EXPOSED: How CalPERS Tried and Continues to Try to Cover Up Former Chief Investment Officer Ben Meng’s Misconduct

Last week, we published the partly-redacted transcript from a special CalPERS board meeting held in August 2020, shortly after Chief Investment Officer had resigned on August 5 with immediate effect. This was a mere three days after we had documented, in detail, Meng’s violations of California financial reporting requirements (via the so-called Form 700) and conflict of interest rules.

Specifically, Meng was required to report his stock purchases and sales during the year, and not just his year-end holdings. A large number of year-to-year differences in his positions means Meng must have made trades that he failed to disclose as required.

Meng in the first quarter of 2020 also approved a $1 billion investment in a Blackstone fund when he held shares in Blackstone. Finally, Meng had been pumping hard to increase CalPERS’ commitment to private equity when he was additionally conflicted by also holding Carlyle shares and an interest in an Ares credit fund.

The scandal blew big when two individuals filed anonymous complaints to the California Fair Political Practices Commission the day after our post went live, and the financial press took up the conflict of interest angle (missing the hiding of the stock trading) and the FPPC reports, which assured the FPPC would investigate. The complaints came so hard on the heels of our posts that it is reasonable to assume that they used the information we presented and largely repeated our findings.

Today, we’ll discuss CalPERS’ past and ongoing cover-up of l’affaire Meng.

Why CalPERS’ Claim that CEO Frost Planned to Tell the Board About Meng Does Not Add Up

In the transcript below, you’ll see both Board President Henry Jones and CEO Marcie Frost repeatedly assert that they really, truly, intended to ‘fess up to the full board about Meng’s financial misconduct, oh, maybe around September, presumably including that they’d hired top FPPC lawyer Lance Olson to investigate, and he’d produced a draft report.

Curiously, Olson had completed his draft in May but the document was not finalized as of when we broke the Meng story. That is extremely peculiar since Frost maintained that Meng dumped his Blackstone shares in April, shortly after CalPERS’ compliance staff had gotten his Form 700 for calendar year 2019 and saw that he’d approved a law-breaking investment.

In other words, after Meng sold his shares, there should have been no new facts, and no reason not to complete the report, administer whatever sanction Frost deemed suitable, and notify the board. CalPERS had an offsite in July, which included a substantive closed session on the last day. So Frost could easily have included the Meng matter in July had she wanted to.

Moreover, Frost had to know by then she could not keep Meng’s misconduct hidden much longer. The Forms 700 were due in later in 2020 than usual thanks to Covid, on April 1, which was when Meng turned in his document. CalPERS historically had posted the Forms 700 for board members, the CEO and CIO and other key officers promptly on CalPERS’ website. We noticed the failure to publish the documents for CalPERS officers. We requested forms filed in 2020 through June 8 for a whole raft of CalPERS staffers, including Meng. CalPERS slow-walked the response, saying it would provide the records as of July 17, then August 21. CalPERS in fact posted Meng’s Form 700 on July 20.

Insiders told us that Meng hired counsel only a “couple of weeks” before our post went live, as in roughly when CalPERS published his Form 700. Was Meng really so naive that he thought his second Form 700 would never see the light of day?

What apparently sent Meng and CalPERS into freakout mode was our Public Records Act on July 27, triggered by the fact that his now-public Form 700 showed that Meng still held Blackstone shares at the end of 2019 as he had at the start of the year. That strongly suggested he had violated conflict of interest rules when he’d green-lighted a Blackstone investment a few months later. Our request:

Public Records Act request #5297

For 01/02/2019-7/27/2020

Please provide any materials or writings related to actual or potential recusals by Chief Investment Officer Ben Meng.

Per Government Code 6253.9, please provide all machine readable documents in machine readable form.

It looks like Meng and CalPERS, with their paranoia about loose lips and inability to understand that some people are capable of connecting dots, leaped to the false conclusion that an insider must have tossed us the Olson report. From Bloomberg on August 8:

On the weekend of Aug. 1, he [Meng] met twice with Frost, sharing his concerns about the compliance review…

That was before our Meng post went live, on the evening of August 2.

