An accidentally released, partly-redacted CalPERS closed session board transcript reveals how clueless and captured most of its board members are. This revelation came about via CalPERS’ own attorney botching a filing in a Public Records Act lawsuit by former CalPERS board member JJ Jelincic. It shows that the CalPERS board, even in a time of crisis, in this case the unexpected and embarrassing resignation of its most important employee, Chief Investment Officer Ben Meng, is unable and unwilling to stand up to staff chicanery and incompetence. And one of the board members facing a challenger in this month’s board elections, David Miller, exemplifies what is wrong with this board.
As you can see from the document embedded at the end of this post, only a few board members like Jason Perez, Stacie Olivares, State Controller Betty Yee, Lisa Middleton, and Margaret Brown, pushed back against the staff’s fabrication that the financial conflict of interest violation that triggered Meng’s exit was not their responsibility. Perez gave a standout performance: well-prepared, forceful and persistent.
Today we will highlight the dereliction of duty of board member David Miller. Miller not only said he had no interest in reading the investigation into Meng’s misconduct and CalPERS’ culpability, he voted to block other board members from seeing it. We’ll also document how Miller has taken the same work-shirking posture in public board meetings. Miller apparently thinks he is entitled to take a paid vacation from his day job by showing up at board meetings and rubber stamping staff pet wishes.
We are singling out Miller as the poster child of board member negligence because he has a challenger for his seat in the board election that has just started.
This sorry state of affairs matters because incompetent leadership and the lack of oversight have resulted in bad outcomes like the giant fund considerably underperforming its peers (see here and here), lurching from scandal to scandal, and now so widely seen as a slow-motion train wreck that CalPERS has been unable to secure a replacement for Meng despite a very big ticket search led by a top recruiter.1
Beneficiaries have the opportunity to demand better by voting Miller out. There is every reason to believe that Miller’s opponent, Tiffany Emon-Moran, would be a vast improvement. Unlike Miller’ who has turned out to be a union cat’s paw, Emon-Moran is a former police officer turned negotiator and financial fraud investigator. She would not be intimidated by the likes of CalPERS’ general counsel Matt Jacobs trying to snowball her.
Miller’s defeat would also send an important message to the other potted-plant-imitating board members, that beneficiaries need and demand vigorous, pro-accountability, pro-transparency leadership.
It isn’t just, as one prominent beneficiary put it, that “Miller’s gotten very good at mouthing stupid.” Miller’s abandonment of board duties, save for warming a seat at scheduled meetings, is reason to replace him. Anyone who has been on a board will recognize how shocking it is for Miller and other board members to vote against any board members seeing the central analysis in the biggest scandal CalPERS suffered that year. A board member has the right to see any document that the organization produces. The board is in charge, yet you’d never imagine that when you see how Miller and his staff-toadying allies behave.
It’s surprising to see Miller come to such a sorry end. He’s a PhD, former head of a scientists’ union, and ran for the CalPERS board three times before securing his seat. Yet having tried so hard to get on the board, he’s done squat with the opportunity. From early on, he was at least making somewhat non-canned defenses of having the board remain inactive and uninformed. If you read the transcript, he’s descended further into being a mere mouthpiece for staff.
Miller Defends Staff Giving the Board the Mushroom Treatment
By way of background, CalPERS knew as of January 31, 2019 that it had a financial conflict of interest problem with its newly hired CIO Meng that inevitably blew up due to staff inaction. Meng disclosed then on California’s Form 700, a public document, that he held shares in the private equity firms Blackstone and Carlyle, as well as an interest in an Ares credit fund. Meng’s Form 700 for year end 2019 showed he still held these stakes. It also feloniously failed to disclose any purchases and sales he had made during the year, which could be inferred by numerous changes in the interests he did reveal.
Meng was certain to wind up approving new allocations to Blackstone and Carlyle at some point, given CalPERS strong commitment to private equity, particularly large funds. Meng made clear he planned to increase the allocation by stating that “We need private equity, we need more of it, and we need it now,” in February 2019, shortly after he arrived.2 Meng made a $1 billion commitment to a Blackstone fund in the first quarter of 2020, which was reported shortly thereafter in documents presented to the Investment Committee meeting in a public meeting.
