that is so far gone and for so long that the rot clearly goes to the bones. I’ve had an experience where a company I worked for nearly fell apart thanks to a terrible CEO (a classic ‘fail upwards’ type). But the damage wasn’t deep enough – or put another way, it hadn’t lost enough good staff or recruited enough bad staff for the damage to go too deep, so when a competent manager took over, things improved quite quickly.

      Once you get to a certain state, everyone with integrity has left, and you’ll find rot (or to be precise, rotten people) at every level. It could be a generational job to turn around an organisation like Calpers, all the people who think this type of behaviour is normal would have to be rooted out and replaced.

      The only optimism I could see for pensioners is that it should be possible to at least get their investment portfolio is right without necessarily getting the whole organisation right. So a competent CEO and senior investment staff would be a start.

      Reply
    2. Off The Street

      Where is any representative of the State of California, such as the Controller? Why are they not exercising any of their options to insist on greater transparency and reform?

      Reply
    3. Ignacio

      vlade, the CEO of Wirecard has been arrested for accounting fraud and market manipulation as you may know.

      Reply
  3. ALM

    As a CalPERS retiree and beneficiary, I would like to contribute to Margaret Brown’s litigation fund. Can anyone direct me to it?

    Reply
      1. ALM

        I just sent Ms. Brown $250 due directly to your post. Thanks so much for keeping your headlights on CalPERS.

        Reply
      2. The Rev Kev

        Just sent US$20 and hopefully it went through OK. PayPal has added a few more layers if complexity to their way of sending money.

        Reply
        1. Clive

          Blast, I just got Margaret’s email about how for this sort of donation for this purpose you need to be able to confirm:

          I am a U.S. citizen or lawfully admitted permanent resident (i.e., green card holder).

          If anyone knows how to (lawfully) allow this (e.g. you can send your donation to a nominee to deposit with Brown’s campaign on your behalf as a US citizen) please let me know.

          Reply
          1. The Rev Kev

            Bugger. That might explain why my payment has not left my bank account yet. I would have not thought about that happening.

            Reply
  4. The Rev Kev

    When asked for a comment Henry Jones was quoted as saying “gulp!” This should be entertaining this when it goes to Court. CalPERS’s counsel had better hope that they do not get a ‘Judge Judy’ type or else they will be wearing their guts for garters. Actually when it comes out in court all the ways that CalPERS hinders Brown’s abilities to perform her duties as a member of the Board, then this could get to be a Roman holiday this. It would be a pity of somebody encouraged reporters to attend these court sessions for the certainty of getting a few juicy tidbits to publish. SacBee won’t but others will. Does the Wall Street Journal send their reporters to Court sessions like this?

    I say good on Brown. When you get a petty bully on your case the only way to stop them is to b****slap them in public and make them apologize. It would be very easy to establish that they are habitually breaking the laws that they are operating under and even Gavin Newsom will not be happy about all this dirty washing being aired in public. The court should have a lot to say in all the remedial actions that CalPERS will have to undertake to actually do what they are legally required to do. Certainly paying back all the money owed to Brown for a start. Perhaps the court could be encouraged to review CalPERS’s actions periodically to make sure that they actually fulfill their responsibilities. I wish her luck.

    signed
    @calpersRevKev

    Reply
  5. Clive

    It’s always reassuring to know that, in these times of unpredictable uncertainty, one unfailing constant that remains steadfast is the recreation area funded on the beneficiaries’ dollar that is CalPERS continues to deflect any and every attempt at reforming itself. That it so demonstrably has such a vampire-like reaction to anyone threating to send some daylight onto its shoddy inner working tells any interested party or mere observer everything they need to know about what’s going on under the hood there.

    CalPERS’ attempt at a legal roughing- up of Board Member Brown through its clumsy cease and desist order for her Twitter account had me rolling in the aisles.

    As luck would have it, I was speaking with a colleague in my TBTF’s legal department on a business matter about (to cut a long and rather vexing subject short) the issues arising from trademarks and where these aspects of contractual or civil laws need to also comply with other contractual obligations (such as card networks’ signage) or statutory provisions (such as hanging signs being of a certain size or if in prominent road traffic areas not contain too much distracting information). So I asked about — what I already knew a little of — trademark infringement and copyrights.

