State Controller Betty Yee Calls for Public Discussion of CalPERS Governance Reforms Following Sudden Departure of CIO Ben Meng

CalPERS CEO Marcie Frost’s charm offensives appear to be backfiring now that more and more parties are paying attention. CalPERS best-paid officer Ben Meng departing like a bat out of hell appears to have focused a few minds.

As we’ll discuss longer form, at a CalPERS “retiree roundtable” on Tuesday, Frost tried claiming that Controller Betty Yee’s concerns about CalPERS governance that Yee had voiced in the press and again in a special meeting on August 17 before Board President Henry Jones rudely shut Yee down had been addressed in that closed session. Yee shot back almost immediately, sending a letter to Board President Henry Jones requesting that specific issues be added to the agenda for the September 16 Board of Administration meeting for public discussion. We’ve embedded her letter at the end of this post.

Yee’s missive is an even bigger deal than it seems. Not only did her letter effectively deny Frost’s assertion that Yee’s issues had been put to bed, but Yee has escalated. The bill of particulars in her letter amounts to a frontal assault on key staff measures that have gutted the board’s authority.

As an aside, even if what Frost asserted remarkably happened to have been true, Frost would be admitting that CalPERS had engaged in yet another violation of the Bagley Keene Open Meeting Act. First, Yee’s items had not been listed on the closed session agenda as required. Second, Yee’s topics could not be legally relegated to a secret discussion.

We have also embedded the audio recording for the stakeholder meeting at the end of the post.

After Frost made remarkably non-substantive remarks, she said she planned to leave after she took questions addressed to her. Larry Woodson, the Health Benefits Committee Chair of the largest CalPERS retiree group, CSR, California State Retirees, who normally asks the first question at these sessions,1 turned his spot over to the president of CSR, Tim Behrens (starting just before 14:00; emphasis ours):

Tim Behrens, President, California State Retirees: I have a request for you, Marcie. I would like you to meet with the president of the CalPERS board, Mr. Jones, and honor Bettie Yee’s request for an emergency board meeting to discuss the issues related to the CEO’s oversight, implementation of policies, etc.. I have a lot of concerns about the board not having the oversight they should have had and billions of dollars now moving forward to invest in private equity and private lending without having a without out having a CIO or having addressed the problems leading up to Ben’s resignation. Thank you.

Marcie Frost: I think Betty. I believe Betty. I can’t see Betty. But it might be worthwhile to check in with her. But I believe she believes that her request has been honored based on our August 17th meeting, which I can’t get into a lot of detail on.

Larry Woodson spoke a few minutes later (starting at 18:29, emphasis ours):

Larry Woodson, California State Retirees: This is Larry with CSR and I’d like to follow up on Tim’s comments, if I could.

OK, so I hear what you’re saying. There has been a lot of stakeholder concern about lack of transparency around Mr. Meng’s departure, sudden departure. And I understand that, you know, personal matters are confidential. There was a certain amount of information that I was kind of surprised I thought would be confidential.

But it was released to Bloomberg about your meeting with Mr. Meng and his violations and so forth. So, I mean, that was, I suppose, pretty transparent, but it’s troubling to me that Mr. Jones would deny the board members the opportunity to meet in special session and to review Mr. Meng’s violations and the policies themselves and your oversight of the policies and the need for any additional safeguards.

And so the only, as far as I know, the special meetings never occurred. And he up until the 17th really either denied or denied by ignoring that request.

And so if if you’re saying that Mrs. Yee’s request was granted or she’s now satisfied that’s news to me, if that meeting, that meeting on the 17th, is that actually that closed session meeting that actually addressed her concerns and that was on the agenda.

There should have been a follow up open session, according to Bagley Keene, where you reported that the general nature of the matter is considered in the closed session and whether any action was taken, that would have been our opportunity to at least here it had been addressed. No open session occurred, which seems to me a violation that we can’t so I’ll just I still feel that that kind of a meeting is very important to encourage. The board’s not only prudent for the board, but it seems to me absolutely required.

Shorter: Behrens was unhappy about Yee having been steamrolled by Henry Jones and wanted her issues put on the agenda. Behrens was also worried about the risks posed by CalPERS plans to pile on more risk by increasing its private equity and debt holdings.