CalPERS’ senior staff claimed it recognized Meng had violated California conflict of interest rules in April 2020, over a year after they should have acted,, hired an outside law firm to conduct an investigation, yet did not inform most members of the board, including Miller.3 They were caught flat-footed when the scandal broke on August 2 as a result of our post: CalPERS Chief Investment Officer Ben Meng Made False, Felonious Financial Disclosure Report; More Proof of Lack of Compliance Under Marcie Frost.
CalPERS then added to its flagrant disrespect towards the board though an obviously staff-planted4 Bloomberg story after Meng quit. As we remarked then:
CalPERS looks more and more like the gang that can’t shoot straight. CalPERS’ PR department is flogging a new Bloomberg story about the unseemly departure of Chief Investment Officer Ben Meng, which means the pension fund planted it and is pleased with it. In fact, as one prominent beneficiary said, “It’s ironic that they prefer this terrible narrative over various other terrible narratives that are probably closer to the truth.”
The story included the damming revelation that CEO Marcie Frost had known of Meng’s clearly-evident conflict of interest abuses back in April and regarded it as serious enough to merit launching an investigation. Even worse, only after the Fair Political Practices Commission received not one but two anonymous complaints about Meng the day after the story broke did CalPERS notify the FPPC, admitting to Bloomberg that it was obliged to do so:
When, in April, a compliance team uncovered at least one conflict-of-interest violation….Calpers found that Meng approved an investment into a private-equity fund managed by Blackstone Group Inc. at the sametime as he held Blackstone shares….
That kind of ethical breach is a clear no-no at virtually every investment manager, and California law required Calpers to refer it the state’s Fair Political Practices Commission, which the fund did last week.
Notice the timeline. CalPERS had concluded that Meng had at least one violation in April, but did not report it to the FPPC, as required, until the story broke and the FPPC was already committed to making its own investigation by virtue of having already received two complaints!
And Frost, true to her colors, flat out lied to the board. From the transcript:
BOARD MEMBER PEREZ: Marcie, you said there’s no legal requirement for us to report to the FPPC. Is there any CalPERS policy addressing that?
CHIEF EXECUTIVE OFFICER FROST: No
Yet Frost kept the board in the dark. Controller Betty Yee, who appears to be slow to anger, was so incensed that she sent a forceful letter demanding a special board meeting. Instead, she got an impermissible closed session during the special August board meeting.
If you read Miller’s remarks, which you can easily find by searching on the embedded transcript below, you’ll see he is utterly misinformed as to why l’affaire Meng blew up, which is the result of being spoon-fed self-serving falsehoods by staff and not engaging in even the most basic checking, like that it took only three public documents, Meng’s “as of assuming office” and year end 2019 Forms 700, plus the public report to the Investment Committee, to show Meng’s violation of conflict of interest laws, as well as having committed perjury in the later Form 700.5
As we previously explained, long-form in a post last week, Meng’s exit came about solely via putting together three bits of public information.
Yet staff has succeeded in brainwashing the board into believing that loose lips somehow sank Meng’s ship. Miller puts his foot in mouth and chews in demonstrating that he must spend absolutely no time on any of the voluminous material that CalPERS puts out before each and every board meeting. Yet his release time is 76%, meaning CalPERS pays his employer 76% of Miller’s pay for him not to work that much of the time because he is supposedly working on CalPERS matters. But Miller’s abject ignorance of CalPERS strongly says the only times he puts in are for board meetings proper and at most being on the receiving end of staff spin.
Get a load of this:
BOARD MEMBER MILLER: Thank you, Mr. President. Yeah. Whenever we have something go awry, there tends to be this real rush to want to kind of jump in and kind of say, you know, what can we do? And while I want us to really examine this, I want us to — to look at it from our role for oversight, I don’t want us to rush to, you know, jump in and want to micromanage things like, you know, detailed reports of personnel actions, and all those type of things.
