LA Times’ Michael Hiltzik Shellacks CalPERS for Trumped-Up Attacks on Board Member Margaret Brown, Toadying to Staff Instead of Providing Oversight

Pulitzer Prize winner Mike Hiltzik, the most prominent business commentator in California, roused himself to engage in an extended spanking of the CalPERS board for “acting like a group of kindergarteners” in harassing board member Margaret Brown. But the bigger sins in Hiltzik’s eyes are that the board is devoting energy to petty antics like this while the fund is in trouble, and even worse, expressly denying their legal and fiduciary duty to oversee staff.

As regular readers know, the latest contretemps is that pro-accountability board member Margaret Brown filed suit against board president Henry Jones to challenge the process that CalPERS has adopted for sanctioning board members. The targeted board member is denied the opportunity to rebut charges and appeal the decision and the legality of the action taken against them. Having one person act as prosecutor, judge, jury, and executioner is at best out of Alice Through the Looking Glass, and at worst out of gangland. It’s even more questionable given that Brown was the only board member to oppose Jones’ successful campaign for re-election. As Hiltzik also details, the substantive claims that Jones and CalPERS have made against Brown don’t hold up to scrutiny.

Over the years, Hiltzik has called out CalPERS’ many governance lapses, from demanding that long-standing board president Rob Feckner and his short-lived successor, Priya Mathur, resign over their negligent oversight during a bribery scandal, to the board’s harassment of JJ Jelincic, to its unseemly defense of resume fabricators Chief Financial Officer Charles Asubonten and CEO Marcie Frost (Asubonten was turfed out; the board continues to doggedly defend the visibly-over-her-head Frost and bestow lavish pay raises on her).1 So this latest sorry episode is all too familiar.

Hiltzik backs Brown’s claims that Jones’ actions against her amount to retaliation. Hiltzik describes recent incidents where Brown has bucked the cozy, staff-toadying majority, including opposing repeated raises for CEO Marcie Frost’s pay, which has nearly doubled since she arrived in 2016,2 Brown calling out Chief Investment Officer Ben Meng for lying to the board and beneficiaries about having exited tail risk hedges right before they would have produced a $1 billion payoff, and opposing Meng’s plans to load up on risk, despite widespread commentary by top pros about pervasive nosebleed valuations, in a desperate effort to hit unrealistic return targets.

Hiltzik further points out that the claim that Brown’s use the Twitter handle @calpersmargaret was illegal is flat out false:

CalPERS says the board took action only after it warned Brown several times that her use of the fund’s name in her social media handles violated the law and its rules. Brown says she changed her handles in response to the board “cease and desist” warnings, but apparently it was never enough….

…the board seems to be taking a rather crabbed view of the sanctity of the CalPERS name. It’s true that state law prohibits individuals or companies from using the name or insignia of a government agency without authorization, but the law applies to misuse for the purposes of implying an endorsement of a “product or service,” which is not what Brown was doing.

The law also carves out an exception for anyone with an “expressed connection” with the government agency — such as, say, membership on the CalPERS board of administration?

This refutation is more than sufficient. But recall in our post, we provided more evidence that CalPERS is engaged in what Hiltzik called a “witch hunt” by only going after Brown and giving other current and former board members a free pass for conduct that is somehow uniquely heinous when Brown engages in it:

On top of that (and I have to confess I am kicking myself for not having mentioned it), CalPERS’ other basis for going after Brown was that she violated their trademark and supposedly their copyright (when single words cannot be copyrighted. Clive pointed out in comments that CalPERS’ characteristic laziness and favoritism means that is a non-starter:

I was speaking with a colleague in my TBTF’s legal department…So I asked about — what I already knew a little of — trademark infringement and copyrights….

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

Hiltzik also criticized CalPERS’ board for fiddling while its portfolio burns. He cited their sub-par performance in public and private equity, the latter a mere 1.6% in the second half of calendar 2019 versus an unduly forgiving benchmark, which still clocked in at 4.4%, and that over time, CalPERS has only been a middle of the road performer compared to its peers, even though CalPERS has unparalleled staffing and access to experts. While Hiltzik said that might be a function of CalPERS’ size, its almost-as-big Sacramento sister CalSTRS consistently bests CalPERS’ returns.