Woodson objected to how CalPERS disclosed confidential information about Meng, when it has used Meng’s purported privacy rights2 as a basis for covering up who knew what when at CalPERS. Woodson also pointed out multiple meeting abuses: the closed session agenda was incorrect if Yee’s issues were discussed, that there was no open session for public comments, and no reporting out of the closed session as required.

Now back to Frost (emphasis ours):

Marcie Frost: Yes. Thank you, Larry. And I appreciate you asking the questions. I really do. So, you know, I can’t speak on behalf of the controller, but I do. What I can tell you is I don’t have a current request to schedule a special meeting, so I can’t, again, talk with you a lot about what happened in court.

Yee evidently heard about Frost’s claims. The Ben-Meng-departure-level speed of Yee’s pushback shows that Frost’s efforts to avoid substantive discussion and reforms are meeting with hardening resistance.

If you are a California resident and have a few spare minutes this weekend, it would help to send a short e-mail to Controller Yee thanking her for persisting in defending open government and seeking reforms at CalPERS. She’s sticking her neck out and it would help for her to hear that California voters support her. Please also cc Board President Henry Jones, CEO Marcie Frost, and State Treasurer Fiona Ma (Ma appears in need of a spine implant).


California State Controller Betty Yee

CalPERS Board President Henry Jones

CalPERS Chief Executive Officer Marcie Frost

California State Treasurer Fiona Ma

Thanks again!

1 Woodson normally goes first because he is recognized by staff and the retirees as usually being the best prepared.

2 Experts in California civil service practices to a person have told me CalPERS’ assertions about Meng’s personnel privacy is bogus. By resigning voluntarily, he is now an ex-employee and his privacy rights are limited to truly personal information, like his Social Security number and details about his health. In other words, people in the know see that CalPERS’ privacy handwaving is to protect CalPERS, not Meng.

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  1. Sacramento Sal

    Thank you to Controller Yee for shedding light on the oversight issues at CalPERS. Where does Fiona Ma stand on Calpers governance failures? And why havent we heard from Governor Newsom’s appointees? Don’t they embrace transparency? These board members better get on board, lest they get run over.

    1. Jeff

      It’s clear that those advocating for transparency have already had their voices heard. As we are seeing yet again, the majority of CA politicians and their appointees have no interest in transparency. CA politicians and appointees are blatantly turning their backs on their constituents, those that are relying on CalPERS and most frustratingly, the office with which they were either elected to serve or appointed to.

      Will enough voters care?

  2. Ignacio

    Looks like this could soon enter ‘overly dynamic’ territory If I am allowed to borrow the phrase.

  3. Susan the other

    This really is a dark sit-com. Based on Marcie’s quotes alone. She has slowly hanged herself with all that twisted manipulation. So this episode is “Meng the Scapegoat.” And it’s mind boggling that the CalPERS staff has somehow managed to sideline the board and ignore Yee. The California State Controller! Who let’s that happen? Gavin Newsome? Do we need a special branch of the FBI to enforce retirement fund regulations? Good for Betty. She gets a cameo too.

  4. notabanker

    I’m not an attorney, but I’ve seen a number of prominent CA attorney commenting on this topic and I’m sure they are paying more than just curious attention. At what point do these Board members lose E&O / corporate insurance air cover and become exposed to personal liability for breach of fiduciary duties? It only takes one set of deep pockets to say enough is enough.

    1. Yves Smith Post author

      The board is already flying naked. They are relying on invalid self insurance. From CalPERS Self-Dealing: Board and Staff Grift at CalPERS Expense Via Grossly Underpriced Liability Waiver; Fiduciary Self-Insurance Policy “Invalid on Its Face” Due to Lack of Reserves:

      Just as it is permitted for companies to buy directors’ and officers’ insurance, so too can CalPERS buy liability insurance for its board members. But the relevant insurance, which is a CalPERS self-insurance policy is so far outside what its own governing statute, the Public Employees Retirement Law (PERL), and state insurance law allows that one lawyer deemed it to be “crazy-town… an absolute joke.” An expert on insurance who regularly serves as an expert witness said that the supposed insurance contract is in fact not insurance due to the lack of reserving and ongoing estimates of what CalPERS’ exposure might be as a result of changes in legislation and precedent, and was a mere contract with board members and employees.