I think our role is really to look at how can we improve our processes. Do we have sufficient processes, information, oversight, those types of things. And when it comes to things like, for example, the trading violations, at what point do we find out and learn about things? I don’t think it’s at the point where the CalPERS team’s processes have identified a problem and are working to resolve and take personnel actions.
I don’t want us to be pulled into that. That’s where I think we really end up with problems and liabilities as Board members, because that’s not our role.
Even though this sounds all well and good if you don’t know anything about being a fiduciary, Miller has everything wrong. The board is liable for everything staff does. The board can delegate its authority but not its liability. Sticking its head in the sand is no defense. It was Margaret Brown, who is the one judgement-proof member of the board by having her net worth consist almost entirely of her CalPERS pension, who tried to wake up the rest of the board about their legal exposure:
BOARD MEMBER BROWN: You know, Ms. Middleton mentioned that in light of the fact that the staff and Mr. Jones you knew of these potential conflicts, and we hired a lawyer, and Ben’s hired a lawyer, we still have Mr. Meng out there as our highest profile person, saying we are going to invest $80 billion — or borrow $80 billion and put it in private equity, and he’s in the middle of an investigation….
I think we’re going to get sued. We’re all going to get sued. You know, in my no vote — I talked to an attorney. My no vote doesn’t help me. I’m a member of the Board, but I didn’t know. And it turns out — I’ve asked, do I have less — do Board members who are kept in the dark about this have less fiduciary duty? And the answer is no, according to my attorney.
Betty Yee and Stacie Ortega made similar comments. Yee thought the board needed its own counsel. Ortega said she was concerned about her exposure and asked to see copies of CalPERS’ fiduciary duty policies.
Miller also reveals himself to be cut from the same cloth as Marcie Frost: he’s a fabulist.6 Again from the transcript:
BOARD MEMBER MILLER: Unlike Rob, I got calls from reporters and I didn’t return — you know, as much as, you know, it might be an exciting idea to, you know, get my name in the Wall Street Journal, and Bloomberg, and Naked Capitalism. Oh, man. You know, there’s a point where you have to say, no, I’m not returning that call.
This is a complete fabrication. We’ve never called Miller and we’ve never called any staff or board member for comment on our work on Ben Meng. We virtually never need to seek input from CalPERS because we are relying on public information. So as the lawyers say, res ipsa locquitur. In addition, we seek comments only in writing. We normally do that on the rare occasions when we do by mailing the entire board, as we did with our draft posts on Charles Asubonten and later Marcie’s Frost’s background misrepresentations during the hiring process. The only other times are when a staffer or board member has said something ambiguous and we seek clarification from Brad Pacheco.
Miller then displays utter ignorance of the fact that all of the information that damaged Meng came from public information that any inquisitive outsider could have found. Instead, he feeds the staff’s paranoid and patently false story that evil insiders are regularly throwing CalPERS secrets over the transom, so everyone, above all the board, must be kept really stupid so that nothing can get out:
BOARD MEMBER MILLER: Yes, before this leaked and hit the press….
I can’t stand how lame this is. Does Miller think that the only things that appear in the press and blogs were handed to them on silver platters, all nice and neat and ready to go? What about “reporting” does Miller not understand?
The only possible positive interpretation is that Miller is quite the actor and is working hard to come off as this dense. He does manage to seem as if he genuinely does not understand that our post, as has been widely acknowledged in the press, is what brought Meng down, and had he bothered to look at it, it showed how it all came from Meng’s two Form 700s and one slide presented to the Investment Committee in an open session?
Continuing with the remark from Miller above:
…if we had all been told, hey, there’s a serious issue, we want it kept in confidence, it’s a closed session type thing that we’re looking into with regard to the CIO, and it relates to this type of thing, and my investigation going on, and it will be concluded, and we’ll have something on the September Board meeting to address it, I don’t think we would be here today…
It was the appropriate course of action to complete the investigation and to bring that to the Board in September.
So bizarrely, Miller acts as if it might have been a good idea to notify the entire board, yet votes to continue to keep the board in the dark by denying them the Olson report. So at best he tries to have it both ways.