Hiltzik also gave us a generous shout-out, supporting our regular lambasting of the fund’s lapses and in particular, its appalling refusal to focus solely on beneficiary interests:

Instead of scrutinizing Meng’s omission of clearly relevant information at the March 18 meeting, board members subsequently piled on Brown. At the April 20 meeting of the board’s investment committee, members excoriated Brown by name for allegedly taking her criticism to the public — having “coerced and helped other people get with… misinformation,” in the words of investment Committee Chair Theresa Taylor.

“I think it’s incumbent on us to call on bad behavior when we see it,” Taylor said.

Taylor’s complaint implicitly referred to the financial blog nakedcapitalism, whose proprietor Susan Webber has expertly dogged CalPERS investment and administrative failings for years. Webber, a financial analyst who writes under the name Yves Smith, says Brown wasn’t the source of her reporting on Meng’s management of the hedge.

What the blowup underscored was the board’s weird misconception of its own responsibilities. At the April 20 meeting, Taylor remarked that “the board and staff… works as a team.”

As Webber observes, that’s absurd. The board exists to oversee the staff’s work, not to play footsie with its employees. “In fact,” Webber correctly states, “the board’s sole legal duty is to the beneficiaries.” Sometimes that will involve calling out bad behavior by the staff when it sees it — such as obscuring the truth about a hedging strategy.

Need we also point out that Taylor lied when she tried to smear Brown for peddling misinformation? It wan’t simply that Brown wasn’t the source, but even if she had been, the story on the botched hedge was true (and first reported by Bloomberg).

As much as it is important to CalPERS beneficiaries and California taxpayers for Hiltzik to call out CalPERS’ continuing governance atrocities, it was still unfortunate to see him feel compelled to concede a CalPERS whinge about Brown, that she’s “brash” or as McKinsey would say of every woman up for partner in my day, that she has a style problem.

To revert to Hiltzik’s kindergarten metaphor, depicting Brown as the one behaviorally out of line is like coming on the scene after a child has been repeatedly bullied to see the victim finally stand up, and ignore the preceding pummeling.

For instance, in her second board meeting, Brown attempted to raise a point of order. Roberts Rules of Order says a point of order is always in order and must be considered immediately. Instead, Henry Jones cut Brown off and Theresa Taylor turned off her microphone! This is banana republic level antics. Shortly after that, CalPERS staff illegally locked Brown out of her office, yet Brown was somehow the bad guy for publicizing that abuse in order to get it remedied.

Brown’s conduct in public meetings, as one can see in board videos, is inoffensive and professional. What has the board steamed up is her delivering on her promise, that if she can’t get problems and abuses cleared up through internal channels, she’ll go to the press. This started even before she joined the board, when she unearthed misconduct in the election process.

In the course of investigating some of the issues Brown has tried to remedy, she has sent her correspondence, where she’s set forth her case clearly. She’s inevitably either completely ignored or given what Erin Brockovich would call a “lame assed” response. This is completely improper from a governance standpoint…yet we are to believe that Brown is out of line?

The reason the board and staff can’t abide Brown is she is a classic Fat Tony of Nassim Nicholas Taleb’s The Black Swan, street-smart with a finely-tuned bullshit and fraud detector. It must drive them nuts that she so quickly sees through the nonsense they’ve bought into. The board and staff reactions are uncomfortably like cult members clinging desperately to their false but emotionally comforting beliefs and viewing anything other than rigid conformity as a threat.

In keeping with the California/Los Angeles theme, this clip from the popular crime show, NCIS Los Angles, seemed apposite. Forgive the image quality. The tow-headed agent, Marty Deeks, has gone undercover to investigate the cult, the Church of the Unlocked Mind, for having gotten members to sell military secrets.

If you’ve watched CalPERS board meetings with any frequency, it isn’t a stretch to put the board’s regular self-humiliation, in the form of saying things that are nonsensical or reveal stunning ignorance, on a par with the self-slapping in the segment above. (And for those who want to see the bad guys get their come-uppance, the denouement for that segment is here).

Needless to say, no wonder Taleb has become an ally of Brown. She’s the only sane person in the board room.

1 Hiltzik’s concern is well founded. We’ve learned that then Chief Investment Officer Mark Anson warned Feckner at least twice about the way Buenrostro was pressing Anson’s investment staff to prefer particular deals; that’s the sort of thing that should send alarm bells ringing in a well-functioning agency. Feckner instead told Anson off. Insiders believe that Anson left CalPERS for the UK fund manager Hermes due to the failure to investigate signs of high-level misconduct.

