CalPERS Continues to Grossly Misrepresent Facts and Law to Avoid Disclosing Full Transcript of Improper Board Meeting After CIO Ben Meng Quit; Will Judge Markman Buy It?

Since 2014, we have chronicled the many false positions CalPERS’ General Counsel Matt Jacobs has taken with the CalPERS board, beneficiaries, and taxpayers. Over time, the weight of evidence shows that Jacobs exemplifies a culture of casual lying which has undermined good governance at CalPERS.

A few of many examples: Jacobs misrepresenting the right of the public to speak at board meetings; his deceit in the selection of tainted fiduciary counsel Robert Klausner, who’d been criticized extensively in national and California stories for his involvement in corrupt pay to play schemes; Jacobs’ violation of bar rules by openly working with some board members against others when all were supposedly his clients; and failing to address self-dealing via CalPERS providing the board and staff with a grossly underpriced liability waiver. Even the normally CalPERS-friendly Sacramento Bee called out Jacobs for his role in the embarrassing hiring of resume-fabricator Charles Asubonten as Chief Financial Officer.

It’s one thing to regularly pull the wool over the eyes of CalPERS board. Since the pay to play scandal that landed former CEO Fred Buenrostro in federal prison for accepting bribes, the board has bizarrely acted as if abdication of its oversight duties is somehow the best course of action for the giant pension fund. But trying that with a judge, such as Judge Michael Markman, who is presiding in a suit by former board member JJ Jelincic against CalPERS, is a much riskier proposition.

By way of background, Jelincic sued CalPERS over two alleged violations of California’s Public Records Act. The first was over CalPERS relegating a board discussion of Chief Investment Officer Ben Meng’s sudden resignation to a private meeting, a so-called “closed session.” Jelincic argued that closed session was improper and therefore the meeting transcript should be made public. Jelincic’s second request was for records showing details of how CalPERS wrote down nearly $600 million in its real estate portfolio. Jelincic lost on the real estate records and won on the transcript….more or less.

A December post recapped Judge Markman’s ruling:

Markman found that the CalPERS board had held an improper closed session on August 17, 2020, which was a “special” board meeting held in the wake of Ben Meng’s sudden exodus after we exposed that he had violated California conflict of interest laws by holding shares in Blackstone, and found that the only portions of the discussion that were bona fide closed session matters were two sections where California Government Code 11126 (g), which allow performance reviews, hiring and firing of CEOs and CIOs to be held in private. One has to presume these parts of the meeting related to hiring Meng’s replacement; Markman more or less says so in his analysis…

It is clear that Markman still has not seen the entire closed session transcript. CalPERS has withheld some portions claiming they are attorney-client privileged. Apparently under California law, bona fide and sufficiently high stakes attorney-client privileged matters may be shielded even from in camera review.

Mind you, if there were any actual attorney-client privileged matter at issue, general counsel Matt Jacobs was required to submit a memorandum to the board as part of substantiating the basis for holding the discussion in secret. I am told that in the hearings, CalPERS has tried to maintain that such a document was created but now it can’t find it.

Markman looks like he is being awfully deferential in asking CalPERS one more time to unearth its supposedly wayward record:

Markman basically says CalPERS needs to cough up the document that has allegedly gone missing so he can assess its bona fides, or publish the entire transcript, or face sanctions. So this wrangling will continue into the new year.

Mind you, it is not unusual for judges to give governmental bodies more benefit of the doubt than they do to individual plaintiffs, even when they have highly competent, well regarded counsel representing them. Even though CalPERS took the high-handed position of redacting portions of a transcript that the judge had requested for in camera review, Markman has been bending over backwards on CalPERS’ behalf.

Admittedly, Markman in his order found CalPERS that CalPERS had violated the Bagley-Keene Open Meeting Act, which is a strong rebuke of CalPERS’ conduct and instructed CalPERS to produce the full transcript. But he then undercut the second part of his order by given CalPERS yet another opportunity to find the weirdly wayward record that was supposed to have been created shortly after the board meeting, at the very latest….when CalPERS had had plenty of opportunity tp find and produce it over the course of the trial.

However, a reading of the parts of the transcript that CalPERS did let Judge Markman see, which CalPERS accidentally exposed when it filed the document with the court, shows CalPERS’ “pending litigation” claim to be false. That would explain what almost certainly happened: Jacob never prepared a litigation memo because there was never any pending litigation. Recall that under the Bagley-Keene Open Meeting Act, litigation has to be either active or ripe for it to be entitled to closed session protection.