On the one hand, the claim that Meng’s didn’t lawyer up until he faced public exposure makes Meng seem awfully cavalier about his potential exposure, particularly since CalPERS had hired a serious lawyer to conduct a probe. On the other, it would be consistent with the idea that he and CalPERS had come to an understanding, and that included CalPERS keeping a lid on his dodgy actions. That was a promise the giant fund could never honor but Frost and Jacobs are not people of honor.

CalPERS’ first version of the story was that the whole thing was confidential. This is clearly bogus since Form 700s are required filings and are also public records. This story in the normally CalPERS-friendly State Worker column on August 6 in the Sacramento Bee the day after Meng resigned shows that even CalPERS’ allies were not buying what CalPERS was trying to sell:

“CalPERS has known about questions regarding Ben’s Fair Political Practices (Commission) disclosure filings,” Board President Henry Jones said in an emailed statement. “These are private personnel matters and already have been addressed according to our internal compliance protocols.”

The commission, often referred to as the FPPC, administers state laws regulating campaign finance, conflicts of interest and government ethics. CalPERS provided no further explanation as to why Meng, in whom the majority of the 13-member board has repeatedly expressed confidence, resigned after the matters had been addressed.

As you can see in the searchable transcript below that by August 17, Jones had a new spin for the full board:

PRESIDENT JONES: So when the investigation was going to be complete was unknown. And I said, well, you have the direct report of the CI — the Chief Investment Officer reports to you. You can discipline him with your findings. But I said, once you reach that point, you need to advise the Board. And that — matter of fact, we already had talked about putting on September, because she believed that her investigation would be complete by then.

So in plain sight is evidence of a plan never to tell the board: that the investigation had not been completed. If it hadn’t been completed by August, with nothing having changed between May and then (except your humble blogger forcing CalPERS to cough up Meng’s year 2019 Form 700), why would one assume that it was ever going to be completed? No completed investigation = no need to inform the board.

Another CalPERS Big Lie to the board was Marcie Frost’s statement that CalPERS didn’t have to report Meng’s conflict of interest violation to the FPPC:

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?


So why did CalPERS, presumably truthfully, tell Bloomberg that the giant fund in fact had made a complaint to the FPPC about Meng….not when they knew of his misconduct in April, or after the investigation in May, but only after our story broke and two anonymous complaints had already been filed? From Bloomberg on August 8:

Calpers found that Meng approved an investment into a private-equity fund managed by Blackstone Group Inc. at the same time 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.

One has to think that it’s because CalPERS was now trying to get in front of a mob, in the form of the two already filed FPPC complaints, and pretend it’s a parade.

Specifically, State Controller Betty Yee pointed out that the FPPC would subpoena the Olson report. It isn’t hard to imagine that CalPERS decided to file its complaint in a manner to impede that from happening, say by providing some information but then handwaving as to why the Olson report was protected. Remember that FPPC investigation files become public once an investigation is completed, so now CalPERS faces being on the receiving end of yet more bad press once that happens.

But the excuses CalPERS has tried running before don’t wash. CalPERS can’t pretend that Meng’s Form 700 abuses are personnel matters. He was required to provide information, under penalty of perjury, per state law. If the report contains information that Meng was supposed to provide but didn’t, like all those stock trades he had to have made, that’s not entitled to a personnel protection. Neither are things like investments that CalPERS made that were reported to the Investment Committee in public meetings, or statements Meng made repeatedly in public about how keen CalPERS was to increase its private equity commitments.

The assertion that the report is attorney-client privileged is a stretch too. If Meng hired an attorney earlier than our sources indicated (or perhaps beefed up his legal team later when he panicked), Meng would have been adverse with respect to the investigation. Any material presented to his side by Olson would not be entitled to protection. But if Frost’s game was to make sure the report was never finalized, one way would be to present it to Meng, hope he got upset at some of the findings, and not agree to all the requested edits.

