Memo to CalPERS: When you are in a hole, stop digging.
We’ve embedded an exchange of letters between CalPERS and former board member JJ Jelincic, via their attorneys. CalPERS has attempted the remarkably high-handed gambit of bullying Jelincic into dropping his recently-filed suit. Jelincic went to court to force CalPERS to disclose information that he contends it has no right to keep secret under California’s strict public meeting law (the Bagley-Keen Open Meeting Act) and its version of FOIA, the Public Records Act.
The screechiness and desperation of the missive from CalPERS’ attorney, Ragesh K. Tangri of Durie Tangri, belies CalPERS repeated assertion to the press, that it had complied with the law. If CalPERS is so confident of its position, why try to browbeat Jelincic with half-baked threats to get him to drop his action?
But on top of that, CalPERS scored a major own goal by making admissions that further undermines its case. Oops!
The Plot Thus Far
Jelincic filed suit earlier this month. You can find the straightforward Writ of Mandate, including exhibits, at Former Board Member JJ Jelincic Sues CalPERS Over Illegal Secret Board Discussion After CIO Ben Meng’s Abrupt Departure and Hiding of Records Related to $583 Million Overstatement of Real Estate Assets.
Jelincic is challenging CalPERS’ dubious denials of two different Public Records Act requests he made. One focuses on impermissible secret board discussions shortly after Chief Investment Officer Ben Meng’s sudden resignation last August. The second involves CalPERS’ continuing efforts to hide records showing how it overvalued real estate investments by $583 million. The filing not only calls for these records to be made public but also demands that board members be released to discuss all the matters that CalPERS impermissibly covered in the August “closed session”.
CalPERS clearly subscribes to the Democratic party belief that any problem can be solved by better PR. The giant fund thus cannot be happy that the press has talked up Jelincic’s lawsuit, and even worse from CalPERS’ perspective, in an evenhanded way, in Bloomberg, the Financial Times, the Sacramento Bee, Institutional Investor, Pensions & Investments, and CIO Magazine.
The Controversy: The Not-Properly-Redacted List of Topics that Never Needed to be Redacted
Amusingly, Naked Capitalism features in this dispute.
Jelincic’s counsel, Michael Risher, filed the Jelincic Writ of Mandate via fax. Jelincic then sent me a PDF in case I wanted to post on it, which I did. Jelincic’s PDF included all exhibits.
Exhibit B is a copy of CalPERS’ agenda for its board meeting on August 17. It lists only one topic for the closed session:
But the second page and third pages is a list of “Topics Discussed,” numbered 1 to 55, all whited out. Sure looks like there’s a big problem here! At most only one item was allowed to be discussed in closed session. As summarized in the text of the filing:
39. A Board member’s record of the meeting lists 55 numbered topics discussed at this meeting; the majority of those topics had nothing to do with personnel matters or other matters properly discussed in closed session.
40. These topics included general policy matters relating to compliance, employee education, CIO onboarding, the need for additional staffing, when the Board should be informed of “serious issues,” transparency, and the need to establish policy to govern investigations.
41. Approximately seven of these topics involved policy discussions relating to California Fair Political Practices Commission Form 700, Statement of Economic Interests, which some CalPERS employees — including the CIO and CEO and members of the Board — must file annually and which are posted on the CalPERS website.
42. One of these topics indicates that the Board discussed “gotcha articles.”
43. This topic refers to media coverage of CalPERS.
44. The Board discussed these topics at the closed session.
45. The Board held a formal vote at this closed session to authorize its members to read records relating to an investigation of Mr. Meng.1
Unlike the version filed in court by fax, the copy of the topics list we posted was indeed whited out…and not redacted with a redaction tool. Mind you, as we’ll explain shortly, there was no legal requirement to hide anything on that list. Jelincic’s attorney Risher nevertheless chose to do so, as the lawyers are wont to say, for the avoidance of controversy. His instincts were correct. CalPERS unredacted the exhibit on our site and got all het up.
