CalPERS Board Member Theresa Taylor, Under Investigation for Multi-Year Failure to Report Income, Digs Her and CalPERS’ Hole Deeper Via Supporting Conflicted Actions Taken by Ex-Chief Investment Officer Meng

It might behoove CalPERS Vice Chair of the Board and Investment Committee chair Theresa Taylor to heed folk wisdom, like “People in glass houses should not throw stones” and “When you are in a hole, stop digging.”

But the saying that appears most fitting for Taylor’s idiotic intervention in the scandalously rapid exit of CalPERS CIO Ben Meng is “You can’t fix stupid.”

Taylor just executed a multi-level backfire in attacking fellow board member Margaret Brown when she publicized an article in Buyouts Magazine which gave prominent play to Brown’s concern that Meng’s private equity conflicts potentially tainted not just the fund’s $500 million investment in a Blackstone fund earlier this year, the apparent trigger for Meng’s high velocity exit, but the private equity program broadly, and that CalPERS therefore needs to rein its private equity investment in until it has performed an investigation and implemented new oversight policies. Until the Board understands what actually happened, it cannot make prudent decisions about how to proceed.

As we’ll review, first by attacking Brown, Taylor gave the Buyouts story more prominence than it otherwise would have had. Second, Taylor is under investigation for similar abuses to the ones Meng engaged in, specifically, for multi-year failures to report significant income on her Statement of Economic Interest (Form 700), California’s required annual financial form for public officials. That means Taylor is not a credible spokesperson on any matter that relates to propriety or legality. Having her speak up for CalPERS is about as credible as having Trump’s former attorney/fixer, the felon Michael Cohen, defend Trump.

As an aside, the election committee for Taylor’s 2018 campaign is also under Fair Political Practices Commission investigation (case 2020-00074)

Taylor sticking her head above the CalPERS parapet simply calls more attention to the allegations that Taylor hid income, despite the Forms 700 requiring an attestation under the penalty of perjury. Taylor has confirmed the charges by amending some of her Forms 700 four years after the fact to include the income that the FPPC complaint said she failed to report.

Third, Taylor predictably misrepresents facts and issues, possibly due to her lacking the intellectual capacity to discern what is relevant. After all, even though Taylor is a tax collector, she apparently didn’t know what income was and hence managed not to include a lot of it in her Form 700 filings. Now that the press has woken up and started doing actual reporting on CalPERS, uninformed bluster no longer cuts it.1

Finally, Taylor, who has the backing of SEIU, apparently does not understand that investing in private equity is buying the rope that billionaires like Blackstone’s Steve Schwarzman are using to hang labor.

Now to the substance of the squabble. Buyouts, a publication whose readership is private equity professionals, published a story today by Justin Mitchell titled CalPERS board member calls for hold on PE investments after CIO resignation.2 From the top of the article:

As you can see in the story, CalPERS declined to comment, but provided a general statement that it was “moving forward” with the private equity, private debt, and fund level leverage plans hatched on Meng’s watch. Board President Henry Jones also backed the “all systems go” stance: “I believe our strategy must go forward.”

Before going any further, notice that Brown felt it necessary to reiterate Controller Betty Yee’s call for an investigation:

I believe the Board has an obligation to CalPERS members to determine whether Mr. Meng’s carelessness violated any laws or caused financial and reputational damage to the pension system…While the CIO’s resignation was appropriate, the Board’s obligation to CalPERS members does not end there. Rather, it calls for a swift and thorough inquiry into this matter and potential actions needed.

Brown and Yee presumably mean an independent investigation, under board direction, since Institutional Investor reported that CalPERS had already conducted an internal investigation.

Also note that Brown is making her call after CalPERS emergency closed session meeting on August 17. The fact that Brown is now joining Yee’s demand strongly suggests that either the board was briefed on the internal investigation and it was inadequate in key respects, or in what would be a stunning governance breach, staff was not fully forthcoming about what was in the report.

A noteworthy bad feature of the August emergency board meeting was that the board had no legal representation whatsoever; the fiduciary counsel, Ashley Dunning, the board’s only advisor, was not listed on the agenda as a participant.

Finally, Brown appears to have reason to be concerned, as we were, that Meng’s private equity conflicts of interest extended not just to the stocks he had invested in, but to private equity generally. Or was the board told Meng’s has more or more extensive private equity stakes than he reported on his Form 700s?