Recall also that another set of shoes is likely to drop with the FPPC investigation, even if the Olson report is included in the public file only on a redacted basis. The press fixated on Meng’s conflict of interest, since as Bloomberg and other financial outlets pointed out, that’s a no-no in the private sector too. It’s shocking that Meng thought he could get away with such a fundamental abuse.

But we also have Meng’s unreported stock trades. And Meng’s arrival happened to coincide with a big spike in personal trading violations, which CalPERS attempted to minimize by saying they came mainly from one person.

What if it turns out that the Olson report showed that Meng was a very active trader the entire time he was there? There is no way CalPERS could suppress this information, since it was required to have been reported on the Forms 700.

This would be hugely embarrassing to CalPERS, in that it would show it had hired a CIO who didn’t have his full attention on his very big ticket say job. And it would be vastly worse if Meng as head of the investment operation had been routinely violating SEC requirements for trade pre-approvals to prevent insider trading.

This possibility seems even more likely when you look at the board transcript below. Marlene Timberlake D’Adamo droned on and on and on trying to justify CalPERS not having reviewed Meng’s Form 700 to see if it looked internally consistent and/or matched up with his trading records. At first I thought this was to exhaust the board and dissipate their energy so they’d not be as persistent about their issues when they finally got the mike. But it may also be that the compliance department was clearly remiss in not reviewing Meng’s Form 700 by virtue of him being an active trader. And if he indeed was the person who’d made the big personal trading violations, that would almost mandate reviewing his Form 700.

Normally staff-supporting Rob Feckner undermined Timberlake D’Adamo’s position by pointing out that he in his former role as Board President reviewed the Forms 700 of the top five CalPERS officers, which implied that the staff should have been doing so.

Unfortunately, it isn’t at all clear how long it will take the FPPC to investigate the Meng complaints. But the results are almost certain to shed more well-deserved unflattering light on CalPERS.

00 OCR CalPERS Meng Transcript Filed In Camera
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  1. vlade

    Once this is over, you’d collect your posts and novelise them.

    Of course, that depends on the final outcome.

    1. Basil Pesto

      tbh everytime I read these, I think about how I’d go about adapting the whole saga as a film (well, a miniseries by this point)

      1. PlutoniumKun

        I doubt if it could be made as a straight series, but an ‘Office’ or ‘In the Thick of It’ type adaption would be perfect.

        1. Basil Pesto

          yeah I definitely wouldn’t straight-bat it like an HBO ‘based on the book by’ TV movie. It’s funny that I hadn’t thought of those examples even though they obviously fit and I love TTOI enormously (and you should watch Succession if you haven’t already). Everything about CalPERS is so beautifully preposterous that I think it would have to be stylistically heightened in some way. Maybe the actors could deliver their lines wearing blindfolds and rollerskates.

        2. The Rev Kev

          There was talk about CalPERS making a great comedy series a year or two ago. I think that the name Tina Fey came up as the obvious person to play Marcie Frost. The whole thing about Board members wearing Marcie’s favourite colour that time just lends itself to an episode in itself. Comedy gold that.

          But I swear to god as I was reading this article, this old memory popped up from high school days about struggling to learn Samuel Taylor Coleridge’s “The Rime of the Ancient Mariner” and I realized the mental connection – that goddamn albatross! That is precisely what Frost & Jacobs have done to themselves with Ben Meng. They have permanently hung him around their necks as much as that ancient mariner had an albatross around his neck.

          Meng has been gone what, a year or more now? He has moved on to better things but Meng’s tenure remains stuck to CalPERS like s*** to a blanket. Every time they want to move on, the subject of Meng and Marcie & Jacobs giving him cover keeps on coming back haunt to them. If they had replaced him last year they might have been able to move on with a new CIO but as they remain stuck becalmed for lack of a new one (like the ancient mariner’s ship) all they can do is circle the drain.

          Now if you will excuse me, I will have to go look up the albatross skit from Monty Python.

        3. ChrisPacific

          One of those sitcoms where the main character gets caught up in a deception, engages in an elaborate cover-up instead of coming clean, and is driven to increasingly (and hilariously) desperate measures and distractions in order to prevent the truth from coming out. (“Hey everybody, it’s Charles, our new CFO!”)