Moreover, he simply turns off his brain. He accepts the staff claim that they really did, cross their hearts, intend to tell the board in September. Why should anyone believe that? From Lisa Middleton, who ran similar investigations in a former incarnation:
BOARD MEMBER MIDDLETON: But I would share with Controller Yee and I think others the concern that the conclusion of an investigation is too late for notice to the full Board when the investigation involves matters of this significance.
Disappointingly, no one appears to have picked up from Frost’s patter that there were no new facts to discover and the investigation can’t possibly have taken more than a month and then another week or two to document. That means the investigation was completed in early June at the latest. So why was staff sitting on it?
An aside: another noteworthy matter is the large number of redactions, particularly of nearly everything said by or asked of Matt Jacobs. Nothing he said was attorney-client privileged, and we are confident that virtually everything that CalPERS had the temerity to try to deny the judge will eventually be revealed.
But why would CalPERS impermissibly attempt to hide information from Judge Michael Markman in an in camera review? One has to wonder if Jacobs violated bar rules, since the interests of staff and the board were in conflict here (recall Yee stating she thought the board needed its own counsel) and Jacobs almost certainly failed to make any notification.
Late in the meeting, Jason Perez, who had the balls to demand that the meeting be put on hold while he interrogated Frost and Jacobs privately, asked for a vote for the board to see the contents of the so-called Olson report. It is already shocking that the board was not given copies of the document as a matter of right. Worse, Perez, correctly sensing how captured the board is, effectively negotiated against himself by downgrading the motion from having the report uploaded to the board’s document system Diligent, to having the report available only in hard copy for board members to read at CalPERS’s offices in Sacramento. Margaret Brown quickly provided the second.
Miller was a no vote in addition to a no vote by a board members who was part of the cover-up of the April investigation, Rob Feckner, along with Ramon Rubalcava and Shawnda Westley, both of whom are standouts in the “nothing to contribute” category. Even Theresa Taylor, who went along with the original “keep the board ignorant” scheme, recognized that that position was no longer tenable and voted in favor of having the board read the Olson report.
Miller defenders may try to point to the sections of the transcript where he rather tamely suggested that maybe more oversight of staff filling out these pesky forms might be warranted. Miller was remarkably non-specific; his comments amounted to a “yeah maybe we should do something” handwave. But immediately afterwards, Rob Feckner pointed out that the board used to do more and receive and go over the Forms 700 of the top CalPERS executives.
In stark contrast to Miller, when Jason Perez got his first chance to speak, he made clear he had a long list of questions he wanted answers but was prepared to defer to other board members as needed so they could pose their queries too.
And this isn’t the first or last time that Miller has stood firmly in favor of board ignorance. The very next month, in September 2020, he spoke in favor of and voted for fewer board meetings and specifically having the board get less information (not that there’s any evidence that Miller pays attention to what he gets now):
BOARD MEMBER MILLER: I agree that — and I think that’s precisely why what we did has worked, it said — it set up the minimum of regular scheduled meetings with more or less a standing agenda and it gave us the flexibility to add meetings when we need to and not necessarily have the burden on staff preparing the entire gamut of reports that we are doing when we — with those kind of standing quarterly meetings.
Miller does not even begin to appreciate that the staff needs to prepare “the entire gamut of reports” to make decisions! The board meetings are vehicles for reviewing data to manage prudently and have a paper trial that they considered risks and costs carefully. For decades, CalPERS has had 11 board meetings a year and extensive reporting, in most respect more comprehensive than after Frost came on board.7
If Miller actually believes the staff will compile and review information less often for its own purposes, he voted for it to make bad decisions. And if they would (as they should) continue to prepare the reports, there’s not much additional work in having board meetings and getting more public confidence by being more open.
Frost has gotten nearly a 50% pay increase since she joined….yet she’s apparently whinging directly or through staff oh how hard it is to prepare all those pesky slide shows? Why is she getting paid the big bucks (and orchestrating lots of unwarranted pay increase for top staffers) if she can’t make the trains run on time? She’s supposed to figure out how to make stuff like this happen on a routinized basis. If she needs more staff, ask for it rather than try to create too-obviously phony excuses for hiding information from the board.
