Influential California State University Council Calls for CalPERS CEO Marcie Frost to Go on Administrative Leave During Investigation by Inspector General

The California State University Emeritus and Retired Faculty and Staff Association (CSU-ERFSA) has called on Governor Gavin Newsom to put CalPERS CEO Marcie Frost on administrative leave in order to investigate a series of management lapses. We have embedded their latest newsletter at the end of this post. This call to action is part of their lead story, “CalPERS CIO Departs Under a Cloud,” on C Ben Meng’s high-speed exit:

Consequently, CSU-ERFSA is calling on Governor Newsom to investigate CalPERS’ management and governance and set up an independent inspector general to review CalPERS governance. We recommend placing the CEO Marcie Frost on administrative leave while undertaking this impartial investigation. The inspector general should provide:

1. An independent, outside investigation of the issues, including the seeming failure of built in safeguards and the organizational culture which allowed it to happen, and
2. Recommendations for policy changes to avoid this type of failure in the future including appropriate personnel actions to be taken based on the findings.

The report and its recommendation should be made public.

Note that CSU-ERFSA has already come to its decision to petition Governor Newsom. This is unusually speedy, since our understanding is that this sort of recommendation would normally come first from its legislative committee, and then have to be approved by its State Council.

The rapid action may in result from frustration with CalPERS’ failure to address Marcie Frost’s resume fabrications, which led CSU-ERFSA has called for a major changes in 2018. From a November post:

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.

Back to the current post. If you are a California resident, please circulate this post, or alternatively, the newsletter widely, calling attention to the lead story, which includes the request to Gavin Newsom on page 8.

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  1. Why is CalPERS relentlessly and inevitably corrupt?

    A 7/12/2014 post by Yves on Court judgments against former CalPERS CEO Buenrostro and former CalPERS Board member Villalobos as well as damming evidence against three CalPERS board members.

    “The first two payments were made in paper bags. The last installment came in a shoebox. The handoffs all came at a Sacramento hotel near the Capitol.

    In a stunning admission covering years of corruption, the former chief executive of CalPERS said Friday he accepted $200,000 in cash, along with a series of other bribes, from a Lake Tahoe businessman who was attempting to influence billions of dollars in pension fund investment decisions.

    Fred Buenrostro, who ran the nation’s largest public pension fund from 2002 to 2008, pleaded guilty in U.S. District Court to a charge of conspiracy to commit bribery and fraud. He has agreed to cooperate with federal prosecutors as they pursue charges against his longtime friend, Nevada businessman Alfred Villalobos, a former CalPERS board member.

    Buenrostro, 64, admitted that Villalobos plied him with casino chips and a trip around the world, plus a high-paying job with his investment firm after leaving CalPERS. He also admitted working with Villalobos to create phony documents to ensure that Villalobos earned his multimillion-dollar fees representing a Wall Street private equity firm seeking CalPERS investments.

    Most of those allegations had been aired publicly already. What was new Friday was the blockbuster admission that Buenrostro took $200,000 in cash from Villalobos. In his written plea agreement, Buenrostro said Villalobos paid him in three installments in 2007, “all of which was delivered directly to me in the Hyatt hotel in downtown Sacramento across from the Capitol.”

    According to Buenrostro, Villalobos told him to be careful how he deposited the cash in order to avoid detection by banking authorities. “Villalobos told me to be sure to ‘shuffle’ the currency before making any deposit, as the bills were new and appeared to be in sequential order,” Buenrostro wrote.

    Later, after he’d left CalPERS and the investigation into their relationship gained momentum, Buenrostro said he accepted an additional $50,000 from Villalobos, paid by check.”

    Given the above and much more were proven beyond a reasonable doubt in a CA court of law, a reasonable or optimistic person may have expected Sacramento politicians to conduct an independent investigation and seek overdue reforms. So did that happen? No, the opposite did. Stausboll and Mixon, two senior calpers executives who had worked closely with Buenrostro for years, conducted a coverup by hiring and coordinating a charade whitewash by Steptoe and Johnson, that by design failed to address the extent of or any of the causes of this massive CalPERS corruption.

    Why the coverup? Why the inability or unwillingness to reform then or now? Is it that CalPERS private equity and real estate general partners are the mother lode honey pot for contributions for too many Sacramento politicians to upset the status quo? Is this view accurate or overly cynical? For them, if only the honey could keep flowing quietly through back alleys without any transparency shone by Yves.

    1. CalPERS -- lesson learned

      The lesson learned by CalPERS from the malfeasance by Buenrostro and by other execs and board members before and since is that by staffing CalPERS Ministry of Truth with 80 busy sycophants and by spending tens of millions on external legal and PR firms, that CalPERS execs and board members could always control the narrative and get away with anything

  2. The Rev Kev

    I see that the origin of the California State University Emeritus and Retired Faculty and Staff Association was formed ‘in response to threats and attempts to reduce or eliminate CSU retirees rights, privileges and benefits’ back in the 80s so I would guess that they see what is happening over at CalPERS as a clear and present threat to their retirement prospects. They also got CalPERS to establish the CalPERS Long-Term Care Insurance Program but for that to work the funds would have to be there to finance it. And at the rate that CalPERS is going, those funds would be going better and safer in a Christmas Club account. What might have put the wind up CSU-ERFSA was that from June 17th of this year, CalPERS suspended open enrollment in this program due to ‘current uncertainty in the long-term care market.’ If that was not a shot across the bows, then I do not know what is-

    Playing the education game is all fun and games but when you start seeing your pensions under threat, that is when you go full social justice warrior over the threat. Right now Frost is being targeted which is good and is bad. It is good because all her past sins have finally caught up with her from her lying over her qualifications to trying to cover up on Meng. It is bad because even if she is taken out of the picture, you have only the monkey, not the monkey’s organ-grinder.

  3. flora

    Very good idea to put Frost on admin leave while an independent audit is done of CalPERS policies, governance, and management issues.

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

  4. Susan the other

    With more and more of the sordid history of CalPERS coming out, I’d really like to know who Marcie Frost is. The short version, that she is just a scam artist with a fake resume, doesn’t quite explain the situation. It looks far more likely that she was selected, for whatever reasons, by people who want to keep the fleecing of CalPERS going. And I don’t think it is all private equity villains, although they are certainly in the mix. If this has been going on for decades, maybe back to the 90s (?), it explains why such a rich fund is in trouble now. At first the embezzlement was easy to hide because the stock market was good and etc? Now not so much. Now it is an unmitigated disaster. One so big it requires some rich and powerful people to perpetuate it. Naturally, Newsome doesn’t want to touch this with a 10-foot pole.

    1. Yves Smith Post author

      Never attribute to malice that which can be explained by incompetence. This sort of CT depicts Frost as having more power than she has.

      The reality is CalPERS is exceptionally well bunkered due to constitutional changes made in CA in 1992. The board is the only party that can oust Frost. Staff has succeeded over years in cognitively capturing the board and getting it to cede power to staff. Since most CalPERS board members are lazy and over their heads (look at Feckner, Jones, Taylor, Miller, and Rubalcava as examples), this was not hard to do. Look at how they savaged Jelincic merely for asking basic, not difficult questions of staff.

      So all Marcie has to do is keep seven votes for her on the board. I count her as having six who’d vote for her even if lived up to the Trump jibe and shot someone in the street. So she only needs to keep one more out of the rest, which is not a heavy lift.

  5. Jennifer

    Note: the Long Term enrollment cancellation was done by one person, the chair of the committee. Gutting the funding to all current members of that program.

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