      But perhaps the most important problem is that these policies represent a conflict of interest under Government Code § 1090 that rises to the level of a willful violation. That exposes board members as well well as any employees who participate to fines and criminal liability. In addition, the employees who aided and abetted them, meaning at a minimum the CEO Marcie Frost and the General Counsel Matt Jacobs, are subject to separate violation of Government Code § 1090.

      We have not seen any evidence since then that CalPERS board members have obtained third party insurance.

      1. David in Santa Cruz

        The key here is that the California Government Code recognizes the “moral hazard” inherent in allowing fiduciaries to be insured against breaching their duties. CalPERS as an organization can insure itself against breaches of fiduciary duty by members of the board, but only if the insurer has recourse against the fiduciaries themselves.

        Of course, nothing is stopping the individual board members from the purchase of such insurance on their own account — but as you can imagine it would be prohibitively expensive due to the inherent “moral hazard” that would have to be underwritten and reserved. Not. Gonna. Happen.

        California Government Code 7511(a) A public retirement system may purchase insurance for its fiduciaries or for itself to cover liability or losses occurring by reason of the act or omission of a fiduciary, if the insurance permits recourse by the insurer against the fiduciary in the case of a breach of a fiduciary obligation by the fiduciary.

        It appears to finally be dawning on some of the board members that they are personally the sole fiduciaries for the trust, and that delegating to obviously unqualified, conflicted, and incompetent staff is not going to be a viable defense to a lawsuit alleging breach of fiduciary duty and loss of trust assets.

        1. EPalmer

          Actually … PERS board members (as well as STRS) can all purchase a waiver of recourse policy every year. But it’s incredibly cheap. Something like a few dollars per year.

          1. Yves Smith Post author

            No, David is right and he is alluding to the invalid personal liability policies the board members buy. The insurance is provided by CalPERS, and not a third party. It is in fact a criminal violation of 1090 (the conflict of interest statute).

            It’s is additionally not legal insurance under state insurance regulations due to failure to expense expected losses for it and the lack of reserves.


  5. Adam

    Wasn’t Fiona Ma was connected to some pretty shady stuff in order to smear JJ Jelincic and keep Henry Jones on the board (which is a polite way of saying that she or someone else should be in jail for mail fraud, IIRC). I’m sure she’s just hoping that this will all magically go away.

    1. Fiona Ma and Ben Meng

      Fiona Ma and Ben Meng go way back.

      Ben Meng donated often to Fiona Ma’s political campaigns, five of which are verifiable from public websites and shown below.

      So if there is any additional unreported malfeasance by Meng (besides as self reported by Meng in his form 700, Meng personally owned shares of companies that he as CalPERS CIO awarded massively lucrative contracts to, and Meng also received side payments for being a “Teacher” from a Blackstone CEO Schwarzman organization in China while Meng was CalPERS CIO), then Fiona Ma has an interest in keeping it buried. Any additional self dealing would likely have occurred by CalPERS general partners, or direct lending to politically connected borrowers.

      Recipient Office Date Amount Meng’s Employer
      Fiona Ma CA Assembly 7/16/2010 $300 CalPERS
      Fiona Ma CA Assembly 12/9/2009 $300 CalPERS
      Fiona Ma CA Assembly 10/4/2008 $100 Barclays Global Investors
      Fiona Ma CA Assembly 11/1/2007 $250 Barclays Global Investors
      Fiona Ma CA Assembly 3/3/2007 $300 Barclays Global Investors

  6. vlade

    Good grief. Marcie is, like, you know, don’t you, entirely, what, incoherent, is that the word, right?

    It’s a realy pity that any suit coming to Calpers would have a bit of problem giving her an orange jumpsuit and an eviction notice (personal liaibility would bankrupt her many many times over).

  7. Jeff

    Yves, thank you for including those email addresses. As a CA resident/voter/taxpayer/ATM with legs, it sure would be nice to have my voice heard.

  8. flora

    Marcie 1: ‘nothing to see here. it’s already settled. move along.’

    Marcie 2: ‘bureacratic schedules yada yada bafflegab.’