      2. Samuel Conner

        The thought occurs that Harry Shearer would have a field day doing impressions of the CALPERS Board in closed session.

    2. PlutoniumKun

      Actually, thats a really good idea at some stage, even just a straight ‘read through’ blog with commentary. Of course, we don’t know yet if it will lead to real change or a ‘Forget it Jake, its Chinatown’ conclusion.

      When Yves started this, I had zero interest in something so distant from my own concerns but its gradually grown into a fascinating account of corporate corruption and incompetence that should be required reading for all potential pension board members and management students.

      The problem is of course that there are plenty of people out there who might learn the wrong lessons. You too can be an incompetent non-entity but still get into positions of real power and influence, it’s the Marcie way.

      1. Basil Pesto

        I’ve actually thought about this before but for the blog as a whole. Like, how would you anthologise the big stories of the blog over the years, from GFC to Covid with CalPERS and Uber in between? One could even conceivably title it ‘I Told You So – The Naked Capitalism Years’ or some such.

        1. PlutoniumKun

          I think it would make the point that our hosts here have been consistently right on an amazing number of big calls, from Uber to Brexit, Covid to Russiagate and so on. I’m sure there have been some, but off the top of my head I can’t think of a major wrong call by the NC collective in the decade or so I’ve been reading this site.

          Most commentators (and of course the major media) are very good at gaslighting everyone about their past failures. I was just this morning reading a Guardian piece on Theranos, which, like all of them, somehow managed not to mention how Elizabeth Holmes was the darling of their opinion writers for several years. And of course lets not go with Afghanistan and the role of the media in consistently getting all the major calls wrong and not apologising for it.

          1. Basil Pesto

            The only example I can think of is the mask scepticism last year in the early days of the pandemic. This was revised after reviewing the evidence by, what, April? Months ahead of most of the west. And fully owned up to, with something of an explanation as to how and why they got it wrong (the distinction between protecting oneself, which only N95s are good for, and protecting those around you which, for wild-type/alpha, cloth and surgical masks worked for). That’s my recollection anyway, hope I have that right.

            1. PlutoniumKun

              I think a lot of us got caught up in the whole fomite thing for the first few months of the pandemic. Not many people made good calls early in the pandemic (and those that did often had bad reasons for it). But I think its fair to say that Yves and Lambert were far faster than most others at realising just how badly most of the West got the response wrong, including on masks.

              Its unfortunate that its quite hard to search through this sites history for all sorts of reasons, but it would be worth one day for someone with time on their hands to do a critical timeline of the arguments we’ve had here on Covid over the past 18 months or so.

              1. Basil Pesto

                I do tend to go to the ‘archive’ section occasionally, which is pretty good chronologically (I did this recently when reading about the GFC – going to ‘September 2008’ for example). This would work okay for the pandemic, going month by month – it’s been so all pervasive and there’s been a clear timeline. The tags are helpful too, for looking at a particular topic. But yeah, finding specific things can be tough. To be honest, I would kind of like to write a ‘Naked Capitalism’s History of the Pandemic Thus Far’-type piece. It would take a while, and be long, but I have a lot of anxious energy atm from the state of things that I need to work off.

                On the broader point we were discussing, another thing is that from my archive dabbling, there also seems to be a ‘pre-MMT’ and ‘post-MMT’ Yves. One can hardly blame anyone for getting the ‘taxes fund spending’ (etc.) thing wrong in the first place when it’s so deeply ingrained. She herself made the point to me last year when I brought up MMT with respect to Taleb that finance and finance-adjacent types are extremely resistant to having their view of Where Money Comes From disturbed.

                (My apologies, Yves, if you read this, for talking about you so impersonally, and for being off topic)

              2. Antagonist Muscles

                This sort of meta discussion about NC is useful as there is simply too much information for me to digest. I printed out two of the last CalPERS posts, and I still haven’t had time to read it. Sometimes real life intervenes, and I print a juicy post for reading later. It’s not uncommon for me to read your comments weeks or months after the initial post date.