CalPERS made the over-the-top demand that Jelincic do what he had no power to do, get independent parties to destroy copies of the filing with the exposable list of topics. We did swap the original copy of the filing with one Jelincic provided later, at his request.2
CalPERS’ Issues Ludicrous Dictates
Someone should pull Tangri aside and advise him that outside the CalPERS bubble, the Matt Jacobs style of lawyering, which is a combo plate of making shit up and bullying, not only isn’t very successful but it also tends to reflect badly on the attorney who has been persuaded to attempt it. 4
As you can see below, CalPERS issued more ultimatums: drop the suit and provide what amounts to a document retention request to the board member that provided his notes to Jelincic.
And why should Jelincic withdraw his case? The argument is the legal version of a pratfall. Jelincic told he is liable for “aiding and abetting” an alleged breach of fiduciary duty by a a board member and interfering with CalPERS’ contract with said board member.
First “aiding and abetting” exists only in a criminal context. Even if there were actually a there there, please tell me what universe a prosecutor is going to saddle up to go after a CalPERS board member over a dispute over a clearly improperly noticed board meeting….and charge Jelincic too?
Second, the only fiduciary duty the board has is to beneficiaries. The reason California has such strong transparency laws is that its default is that secrecy is bad for the public and is not allowed unless there are compelling arguments on the other side.
As Jelincic’s lawyer Risher points out, it’s hard to fathom how CalPERS’ beneficiaries could suffer in any way from disclosure of the information at issue and invited Tangri to enlighten him otherwise.
In fact, any independent party would see the beneficiaries as coming from more disclosure, since it generally means less shenanigans and also lets them see how various board members respond to scandals, which is useful intel when board elections roll around.
Remember, the board has absolutely no duty to CalPERS, as individual staff members or as an institution. The statute that governs CalPERS, the Public Employees’ Retirement Law, doesn’t even dignify the notion of “CalPERS” as an organization. It exists strictly as an instrumentality of the board.
Yet CalPERS’ staff has managed to con nearly all of the board into the bass-akwards belief that the board has an obligation to protect and defend staff. We see a version of that logic with Tangri’s complete fabrication that board members have a “contract” with CalPERS. No, they are state officials and sign an oath of office form if they were elected in a CalPERS election; I doubt the ex officio members (the State Treasurer and Controller) sign a second “oath of office” document with respect to CalPERS since they’ve already made representations under the California constitution when they won their state-wide contests about the performance of their official duties.
It’s secondary, but the request to Jelincic’s lawyer to direct the board member to retain records is a more obvious self-discrediting overreach. Did CalPERS’ lawyer get his degree from a diploma mill? It’s improper and inoperative to issue a document retention directive this way. 4
How CalPERS’ Attorney Undermined His Client’s Case
The letter from Tangri to Risher isn’t just an exercise in hot air generation. Tangri also undermined the weak arguments CalPERS attempted to make.
If you read Jelincic’s filing and the notorious Exhibit B, it refers repeatedly to the topics discussed, and not the substance of the deliberation. Tangri concedes that position. For instance:
Regardless of whether Mr. Jelincic and/or you think those topics are appropriate for a closed session meeting, and contrary to your unsupported assertion in paragraph 47 of the Complaint, unless the Court determines that those topics, if discussed, should have been discussed in open session….
Tangri attempted, not at all well, to conflate the detailed discussion in the lengthy August closed session with the listing of topics:
Although the Complaint claims an entitlement to see what happened at the CalPERS Board of Administration’s August 17, 2020 closed session meeting, it acknowledges that at least some of the content of that meeting should not be shared publicly absent a court order.
This falls way way short of establishing that the mere presentation of topics is verboten.
In fact, Tangri apparently does not understand that Bagley-Keene stipulates that a deliberative body must itemize, in advance, the topics it is going to discuss. For the matters it specifically agendizes for a closed session, it must also provide citations as to why deliberation in camera is legal.5 Not only is it perfectly proper to disclose the topics of closed sessions, the board is required to do so!