Since CalPERS taking a strong stance either for or against the economics of major private equity firms would reverberate though the investment community, just as its repudiation of hedge funds did. As we wrote:

Meng holds positions in three private equity fund managers…CalPERS lost 5.1% in private equity last year, worse than the SP 500 and worse than CalPERS’ own public equity portfolio. No less than the Financial Times has decried the industry’s fee grifting as “the real ‘Money Heist’”.

These investments create a general conflict of interest against Meng building up capabilities in house to make private equity investments in house to cut out fees and costs that CalPERS has estimated at 7% per year. That is the course of action recommended by CalPERS’ own private equity expert, Dr. Ashby Monk, as well as others.

But if CalPERS were to announce such a move, it would have as dramatic an impact as former CIO Ted Eliopoulos’ 2014 decision to get CalPERS out of hedge funds. This legitimated and accelerated an exit that was already under way.

In other words, Meng has put himself in and continues to remain in a position where doing the right thing by beneficiaries would hurt his personal balance sheet.

Taylor went after Brown on Twitter:

Someone needs to tell Taylor that she’s really crappy at the “lying for CalPERS” game.

It takes less than 30 seconds on Google to establish that the Board had not even approved the “more private equity” plan 1.0, the since abandoned “Pillars Three and Four” strategies, until AFTER Meng joined. And Meng influenced the design of that scheme, by pushing for an even larger private equity commitment than has been underway under Ted Eliopoulos, consistent with Meng’s widely reported exhortation: “We need private equity, we need more of it, and we need it now.” From the Wall Street Journal in March 2019:

A new strategy to invest more deeply in private equity is roiling the nation’s largest public pension fund….

Its latest proposal is a departure from the way most public pension funds invest in private equity. Instead of investing alongside other limited partners in funds run by outside firms Calpers intends to be the sole backer of at least two limited liability companies. The companies will be overseen by outside managers, which will act as general partners.

How much could be invested is still not known. Officials have said it could be as much as $20 billion over the next decade but Mr. Meng in a February presentation to the board included a slide showing a hypothetical scenario in which the Calpers invested as much as 16% in private equity. That would amount to a $57 billion commitment to private equity and would make Calpers the third-biggest such investor in the world, according to Preqin data.

As we chronicled at length at the time, the private equity scheme that the CalPERS board approved in spring 2019 went nowhere. We could not determine whether it died under the weight of its own contradictions, because Meng slow-walked it, or both.

Meng did not announce his plans to go whole hog on private equity risk, including launching a new private debt initiative, until June 2020. And even though Meng had indicated he might also add leverage across all of CalPERS’ investments, the level he had previously indicated was a mere 1/4 of what he set forth in June. On top of that, Meng called it “The 7% Solution,” a bizarre reference to the 1970s best-seller The Seven-Per-Cent Solution, a novel about Sherlock Holmes’ cocaine addiction. So CalPERS has a substance abuse problem? From our June 2020 post CalPERS Plans to Blow Its Brains Out: Seeks to Increase Risk by Boosting Private Equity, Private Debt, and Leveraging the Entire Fund:

CalPERS is acting exactly the way traders on Wall Street do when they are sitting on serious losses, or in CalPERS case, underfunding so deep that they can’t earn their way out of it. They put on desperate, high risk positions in the hope they can climb back out of their hole. Pros will tell you that this is just about always a fast path to ruin. CalPERS’ version of swinging for the fences is to increase its commitments to its riskiest strategy, private equity, embark on investing in a new risky category, private debt, and leverage the entire fund.

The fundamental outlook is so poor that even Warren Buffet, known among other things for astute contrarian plays, can find nothing to buy. Yet CalPERS thinks that now is the time to load up on risk. It not only plans to add to private equity but also to load up on another speculative investment, private debt, while also leveraging the entire portfolio. Did CalPERS miss out on the finance lesson that leverage increases losses as well as profits?

This scheme smacks of CalPERS yet again going for fads after their sell-by date. Remember how the giant fund was gung-ho to get into late-stage venture capital, as in unicorns, right before their valuations started to plunge? The only reason CalPERS didn’t go ahead was press and beneficiary criticism, particularly since the plan was so badly thought out….