    This is a huge and complex subject. That CalPERS merely blundered into it with its ridiculous order for Brown was laughable. My legal friend advised that, in order to have any solid grounds for litigation, it would need to have on an absolute basis, tackle any and every copyright infringement everywhere. It must do so both systematically (it can’t have one rule for some and another rule for others) and it must do it pro-actively (it has to show that it goes looking for transgressions). Even if it does that, there are some terms which, even though their intellectual property rights “owners” might wish otherwise, are so demonstrably part of the common vocabulary and everyday natural usage — or familiarity — that no court will rule that enforcement is possible or proportionate.

    Examples of the latter are “Elvis” (anyone can wear a rhinestone jumpsuit and a black wig and call themselves an “Elvis act”) and “Diana, Princess of Wales” (any drag act can be Lady Di impersonator or a slightly outré version of that name, for instance, along with representing her likeness, for profit). Trademarks, service marks, logos, brand colours, patterns, shapes etc. must be “inherently distinctive” under most jurisdiction’s trademark or copyright laws. There must also, again, usually, be a deliberate attempt to mislead. Brown has done none of these things.

    And CalPERS is seemingly happy to tolerate other organisations’ casual usages of their name — such as here https://www.linkedin.com/showcase/calpers-pension-news/ — the California State Retirees have a LinkedIn Group bearing the name “CalPERS” and their website freely mixed both their organisation’s name with that of CalPERS e.g. http://www.californiastateretirees.org/About-Us — which is done for no other malice than to help California State Retirees know that this organisation helps advocate for them in relation to, well, CalPERS. If CalPERS wants to prevail in its attempt to browbeat Brown in court, it will need to do this with all such similar “transgressors”.

    (PS. Margaret, I sent you 10 bucks; go whip Marcie’s butt!)

    Reply
    1. vlade

      GamesWorkshop was (in)famous for trying to (c) or at least ™ pretty much anything and everything to do with fantasy/SF. For a very long time it tried (in an example that may be more obvious to readers of NC) to ™ Eldar. Half a century after Tolkien used it publicly, never mind it being a given name in at least two different languages. In the end they changed it a bit to cover only Eldar in their game universes, which is defensible, albeit one then wonders what’s the point except to knowingly confuse.

      More recently, they had a fight with Amazon (of all people) over “Spots the Space Marine”, which I believe they lost or gave up on.

      Reply
  6. oaf

    Go Margaret!…Keep shining your light into those dark places!!! There are two different reactions to intimidation-fear: Cower, or…Break On Through….You are Truly Brave.

    Reply
    1. shinola

      Assuming your comment is not sarc./ironic, I wouldn’t get my hopes up.

      It seems like I’ve been reading calpers articles here in NC for years, so I went to the Topics archive (it’s showing 186 articles as of today). I scrolled/paged through the entire list; the oldest article listed appears to be from June of 2017. I believe I’ve read most of them.

      I don’t know how many times I’ve read one of those articles & thought “This could blow the lid off calpers shenanigans”. But, seemingly, little to nothing changes. WTF?

      There must be some Big Dog(s) involved in this mess providing protection – at least that’s my best guess.

      Reply
      1. ChrisPacific

        It’s a running joke. Tom has been posting the same comment re: Becerra on CalPERS stories for years now.

        Reply
        1. Clive

          Come back Kamala Harris — all is forgiven (well, some of it is forgiven; actually, not much if anything is forgiven…)

          Reply
  7. JJ Jelincic

    I was once punished for “leaking” that CalPERS had been investigated by the SEC for insider trading. Twenty eight months AFTER the Sacramento Bee had written about it.

    On the other hand, my punishment was much less than the employee who blew the whistle and insisted management take action. She was terminated.

    BTW the SEC took no action but that is also a “secret” do not tell anyone.

    Reply
    1. Clive

      My lips are sealed. And that promise is as rock solid, robust and trustworthy as Marcie Frost’s resume — or my name’s not Donald Trump.