Tangri also gets exercised about the fact that the filing discusses what Jelicic believed was discussed in the closed session:
You did not, however, redact the portions of the Complaint discussing what Mr. Jelincic believes happened during closed session. For example, paragraph 33 describes in detail what Mr. Jelincic believes occurred.
This is another own goal. First, notice how Tangri repeatedly characterizes Jelincic’s statements as beliefs. Big mistake. Opinion is protected speech under the First Amendment, and since this is a governmental matter, that standard applies.
Second, have a look at paragraph 33 that Tangri flagged as offensive to his tender sensibilities:
In that closed session, the Board discussed a number of matters relating to Mr. Meng as well as matters relating to the policy questions raised in Controller Yee’s August 10 letter. In addition, the Board voted to allow its members to review a report relating to the matter. As one news outlet reported, “CalPERS Chief Executive Officer Marcie Frost was questioned by the CalPERS board for four hours in a closed session on what she knew about Meng’s financial disclosures” at this meeting.
My goodness, how did Jelincic get these ideas? Aside from the press, which means from CalPERS’ staff, from Marcie Frost herself. From the transcript of a meeting with CalPERS retirees in September 2020:
Tim Beherns, President. California State Retirees: Marcie, I would like you to meet with the president of the CalPERS board, Mr. Jones, and honor Betty Yee’s request for an emergency board meeting to discuss the issues related to the CEO’s oversight and implementation of policies, etc…
Marcie Frost: Yes, thanks Tim, I think, Betty, I believe that Betty, I can’t speak for Betty. That might be worthwhile to check in with her. But I believe she believes her request has been honored based on our August 17th meeting.
Controller Yee set forth the issues she wanted to discuss in a special board session in a letter dated August 10:
As a member of the Board of Administration, I take my fiduciary duty to safeguard CaIPERS investments very seriously. To that point, I am deeply disappointed in the actions of former Chief Investment Officer (CIO) Ben Meng and what appears to be a blatant disregard of conflict-of-interest laws and policies. I also find it objectionable that this matter is not agendized for Board discussion until August 17.
I believe the Board has an obligation to CaIPERS members to detennine whether Mr. Meng’s
carelessness violated any laws or caused financial and reputational damage to the pension system…
I hereby request you immediately call a special CaIPERS Board meeting within 48 hours of
receipt of this letter for purposes of hearing from the Board’s counsel and fiduciary counsel regarding potential violation of laws, adequacy of existing policies, safeguards that could prevent a recurrence of the situation, and the Chief Executive Officer’s oversight and implementation of policies and safeguards.
CalPERS has a habit of trying to depict information that’s in the public domain as confidential, and even worse, legitimately confidential. It would behoove Tangri to verify what CalPERS tells him, otherwise he could look foolish before a judge.
Finally, notice that Tangri doesn’t attempt to depict what Jelincic believes happened in the closed session as inaccurate. He does take a swipe early on, calling Exhibit B “the list of purported ‘topics discussed'” but otherwise hangs his argument on the notion that there’s some sort of big-deal damage in merely delineating the matters discussed. If theses matters were damaging instead because they were false or were narrowly accurate but could lead to erroneous conclusions (“How to combat rumors that Marcie Frost is having an affair with a direct report”), one would think Tangri would have attacked the list as including misrepresentations.
Note to Risher: Back Out of Tangri’s Trap
I hate to have short-changed Risher’s missive, since it’s well argued and comes off as if Risher enjoyed swatting back Tangri’s strained lawyering. I hope you’ll take the time to read it in full.
Risher correctly frames Jelincic’s aim as “to expose CalPERS’s wrongdoing and to require the agency to comply with the law.” He points out that there’s no past or prospective harm to “CalPERS’s legitimate interests” and deliciously adds that: “…unless the Board Policy relating to confidentiality has been adopted as a regulation, it is not enforceable.”
However, Risher dignified one of Tangri’s factually false assertions and rebutted it on legal grounds, when it’s cleaner explain why Tangri is off point. Risher fell for the bogus claim that a contract exists between board members and CalPERS. Hopefully Jelincic will take the time to clear up Risher’s misunderstanding on this issue.