Key points from the Financial Times account:

Calpers is to move deeper into private equity and private debt by adopting a bold leverage strategy that the $395bn Californian public sector pension fund believes will help it achieve its ambitious 7 per cent rate of return.

In a presentation to the Calpers board, Ben Meng, chief investment officer, said the giant fund would take on additional leverage via borrowings and financial instruments such as equity futures. Leverage could be as high as 20 per cent of the value of the fund, or nearly $80bn based on current assets. The aim is to juice up returns to help the scheme, the largest public pension in the US, achieve its growth target.

Taylor is trying to pretend that Meng doesn’t own this? Seriously?

On top of that, Taylor makes her lack of sophistication all too evident. Taylor lays into Brown, effectively for Brown having the temerity to exercise her First Amendment rights and more important, to do everything in her power to make sure that CalPERS exercises its fiduciary duty.

Brown is not acting in the capacity of “one board member” any more than Taylor herself is in trying to bash Brown on Twitter, save in Brown’s willingness to ignore CalPERS’ efforts to gag board members. Brown is exhorting for CalPERS to adhere to the law and watch out for beneficiaries. If this really is a one person position at CalPERS, its board should be burned to the ground.

Taylor also airbrushes out that other supposed lone wolf board members, like Treasurer John Chiang, who called for an investigation into Marcie Frost’s resume inflation, and Betty Yee’s call for an investigation into l’affaire Meng.

Finally, Taylor appears to be so badly informed as to recognize that she is support Trump by supporting private equity. As an exasperated retiree said with respect to Taylor via e-mail:

Like, hey, ya bonehead, while you’re amending four years of FPPC Form 700s that to include tens of thousands of dollars in union slush-funds that you “forgot” to include, you didn’t notice that giving my hard-earned money away to Private Equity funds Trump’s GOP voter suppression efforts:

Indeed, did Taylor manage to forget that Blackstone CEO Steve Schwarzman has been a huge Trump donor and served as chairman of Strategic and Policy Forum? And even though Schwarzman has not given as much (yet) in this election cycle to Trump as he did in 2016, his firm is one of Team R’s biggest backers? From the Wall Street Journal:

Employees of New York-based Blackstone Group Inc., the world’s largest private-equity firm, have shelled out the most on the 2020 elections, spending $21.5 million, mostly in favor of Republican candidates and conservative groups, according to the Center for Responsive Politics.

I received a second upset beneficiary message about how Taylor’s tweets make clear she’s incapable of minding the CalPERS money store:

Who is talking about Private Equity?

This idiot still hasn’t figured out that Private DEBT is a completely different animal than Private EQUITY — or that the “distress financing” that Meng announced on June 15 is with Mesa West, paying them a 1% fee to make interest-only distress loans to borrowers with Debt Service Ratios of less than 1.0 — meaning that there is no serious prospect of recovering principal unless the borrower is liquidated. An unacceptable risk for a fiduciary, but a terrific asset-stripping strategy for a borrower — and the middle man.

These high-interest loans may pump-up short term “returns,” but that’s a cheap accounting trick, because they are guaranteed to wipe-out those interest payments if the go under and lose the trust funds already contributed by employers and workers. Taylor is smoking crack telling employers that the fund can hit 7-percent when the current PERF return is in the loss column.

Start losing trust funds to speculative investments and contributions will go through the roof! Why doesn’t SHE ask employers if they would rather have a SOLVENT trust fund that hasn’t squandered THEIR contributions on speculative strategies that disclosed up front that they would eventually LOSE their investment?

You can see why CalPERS tries to keep captured board members like Taylor on a short leash. They are strongly discouraged from expressing independent opinions because their instincts and values are so terrible.


1 Contacts that have been “on the record” and “on background” sources for recent CalPERS stories have told us that the journalists are volunteering that they see the CalPERS PR department as telling flagrant lies and often unpleasant to deal with.

2 Most Buyouts pieces are tightly paywalled, but I got straight to this one by Googling the headline. You can also register to read it for free.

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  1. vlade

    Stupid is as stupid does. What more one can say? CP is now beyond words.

    I do hope though that the fiducary duties court actions against the board are coming, and Ms. Taylor (amongst others) gets her tweets played back to her.