                As for masks, I made the same mistake Ignacio made. Ignacio deserves plenty of credit for admitting that he was only thinking about SARS-COV2 coming inwards through the mask to infect the mask wearer and not the risk of outbound SARS-COV2 infecting everybody else. Thanks for the lesson.

      2. vlade

        Well, she does want to get on a speaker circuit, so “How to loot a pension fund” might have some level of attraction.

  2. vlade

    Coming back with a more serious comment – I wrote it before, but will say it again.

    As a CIO, you have no excuse to trade shares, at all. If you do want to have a markets exposure, you’d get a few very large wide-market tracker ETFs, and once a year rebalance. That’s all.

    Anything else really says you can’t do your job, because you’re compulsive trader, and that’s not a trait CIO should have. So I’d argue it was not “just” a rule breaking thing (as if that alone wasn’t enough), it also shown Meng was totally the wrong candidate.

    1. PlutoniumKun

      I’m glad you said that, I was thinking that, but I don’t know enough of the requirements for senior people in finance.

      It sounds very odd to me for someone in any senior role in an organisation like Calpers to be doing active trading, even as a side hobby. It would be almost impossible to avoid a conflict of interest or the appearance of one. As you say, there are plenty of market tracker funds available, there is no justification for any other type of trading.

    2. David in Santa Cruz

      One of the fundamental tenets of both Clintonism and Trumpism is that conflicts of interest are an impossibility for elites — Marcie Frost appears foolishly to believe that this is what it means to have an “alignment of interests” that she regularly blathers on about to the Board.

      Circumstances and this new transcript suggest that there was a kerfluffle by Frost and Meng with the Compliance Office about this, which allowed Meng to indulge in his fetish for compulsive trading throughout 2019 and into 2020. Neither the General Counsel nor the Board President had the legal gumption to understand how the rest of the investment universe understands financial conflicts. Olson may have been brought in to mediate.

      This is why you don’t put a high school educated clerk-typist in charge of a financial institution. These conflict of interest rules would be axiomatic to a person who had even attended so much as a community college level Business course — but not to these clueless buffoons…

  3. Bob

    Ah, Pandora’s box is opening.

    And the real question is how far does the corruption at CALPERS go.

  4. flora

    Serious question for CA readers: If Newsom loses the recall and a GOP candidate becomes gov will any of CalPERS questionable management practices change? Would a new GOP gov’s board appts change anything, do you think? Does the party holding the Gov’s office make any difference to CalPERS management?

    1. Sacramento Sal

      If we keep the same Governor nothing will change. The CEO, Marcie Frost, has the Governor and legislators wrapped around her petite legs. A new Governor could push for investigations and audits into CalPERS practices and the house of cards (invest in private equity paying outrageous fees, they in turn give large donations to PACS or non-profits) could come tumbling down.

    2. Trustee

      The governor appoints 3 of 13 Board members. Two of those are appointed for a fixed term (but they have been known to get leaned on to “resign”). The third, the head of CalHR (formerly the Dept. of Personnel Administration) is an at will appointment.

  5. HotFlash

    Thank you again, Yves, for CalPERS in the morning, way better than a bagle with my coffee. I really hope you do the book. The Adventures of Marcy? I would love to see Marcy become a meme of Karen stature. What I can’t figure out is where her payday comes/will be coming from.

  6. Henry Jones failed coverups about Ben Meng

    “And Meng’s arrival happened to coincide with a big spike in personal trading violations, which CalPERS attempted to minimize by saying they came mainly from one person.”

    Yves has proven that Meng failed to report several of his trades. Are Meng’s trades he failed to report on his form 700, still subject to a Public Records Act request? CalPERS Compliance would or should have knowledge of all of Meng’s trades. No doubt Ms. Timberlake D’Adamo is on top of it.

    Also does anyone know or has anyone seen reporting on how Meng came in possession of his equity shares of the private equity firms Blackstone, Carlyle, and Ares? Did Meng purchase these shares or did these firms gift these shares to Meng, such as for being on a panel at their conferences? Thanks

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