    Yee evidently heard about Frost’s claims. The Ben-Meng-departure-level speed of Yee’s pushback shows that Frost’s efforts to avoid substantive discussion and reforms are meeting with hardening resistance.


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

    1. Off The Street

      The ongoing NC work on CalPERS has been very educational, at times enraging, other times humorous, always enlightening.
      Yves’ columns should be bound for future case studies in governance, fiduciary responsibility and myriad other topics at law schools, poli sci departments, business schools and as part of new government employee ethics training.
      Glad to find good news wherever we can :)

  9. Tom Stone

    Betty Yee is not a lightweight and she has allies in Sacramento, if she gets a significant number of emails and phone calls in support she will be in a much stronger position to deal with the mess at CalPers.
    Marcie and the Gang have been pushing real hard for a long time and they have made enemies, when those people sense the tide has turned they will pile on.
    Once again I have sent emails, but this time I have the feeling that Jones and Frost have taken a step too far.

  10. The Rev Kev

    Late to comment here. When Jones blew off Betty Yee at the special meeting the other day, I was thinking that this was not over. Betty Yee is not only a self-made woman, she is also the Californian State Controller which to my mind puts her a few levels above a CalPERS Board member. Gavin may have to watch his step here and not leave Yee swinging in the wind without support. If he does and when CalPERS blows up, he will have to answer why he did not take any action by supporting Yee.

    I think that I am detecting a bit of panic at CalPERS. Maybe the hope was that with Meng’s departure, all controversy would depart with him. But too many questions remain unanswered and it may be that Frost will be sacrificed next to save people like Jones. And its not like companies will be beating a path to her door to offer her a new job. Unless she can get a gig with Randle Communications or All American Entertainment that is. Hey, maybe she could go into politics. She would fit right in as a Californian politician. Shutting down Yee was as stupid as it was short-sighted so it looks lie the other boot is about to drop.

    1. Brian (another one they call)

      Panic. Behind the scenes yes. But how does Frost continue to avoid all scrutiny? She doesn’t agree with democracy when it comes to her organization or the law. She hides the mis/mal feasance and works hard helping ex employees cover their tracks. She denies the people that control the org any communication she sees fit to deny. There are several people working “for her” that appear to be doing the same.
      There appears to be enough for a RICO case. I do get the impression that many people are hiding the reality of this mis/mal effort to protect CalPers, when it is in no way protecting CalPers, but only the miscreants that appear to run it as perhaps a personal bank account for their own benefit?
      But the real question is, what are they hiding? To have so much support and no investigation really smells sickly. If it were a recently acquired business by a venture capital firm, I would guess that it is being looted from the inside and the foundations are being pulled out.
      We know they lost a lot of money on “suggestions” for investing by incompents within, and VC without. Swiss bank accounts, Cayman vacations, purchased permanent visa’s to countries with no extradition treaties seem like the next step.
      Are they covering their tracks as they make their escape? Are they preventing law enforcement from investigating Meng?
      Speaking of law enforcement, where are they in all this?
      Thanks Yves.

    2. HotFlash

      It is possible that Ms Frost does not expect to need a job anytime soon, as she will have a position which includes room, board, and clothing for several years. During which time she may acquire new skills which are in demand, such as fire-fighting.

  11. HotFlash

    Another beautiful morning here in Ontario, made perfect with fresh coffee and fresh CalPERS. I love the smell of personal liability in the morning!

    Yves, this is amazing and wonderful. I second Off The Street that it would make a great book, even a movie, for all the audiences OTS lists, but also for anyone interested in how to make government, or any organization, accountable. It started with JJ Jelincic digging in his heels, at least that was where I came in, and Yves covering that much under-reported story in depth and persistently. Then Margaret Brown. And other inside source(s). And the information from the commentariat — Yves, you run a fabulous salon here! And Yves keeping the dots connected all the while.

    1. James D Gray

      HotFlash we need to met some time i reside in Rancho Cucamonga and am involved in CALPERS matters
      I like your comments

  12. Stan Sexton

    Can’t wait to see Meng’s CALPERS Pension. Will it surpass Curtis Ishii’s over $418,600 per year?

Comments are closed.