  2. The Rev Kev

    Is there such a thing as a Twitter-assisted self-immolation? Because Taylor just made a flaming idiot of herself. If she thought that an attack through Buyout magazine was going to throw shade on Margaret Brown, then I am going to take a guess that anybody that has been following this on-going story in the Wall Street Journal or Bloomberg will know what really went down. You would think that with a general pandemic going on that now would be an opportune time to shut up and maintain a low profile but I guess that CalPERS just cannot help themselves.

    I am hoping that somebody leaves an empty cardboard box outside Theresa Taylor’s office as she may have need it sometime soon. I do hope that as a Vice-President that she did not misconstrue the first part of her title.

    I am guessing that some people at CalPERS are getting nervous. Everything that Meng did in the past several months he could not have done alone. There must have been other people involved in this fiasco and it must be getting very tense there. Still, life goes on and a little birdy told me that CalPERS headquarters is getting in new chairs, specifically upper-market office chairs. Although very pricey, the work is being undertaken by the Baker-Martin furniture company of Denham, Buckinghamshire. The big selling point is that they are all-leather and the design is based on a classic 1960s Aston-Martin car seat. Should come in handy for Ben Meg’s successor-

    1. jongsf

      Watched it play out late last night on the twittersphere between Yves and Theresa. If there ever was a tweet equivalent of “showing one’s ass” surely that was it

  3. Clive

    Taylor’s gone after Yves, as in, going after in the trying to whine her to death kind of a way, on Twitter I see! (I’m not going to demean my comment by including a link to it, Taylor has just self-identified herself as a total shill)

    I stopped laughing after reading her tweet just long enough to read through the rest of her twitter feed. But after reading my way through her various nev-ah Trump’ing “original” thoughts and RussiaRussiaRussia! re-tweets, I was so convulsed with mirth, I had to stop for a restorative cup of coffee. If I’m feeling a little stronger tomorrow, I may read a few more of The World According To Taylor on her twitter account. Either that, or I’ll send a sample of her choicest tweets to my worst enemies, like some sort of online punishment beating.

    1. Yves Smith Post author

      The only reason I deigned to reply to her tweets was a CalPERS beneficiary who doesn’t have a Twitter account e-mailed me up in arms about the temerity of Taylor, who as the post explains is under investigation for FPPC violations, going after Brown. He wanted to box Taylor around the ears. So I did so on his behalf.

      1. vlade

        Actually, she was quite nasty, but in an extremely childish sort of nasty. Trump nasty one could say (but w/o ease of execution. She’s still gotta learn even there).

  4. PlutoniumKun

    *sigh*. I’ve actually no problem with stupid people on management boards. Sometimes stupid people ask the best questions. They can act as a buffers to stop groups of too-smart people going down rabbit holes of group-think or overthinking simple problems.

    But most stupid people are aware of their own limitations (at least, the effective ones are) and know when to keep their mouths shut (possibly the most underrated of all skills). It seems like Calpers has attracted the worst sort of stupid, the ones who at some stage of their lives convinced themselves that they are in fact, dazzlingly brilliant, despite all evidence to the contrary.

    For some reason – and this is no doubt worthy of a book or PhD thesis someday – Calpers seems to be a black hole for attracting this type of stupid.

    1. Yves Smith Post author

      Even though I used it in the post, I am generally leery of invoking “stupid” unless someone seems to be willfully obtuse, and there is a lot of that going on at CalPERS.

      Americans tend to equate “stupid” with uneducated, which is obviously wrongheaded, given how many people are in elite colleges by virtue of being “legacy” admits, and how much counts on having your act together in high school, with is in turn greatly enabled by having well off parents who can send you to good private schools, hire tutors and make sure you did application-enhancing things during your summers. Come from the bottom 40%, your chances of rising are close to zero, and if you had some setback in high school, like parents divorcing, sibling dying in a car accident, or just not getting motivated until too late, too bad.

      And anyone in the corporate world has run into educated morons. MBA programs seem to produce them.

      What gets me about Taylor is she is lazy (look at her board performances, she virtually never reads the material in advance) and a bully. The lack of street smarts/common sense only makes this bad picture worse.

      1. PlutoniumKun

        Yes, sorry, I try to avoid it too, I was trying to think of a less loaded word, but I posted before I had my first morning coffee.