It’s gratifying to see that Jelincic has an accomplished attorney arguing his case. The legally sophisticated beneficiaries I know who’ve read the compliant were complimentary (and some of these individuals are sparing with praise). I anticipate they’ll be pleased with his letter as well.
1 Another compliance issue is that any board vote in closed session is required to be “reported out” immediately afterward, as in what the resolution was and whether it was approved or nixed. That didn’t happen either.
2 Amusingly, no one in our tech-savvy and outspoken readership tried to uncover the supposedly redacted list. We haven’t either but we are hanging on the earlier version to annoy CalPERS.
3 The California Attorney General normally defends state agencies and has ample experience in the Public Records Act. So why did Jacobs engage Durie Tangri, which is an intellectual property shop? Did Jacobs owe them a favor and is using this matter to settle a debt? Or did he think the AG’s office wouldn’t go for the strategy of raw aggression, given how weak CalPERS case is?
4 “Please likewise instruct, and/or instruct Mr. Jelincic to instruct, that Board member to retain all such documents.” This looks like a big misfire for a second reason: CalPERS general counsel Matt Jacobs should have done issued a document retention notice if he deemed that to be helpful, as soon as he received Jelincic’s filing, via Board President Henry Jones to the entire board. The case was filed March 8. Tangri’s letter is dated March 17. So CalPERS is saying via counsel, which as we pointed out doesn’t work anyhow, that it’s trying to close this gate now that the horse is in the next county?
5 The only sort of exception is “pending litigation,” where the closed session carve out is narrow (it has to be an actual or imminent suit, and not a general “Oh, there’s been a new ruling and we have some theoretical exposure”). The General Counsel has up to one week after the closed session on pending litigation to submit a memorandum substantiating of the use of “pending litigation” shield.00 2021.03.17 FINAL Letter Tangri to Risher
00 2021.03.18 Risher letter to Tangri re Jelincic v. CalPERS
But the second page and third pages is a list of “Topics Discussed,” numbered 1 to 55, all whited out.
Nothing to see here. Move along. / ;)
Thanks for your continued reporting on CalPERS, PE, and pensions.
Maybe the same place Marcie Frost apparently got hers?
No, they down loaded them for the internet at work, and printed them at Calpers’ expense in the office. If you don’t like the ones they have disclosed, they have many more available.
Including Marcie’s one declaring her Queen of the May. /s
Marcie’s is a high school diploma.
My comment was an ironic nod to this story, in case you missed it ;)
Late here but all I can say is just what does the CalPERS Board and staff think that they are trying to achieve? Because whatever it is, it is not working. Can you imagine CalPERS in a court room and discovery has been enforced? So I thought to look up a bio of this Ragesh K. Tangri to see what he was all about-
As an amateur observer, his experience is not one that I think works best for CalPERS but what confirms it is the last bit of his bio where it says that he is ‘obsessive about the music of Bruce Springsteen.’ From what I have seen of Springsteen lately, that is not a good thing to be obsessive about unless it is the selling out bit.
He might have started hanging out with a questionable crowd recently, but he produced a lot of good material earlier in his career. Whatever other criticisms we might make of Mr. Tangri, being a Springsteen fan is not something I would hold against him.
Stop digging, indeed.
It never ceases to amaze me that the officials and most of the Board at CalPERS are so incompetent. Not only are they incapable of running the organization efficiently and according to laws and regulations, they can’t even hire competent attorneys, it seems.
Going off on a bit of a tangent, I have a pet peeve about writing that doesn’t follow the rules of grammar and syntax. How is it that such apparently highly-educated folks like attorneys can’t seem to consistently write a well-structured sentence? These letters and briefs aren’t typed under tight deadlines. They should be able to proofread their work and make sure it’s right.
At long last, an excellent lawyer is on the case! Michael T Risher’s March 18 letter is superb. Thank you Yves for publishing this correspondence.