      Reply
  8. Susanne Paradis

    The link works now, thanks! I made a donation! When I tried to share the article on facebook, it added the Jason Perez account graphic as the banner photo for my post. I took it down because people may just see the graphic and not read my words and I do not want to be seen as posting Trump 2020 information on my facebook page. Any ideas how to share the story without that graphic?

    Reply
    1. Lambert Strether

      > it added the Jason Perez account graphic as the banner photo for my post.

      Is Facebook’s algo so miserably stupid and inadequate that it simply grabs the first image and does not offer a selection? If so, possibly we could change the order of the photos.

      Reply
  9. Carl novak

    Wee need to act now!! Those we have elected seem to think no one is watching. Rember its your retirement fund. Lets not let these people miss use our future. I guess since its not their money, they don’t care.

    Reply
    1. ambrit

      ‘They’ might be working diligently to make it “their” money. A comment above mentioned the possibility of the fund being looted.

      Reply
  10. flora

    Bravo to Margaret Brown. It’s a David and Goliath fight she’s taking on in the best interest of all the CalPERS pensioners. If the CalPERS board keeps letting the staff flush large sums of money away eventually CalPERS finances will require an obvious bailout from the state, more than a fun-with-numbers-allocation budget. At that point CalPERS board may discover it has fewer political friends than it thinks. I can’t imagine CA taxpayers being happy about bailing out the pension fund run so badly. I can’t imagine politicans risking their re-elections on raising taxes to bailout a badly run pension fund that’s lost public support.

    There’s an interesting article at Wolf Street by a young man leaving SF and listing all the reasons 30-somethings who moved there for tech jobs are starting to leave. He lists many reasons and one of them surprised me: the badly run money drain that is CalPERS. If even 30-year olds are starting to notice then public perception has shifted, imo.

    Finally, my favorite one, public pensions. 20m are registered to vote in California elections but only 10% of that number gets any benefit from the ridiculously generous pensions being paid out in full. Not only have the funds been horribly mismanaged, the state and local governments mask the fact that they are making up the shortfall by including it in the number allotted to, say, education and hoping that nobody notices. In consequence, it’s no surprise that California ranks even lower than even maligned Florida and Texas in its 4th and 8th grade math and reading attainment levels.

    https://wolfstreet.com/2020/06/12/the-bell-rings-for-san-francisco/

    Reply
  11. CalPERS is cesspool of corruption

    Mark Anson applied for open CalPERS CIO positions, but Mark is honest, smart, and courageous — qualities that disqualified him from being considered.

    Only Board members and senior execs who hire private equity and real estate general partners primarily on patronage are considered. Margaret Brown does not fit this mold. Hence attempts to destroy her. Union bosses and political hacks run the circus,

    Reply
    1. Yves Smith Post author

      OMG, CalPERS didn’t take Anson back??? He’s one of the top 3 or 4 CIOs in the US. Harvard would have taken him to head the Harvard Management Corporation (Anson had just taken a new job when the Harvard post opened up).

      Reply
  12. none

    The lawsuit is a start, but in the end I think some Calpers higher-ups have to go to jail. I remember Buenrostro got out a while ago, so there is a vacant cell waiting.

    Reply
    1. CalPERS should be shut down

      yes, Buenrostro while CalPERS CEO and three CalPERS Board members got caught receiving millions in kickbacks from CalPERS private equity and real estate general partners. But in typical CalPERS style, the CalPERS “investigation” into the Buenrostro malfeasance was led by CalPERS insiders, Anne Stausboll who reported to Buenrostro and Peter Mixon the CalPERS Chief Counsel, both of whom had worked closely with Buenrostro for years. They paid $10M or so to the firm Steptoe and Johnson to whitewash the involvement of the Insiders, downloading all files from computers used in private equity and real estate and apparently destroying incriminating files

      That the Buenrostro crimes did not result in any material reform within CalPERS and did not result in any efforts by state politicians to reform CalPERS indicates the power of the vested interests. As a CA taxpayer, I feel upset, but what can I do?

      Reply

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