Mind you, Miller has also taken other actions that have hurt beneficiaries. He voted for massive increases in long-term care premiums and 23% increases this year and next year for comprehensive health care plans. He also backed the reckless private equity “Pillars III and IV” scheme, which would have amounted giving tens of billions of beneficiary funds to new entities entirely out of CalPERS’ control…and at higher fees than CalPERS pays now! Fortunately this terrible idea died under the weight of its own contradictions.
Miller has consistently toadied to staff rather than being willing to ask even modest questions, let alone oppose their self-serving conduct and demand better performance. Beneficiaries and California taxpayers deserve better.
1 Admittedly, the board’s obsession with diversity has also plays a role in sabotaging the search, as we describe in CalPERS Officially a Laughingstock Around the World: London Newsletter Sniggers Over Failed Chief Investment Officer Search Even While Omitting or Getting Worst Facts Wrong. The transcript below states that when the search was announced, seven promising candidates had already tossed their hats into the ring.
2 We’ve documented repeatedly over the years that this is false. First, private equity does not deliver enough return to justify its higher risk. Second, there are alternatives that would produce the desired overall returns that do not involve investing in private equity.
3 Staff claims it intended to inform the board of Meng’s misconduct at a September board meeting. September is when the board approves bonuses for the CEO and CIO. However, since the report by attorney Lance Olson, the so-called “Olson report” had not been finalized when Meng resigned with immediate effect on August 5, there is no evidence consistent with staff’s claim that they were going to eventually inform the board. It is just as plausible that the CEO Marcie Frost had already put a note in Meng’s file and did not plan any sanction, or would administer it privately. In the transcript below, Frost states she had already administered one de-facto punishment, of taking away some of Meng’s public presentation duties and assigning them to investment staffer Dan Bienvenue.
4 Frost tells a howler to the board in trying to maintain that the Bloomberg story wasn’t a CalPERS plant. Help me. It includes the details of a meeting between Frost and Meng only, when Bloomberg also states that Meng didn’t respond to a request to comment, as in he was not a source for the story.
5 You can read more detail in our post as to how Meng clearly engaged in false, felonious reporting; the extract below explains why Meng’s obvious omissions from his full year 2019 rose to the level of a felony:
After getting inquiries as well as a Public Records Act request from your humble blogger, CalPERS eventually put the 2019 Forms 700 on its site. As we will explain, the Forms 700 by Chief Investment Officer Ben Meng as of when he assumed office and for the full year 2019 taken together show that Meng has made many false statements. This means he has engaged in a felony. As you can see on first page of the Form 700, the respondent avows (emphasis original):
I have used all reasonable diligence in preparing this statement. I have reviewed this statement and to the best of my knowledge the information contained herein and in any attached schedules is true and complete.
I acknowledge this is a public document. I certify under penalty of perjury under the laws of the State of California that the foregoing is true and correct.
Perjury is a felony in California. And Meng has no excuse that he does know how to fill out this document. First, he was a Form 700 filer during his previous stint at CalPERS. Second, CalPERS staff sends multiple e-mails to Form 700 filers offering to help if they have any questions.
6 Miller is way too fond of obviously false self-aggrandizement, as we can already see in his re-election campaign. From an SEIU interview:
“In 2017, I won with sixty-four percent of the vote in the first round, avoiding a run-off election.”
Winning with a 64% vote is already not shabby. Why fabricate and say there might have been more than one round? Miller had only one opponent, Mike Flaherman. There never was going to be a runoff. The alternative to seeing Miller as a resume-inflating liar is that he’s getting early onset dementia and can’t remember what happened in a campaign that took months of effort a mere four years ago.
7 For instance, staff used to publish a full monthly transaction report, as required by statute. CalPERS has defied the law by turning that into a summary, betting correctly that no one finds it worth their bother to challenge CalPERS in court.00 OCR CalPERS Meng Transcript Filed In Camera