2 Recall that search firm Heidrick & Struggles handled the search and almost certainly also would have conducted a comp survey to determine what to offer candidates for the post. So there’s no justification for these egregious pay increases, particularly in light of CalPERS’ mediocre investment performance and Frost’s numerous failures as CEO. Hiltzik mentions her embarrassing support of fabulist Charles Asubonten; there’s also the protracted embarrassment of CalPERS’ incoherent, shape-shifting, and corruption-friendly “private equity new business model” which has hopefully died under its own weight. And there are other ticking time bombs set to blow on her watch, such the likely success of litigation opposing CalPERS’ aggressive and discriminatory rate increases on its long-term care policies, and “legacy assets” as an item on the closed session agenda, which suggest CalPERS has been lying about its valuations of some holdings and is trying to figure out how to get its way out of fraudulent reporting.

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  1. none

    Is the state attorney general paying attention to this and likely to be willing to do anything? He appears to be a corporate shill in some regards, but I dunno which way this would go.

    1. Tom Stone

      None, Attorney General Becerra is gonna be all over this!
      Any day now, he’s just been waiting for the right moment since he took office.
      Trust me, I’m a Realtor

  2. The Rev Kev

    Looks like the Serpico effect at work with CalPERS. Oh, I’m not saying that Margaret should be careful about being the first person walking through a door but I am sure that she is watching her step – and her back. The problem is that with so much criminality, fraud, reckless behaviour and petty gamesmanship in play at CalPERS, the thought of one person not taking part in these games is making some people nervous. That is how you get prosecution witnesses that.

    If Margaret came in the door one day with a big bag of money in one hand, a shotgun in the other and the burglar alarm sounding off in a nearby bank, then I am sure that there would be a sigh a relief at CalPERS. They would have something on her as she does them so everybody would feel a lot safer. They can play their games at CalPERS but somehow when you have to explain yourself in a Court of law in front of a judge then that is another game altogether. And the law is firmly on Brown’s side while all of CalPERS transgressions are recorded up one side and down the other. Time to go for a popcorn run.

  3. ALM

    After making a financial contribution to Margaret Brown’s defense fund, I sent Mr. Jones, in his capacity as a CalPERS Board member who holds the retiree seat, a blistering email calling him out in my capacity as a CalPERS retiree. I have forwarded a link to Hiltzik’s article to my CalPERS retiree friends and have asked them to send similar emails to Mr. Jones at

  4. divadab

    This is, it seems to me, politics as it is practised in the US of A – if you have a troublemaker who opposes the party line, attack, smear, misuse the law to harass, destroy if you can that wretched pain in the butt. The law applies to thee, not to me. I’ve seen it so many times, it is done almost without thinking (although the lizard brain is heavily, maybe exclusively engaged), by Dems, Reps, law enforcement, major monopolies, and so on.

    This is no way to run a pension plan. It’s truly pathetic how incompetent the management of CALPERS is – how do I know this? Because they are constantly circling the wagons to hide and defend what they are doing. This filthy attack on Margaret Brown, the one trustee who is actually doing her job, is a travesty. A major housecleaning is required.

    But – the management of CALPERS is very practised at political defense – incompetent as they are at actually running a pension fund – and they will drag this out at vast expense for a very long time. Add this to the list of what ails America – institutional incompetence enforced by political chicanery and dirty tricks. Filthy. Scummy. Truly terrible.

  5. flora

    To repeat this from Hiltzik’s article:

    What the blowup underscored was the board’s weird misconception of its own responsibilities. At the April 20 meeting, Taylor remarked that “the board and staff… works as a team.”

    As Webber observes, that’s absurd. The board exists to oversee the staff’s work, not to play footsie with its employees. “In fact,” Webber correctly states, “the board’s sole legal duty is to the beneficiaries.” Sometimes that will involve calling out bad behavior by the staff when it sees it — such as obscuring the truth about a hedging strategy.