        The most appropriate English term would probably be ‘dim’ as in Nice but dim, Tim, the Irish equivalent being a Rosser. In Ireland we’d say someone like that is ‘dense’ or a gobshite.

        Anyway, as you say, this characteristic is independent of education. It’s just that the educated ones usually can do more damage.

        1. Yves Smith Post author

          Oh, “dense” is a very good fit. I don’t know if it has the same connotation in Irish/UK English, but over here, it stands both for someone who is “thick” as in not very well endowed in the intelligence category, and someone who is being obtuse, as they might normally be clever, but you’ve hit them on a topic where they act as if some of their mental circuitry has been removed. The usual explanation, of course, is the Upton Sinclair saw, “You can’t get a man to understand something if his salary depends on his not understanding it.”

          What is depressing about the generalized denseness at the CalPERS board is that none of them will lose any pay if they do the right thing. The worst that could happen is the CalPERS staff won’t set them up to go to cushy international conferences….which isn’t on due to Covid and may never come back now that Zoom has taught companies that in-person meetings aren’t all that essential.

          1. PlutoniumKun

            Ah, thats interesting, ‘dense’ has the same usage in Ireland, I’d always thought of it as an Irishism.

          2. larry

            The Germans have a great term for someone who is exceptionally good in one area but completely moronic in any other – Fachidiot. The French translate this as ‘specialist idiot’. ‘Dense’ seems to mean the opposite. I wonder whether anyone at CalPERS is a Fachidiot.

            1. PlutoniumKun

              As always, the Germans have great words for things – I like Fachidiot, I must remember it for future use.

      2. vlade

        That is why I wrote the famous “stupid is as stupid does”. Or, for the eductated ones “Acta non verba” :) (although in this case verba are acta).

      3. Krystyn Podgajski

        Stupid people, to me, are people who lack a certain type of (self?) awareness. But these stupid people are useful pawns in corporations. So most times I both pity and despise them.

        By the way Yves, that was a nice whacking you gave her on Twitter. The fact that she tried to demean you by saying you had so “few followers” on the blog was evidence of her lack of awareness. Appeals to popularity always rub me the wrong way.

        1. Yves Smith Post author

          Yes, another foot in mouth and chew moment with her not understanding blogs/internet publications and their metrics (“followers” is a non-category, it’s “unique monthly viewers” or pageviews ) . And she almost certainly misunderstands our not needing/wanting a FB page (“if your business depends on a platform, you don’t have a business”).

      4. John Zelnicker

        @Yves Smith
        August 27, 2020 at 4:22 am

        “And anyone in the corporate world has run into educated morons. MBA programs seem to produce them.”

        Just what our Econ professor told us at The Wharton School (undergraduate) back in 1971.

        He also told us we did more and better work than the MBA students.

  5. Tom Stone

    I suspect that things at CalPers have become loud and stinky enough that the Newsome administration will have to take notice.
    The reason they haven’t to date is that the corruption and incompetence at CalPers is not an anomaly, CalPers is by no means the most corrupt part of California’s governmental system, that’s probably the Dept of Corrections closely followed by CalDoT.

  6. John Wright

    One can wonder if the wisest people of Calpers have looked to the future and decided it was time to leave the ship in the hands of the cast of characters we are observing.

    In my corporate experience, companies in trouble tend to hire people with good resumes as new “saviors”, as this is a way of covering their corporate asses..

    The good resumes may be because the candidate was fortunate/lucky, but it does provide cover for the choice.

    But it is difficult to cast Marcy Frost (of padded educational resume) and Ben Meng as marquee “savior” candidates.

    Maybe the rot is so deep at Calpers that more qualified candidates and board members will not serve.

    Calpers ultimate savior is the CA state taxpayer/special district ratepayer and state politics makes unlikely these “saviors” will be hit up for funds any time soon.

    CA has other immediate problems to worry about as I can smell the smoke from the Northern California Wildfires right now.

  7. Bob

    Also, you are one board member. — You are 1 vote.
    Is this communicating a threat ? Surely Ms. Taylor is not so foolish (dense) to step in this.

    And I have to wonder is this the real business of CALPERS – That of arranging investments with firms whose executives and staff have a fondness of contributing large sums to political campaigns ?

  8. Procopius

    There is a rhetorical device I see used a lot in these articles about CALPERS.