From the swarm of news stories swirling around Meng’s sudden resignation last year — especially CEO Frost and Board President Jones’ improvident admissions to Bloomberg — it appears that Frost, Jones, and board members Feckner and Taylor conspired to hide Meng’s conflicts of interest from the FPPC and the other board members — for over a year and a half. Fortunately for them, conspiracy to violate the Political Reform Act of 1974 does not appear to constitute a crime under California law.
Unfortunately for them, it appears that a whistle-blower inside CalPERS outed their little conspiracy to the FPPC, and Meng resigned in a huff. State Controller Betty Yee, an ex-officio member of the board, rightly demanded an explanation. Frost and her conspirators then attempted to hide their cover-up from the public by classifying any discussion of it as a “personnel matter” to be discussed in closed-session.
Mr. Risher is correct: there is an important legal distinction between the topics discussed in a closed session and the substance of the discussion. Otherwise, the law could never be used to remedy a violation. What’s more, it appears at the time of the discussion Meng’s resignation was no longer a “personnel matter” at all, as he had unconditionally resigned and had been an at-will executive not subject to a collective bargaining agreement. The sole purpose of the closed session appears to have been to cover-up the wrongdoing of Frost, Jones, Feckner, and Taylor — who conspired to hide Meng’s conflicts of interest from the FPPC, the rest of the CalPERS Board, and the members and beneficiaries of CalPERS. This constitutes an unlawful use of closed session.
They are very fortunate that Governor Newsom’s new appointee as Attorney General, Rob Bonta, is notoriously corrupt — because a conspiracy to violate the open meetings law could easily be charged as a felony by a prosecutor with an interest in fighting corruption and conflicts of interest.
It’s a club and you ain’t in it. /s
Whatever Meng did, besides his conflict of interest and unbelievably incompetent decision to get out just in time to lose billions, it reflects on management. Almost makes you think Meng fell on his sword. And the “aiding and abetting” intimidation is probably Freudian on Marcie’s part. Sounds like something she would demand the attorney say. Aiding and abetting good corporate governance. Can’t have that.
This is fun.
TLDR version: Cease or we’ll shoot ourselves! Doh, we just did.
Longer version – they would really hate for this to come to the court, wouldn’t they? I, for one, would love for this to get to the court, as the amounts of fun and interesting discoveries would make it really exciting. For both sides, although I’m not sure that it’s sort of excitement Marcie likes.
It’s so very nice to see that JJ has a top class lawyer, that’s the sort of letter that would make me want to hire him as my lawyer if I ever got into legal trouble.
I suspect that the management of Calpers is so laden down with stupid that they may not even see how far they are getting out of their depth.
Back in my days as a consultant I dealt with a few small to medium sized businesses that had become very successful despite being led by people who were not very bright or knowledgable. They did it by a tortoise strategy of knowing one or two things and following the logic with the stubbornness of a donkey (almost inevitably matched up with bullying both employees and competitors they felt were weak). But they always came unstuck once they met a genuinely sophisticated competitor, or just someone who refused to be cowed. The only way businesses like that survived was if someone realised the predicament and hired outside know-how and listened to them. But mostly, they just ran out of runway and ended up in a smoking heap.
The fact that Calpers are relying on such second rate legal advice strongly suggests to me that they don’t realise their own limitations or the predicament they may well find themselves. It could get messy.
What I’d like to know is whether Tangri was dragged into this, or fallen into it.
As Yves writes, they are IP lawyers, while Risher is a government-law/civil-liberties specialist.
Engaging Tangri would make sense only if CP would be also looking into a couple of other areas where Tangri says they have experience, namely “professional liability” and “white collar crime and investigatins”.
What does it tell you when a company brings “professional liabilitity/white collar crime” lawyers into a “get board discussion published” claim?
Legislators have done nothing to protect pensioners from the past mistakes. You know why, of course? Their own pension portfolios are full of these worthless fraudulent securities. Pension funds should never have been invested in unregulated derivatives, MBS, ARS, ABS.
Conversations of Consequence With Charlie Ward