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

  6. Susan the other

    Why doesn’t CalPERS go on a diet? Admit they can’t possibly maintain anywhere near 7% returns at the appropriate level of risk. And then look at the honest options left to them. imo, Part of this management/board mess is denial by both that it is only realistic to go for 3 or 4% returns (or maybe less). So they try to twist out of their impossible responsibility to meet an unrealistic goal and that is probably where all the perversion begins. It takes a lot of energy to maintain a delusion so, naturally, they all need big raises to compensate them for their empty heroics. A computer could do a better job. Automate CalPERS. And goodbye Marcie.

    1. John Wright

      Lowering the expected rate of return is a large California political problem as the fund would instantly become more underfunded.

      The various state and local government agencies that use CalPERS would likely be asked to contribute more to bring the funding level up, which would certainly be unpopular with local governments and taxpayers.

      Keeping a 7% return target that CalPERS doesn’t hit is “kicking the can down the road” in operation.

  7. Clive

    The personal attack on Brown’s “style” was out of order. I have never seen Brown in videos nor on the occasions I’ve had communications with her directly known her to be anything other than a personable but ultimately competent and diligent professional discharger of her responsibilities. I’m way more direct when needed than Brown ever is, but, being a man, no-one would ever define me as “brash”. I’m just, like Brown, there to do a job.

    It is doubtless this competence and efficiency which so narks CalPERS staff and the petting-zoo cohort members of CalPERS board. Note to CalPERS: a board is not there to be your bezzie friend, not there to fill their free time when not playing whist or quilt-making, not there to say “yes” to everything you put in front of them and most definitely not there to be ignorant about the direction your organisation needs to go in. A board is, if it is functioning correctly, there to save your ass’es. It is there to oversee your conduct and your execution and to help you manage risks. So you should welcome Brown as a homeowner would welcome a smoke detector — something which stops an unfortunate incident from potentially wiping you out.

    But instead, you want to take the batteries out because you don’t like it beeping at you when you keep burning the toast.

  8. EoH

    Brash. How droll. Is being supine in the face of staff taking over board responsibilities a job requirement? Being brash is also irrelevant. It’s what a safe pair of hands says about someone who rocks the boat, trying to steer it away from the falls. Frost is brazen in her serial lies, mismanagement, and board manipulation. That would seem to be relevant.

  9. David in Santa Cruz

    Who’s kidding whom? It’s evident that CalPERS has been running a massive cover-up in order to keep a certain Board-member-for-life — and likely others in high places — out of jail.

    The tens of millions of dollars in Apollo “placement fees” that disappeared into the ether in the wake of former Board member Alfred Villalobos’s bankruptcy and suicide have never been properly accounted for; the sentencing delays and eventual upward deviation in former-CEO Fred Buenrostro’s prosecution suggest a refusal to “snitch-out” against Leon Black and other members of the CalPERS Board and staff.

    There is more and more reporting in both the mainstream and the financial press that the high-fee Private Equity and Real Estate schemes so near and dear to these creeps deliver no value at all, and are nothing but wealth transfers of workers’ savings to smooth-talking modern-day mafiosi.

    As noted above, this is not unique in 21st Century America. Henry Jones, Rob Feckner, Theresa Taylor, and Marcie Frost are simply too ignorant and un-lettered to be slick about it, and they have committed the ultimate Sacramento sin of “winding-up in the papers.“ However, with AG Xavier Basura’s abandonment of his Article III duty to enforce the laws, it appears that they don’t have to be slick…

    Margaret Brown’s only “sin” is an understanding of public finance (her career, BTW) and a willingness to respectfully ask intelligent questions.

  10. Susan Mulloy

    I value Michael Hitzlik’s commentary and reporting on business. I’m often surprised to see his articles printed in a major newspaper and syndicated. His work is a big reason why I am a paid subscriber to the LA Times. I was very pleased to read his praise of Yves’ work.

  11. Liberal Patriot

    Has anyone looked into Meng’s ties to the Chinese Government’s espionage activities any further? How has the FBI not opened an investigation? This man should have been shown the door when he lied to the board/Ms. Brown. He should be in ADX Florence for life if any of these espionage allegations are true. The only way to fix CalPERS is to rid Frost and Meng, along with other execs and to get an independent, competent board. Last, pretty funny the board has members with excessively long tenures, but yet CalPERS preaches to the world that board tenure policies should be set in public companies’ board of directors. I guess Jones and Feckner slept through all the board corporate engagement and proxy voting updates-SHOCKING!

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