    … despite the Forms 700 requiring an attestation under the penalty of perjury.

    I find myself mildly curious why this phrase is included, or the descriptions of the various statutes on transparency or fiduciary responsibility. These are all obviously ornamental in their nature, since no on ever treats them as actual laws, regulations, or penalties. Why bother mentioning them? Clearly, the actual legal authorities are not going to do anything. And how can “penalties of perjury” apply to documents that you can apparently freely revise whenever you feel like it?

    1. flora

      The law is there. Flouting the law is worth reporting. Ignoring the scofflaws in reporting about CalPERS would simply give the scofflaws another pass. Corruption may well go higher than internal CalPERS’ staff and board.

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

    2. Trustee

      Rob Feckner, David Miller, Henry Jones, Fiona Ma, and Betty Yee have all been fined by the Fair Political Practices Commission.

      Feckner was fined for unreported gifts.

      There have also been criminal convictions for violations. As far as I know none of the criminal charges were filed against CalPERS Board members or staff (yet?)

      1. vlade

        I asked the question, and only California’s AG would have standing to file the charges.
        So if you’re a Cal resident, you’d ask him why they weren’t.

        1. David in Santa Cruz

          Perhaps because Mr. Xavier Basura is a Clintonite hack who went straight from law school to a job in the California legislature, quickly got himself elected to the Assembly, who next warmed a “safe” seat in the U.S. Congress from 1993-2017, who placed himself on “inactive” status with the State Bar in 1991 to save on dues, and who has never practiced law a day in his life?

          I dunno. There is that.

  9. David in Santa Cruz

    It’s quaint how commenters here actually believe that the insular little island of Sacramento will actually change. I stumbled on Mike Judge’s 2006 dark comedy Idiocracy over the past weekend, and it seems like a documentary about Sacramento. Welcome to Costco; I love you.

    For the past two decades CalPERS has served as a piggy-bank for the political parties via high-fee Real Estate and Private Equity investments that yield paltry kick-backs to the parties and hand poor yields and even losses to the members and beneficiaries. The political “leadership” in Sacramento — of both legacy party persuasions — simply want to “extend and pretend” while their ill-gotten graft negatively compounds at the trust fund.

    The strategy of the political mis-leadership to place people who are quite obviously stupid and unlettered in positions of authority at CalPERS allows the losses to grafting and graft to be explained-away. Piling-on risk at the onset of a pandemic-driven global depression appears to be a brilliant strategy to allow CalPERS TO chalk-up losses to “Mr. Market hazz a sad” instead of the skim.

    Follow the money…

  10. Jennifer

    So.. why is vp still chair? Why is P not under investigation for his misdeeds re 700’s? Why is perjured CEO not under arrest? Why did board authorize large benefit pkgs for purjured ceo and general counsel? Why has the board not taken back their delegated authority from staff?
    When these corrective actions are taken nothing will change.

  11. EoH

    CalPERS is beginning to act like Donald Trump. When challenged on the facts or propriety of an act, rather than review and assess that it – SAD! WEAK! – it doubles down on it without missing a beat.

    CalPERS’s CIO just left in an unseemly hurry, tainting himself and CalPERS. A responsible employer would review that departing employee’s work, for substance and appearances. Did the evidence or suspicions that led to his departure, for example, run deeper? Did he taint other employees, programs, or projects for which he was responsible? Has or might his conduct lead to avoidable costs or losses, for which the board is ultimately liable, whether or not the loss is insured?

    CalPERS relies on the perception that it manages the largest state pension fund with adequate or better performance. But is it selling spring water or does it fill its bottles from behind the fishmarket in Jakarta? Stonewalls and studied arrogance are not likely to assure its stakeholders, nor should they.

  12. James D Gray

    Cannot get into Buyout not a good e-mail account …retiree from CalPERS …scary what is going on and getting worse ….my friend was a board member for 16 years… Trying to keep him informed he gets no help from Newsom or the legislature with letters…. Keep up your great reporting Susan …thank you very much…

  13. Late Introvert

    We gave it our best shot
    But keep in mind we got a lot
    The sky the moon good food and the weather
    First-run movies — does anybody get lucky twice?
    Wouldn’t it be nice…

    Steely Dan
    “Everything Must Go”

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