First, Chief Investment Officer Ben Meng had already resigned, so any possible action that CalPERS might take regarding an investigation conducted by outside firm was moot at the time of the board meeting. CalPERS was not going sue Meng after he quit.

Second, CalPERS had shared a draft of the investigation report with Meng, so it was inconceivable that CalPERS thought it would be embroiled in a suit with Meng. The last thing CalPERS would do if it believed Meng might sue CalPERS is breach its attorney-client privilege by sharing counsel-prepared materials with an adverse party.

Third, the parts of the transcript that are visible (i.e., the overwhelming majority of the meeting) provide no footprints of other controversies with potential litigants; the list of topics discussed in that closed session (redacted in the public filings but visible to the judge) almost certainly shows the same thing.

So what has CalPERS done? Instead of complying with the order by producing the document that the judge asked for or provide the full transcript to the court, CalPERS has tried a new, cheeky move: asserting that it is allowed to prepare the missing memorandum well after the legally-mandated time frame, as if this were a mere permissible administrative tidying-up.

To reiterate: CalPERS is not claiming that, as it previously had, that it has prepared the required memorandum and then somehow misplaced it. It has now shifted ground and is asserting the law gives CalPERS the right to “cure” any procedural improprieties that invalidate a closed session, and so he is therefore allowed to create the memo many months after he was supposed to have done.

But that is not what the law says. CalPERS cited Government Code 11130.3:

(a) Any interested person may commence an action by mandamus, injunction, or declaratory relief for the purpose of obtaining a judicial determination that an action taken by a state body in violation of Section 11123 or 11125 is null and void under this section. Any action seeking such a judicial determination shall be commenced within 90 days from the date the action was taken. Nothing in this section shall be construed to prevent a state body from curing or correcting an action challenged pursuant to this section.
(b) An action shall not be determined to be null and void if any of the following conditions exist:
(1) The action taken was in connection with the sale or issuance of notes, bonds, or other evidences of indebtedness or any contract, instrument, or agreement related thereto.
(2) The action taken gave rise to a contractual obligation upon which a party has, in good faith, detrimentally relied.
(3) The action taken was in substantial compliance with Sections 11123 and 11125.
(4) The action taken was in connection with the collection of any tax.
doesn’t support the argument.

As one insider put it:

GC 11130.3 permits an agency to go back in open session and adopt what it had done illegally in closed session. The “cure” would be to hold the meeting again in open session. I’m not sure you could do so since that would mean unringing the bell. Board members would already know what they had learned and would therefore be asking different questions. And by now, the composition of the Board has changed.

As a California lawyer and CalPERS beneficiary observed:

It’s important to note that in the unredacted portions of the transcript, the report that they are hiding is referred to over and over as an “investigation” and not as legal advice.

This fluidity in characterization is typical of Jacobs — he was calling it an “investigation” in order to cover Frost and Jones with the rest of the Board for their inaction on Meng’s illegal conflicts of interest. Now it’s a “legal opinion” subject to attorney-client privilege.

This is fundamentally dishonest and shouldn’t be acceptable to the Court.

The document should be made public under either characterization, however. If it’s an “investigation” it’s over and the results are public information not protected by civil service personnel rules. If it was “legal advice” the threat of litigation ended with Meng’s voluntary resignation — and since Meng was the party threatening litigation, sharing it with him as an adverse party extinguishers A-C-P. If it was “legal advice” to Meng, the privilege is extinguished by its disclosure to the Board.

Jelincic’s attorney Michael Risher describes why the CalPERS’ response does not pass muster in the filing embedded below. I strongly suggest you read it in full, particularly since it includes the relevant statutes and precedent. Some key points:

CalPERS’s so-called litigation memo fails to comply with these statutory requirements because it was apparently drafted months after the closed session and was never submitted to the Board….

any existing litigation memo must have been created after December 15, 2021, more than 4 months after the August meeting…

Apparently recognizing these legal deficiencies, CalPERS suggests that it can “cure any delay” under § 11130.3(a) by drafting a memo months after the meeting. CalPERS’s Sept. 17, 2021 Supp. Opp. at 6 fn. 2. This is wrong, because that provision applies only in cases brought to nullify legislative actions on the grounds that the state body violated § 11123 or § 11125. See § 11130.3(a). This case does not seek to nullify any action that the Board took; it simply seeks a declaration that the Board violated the law and access to the discussions that should have been public in the first place. Moreover, nothing in § 11130.3 even suggests that it supersedes other requirements such as the one-week deadline set forth in § 11126(e), the requirement that the Board determine whether a closed session is appropriate before it have the discussion, or the requirement that the memorandum be sent to the Board…

CalPERS has moved to seal the memorandum it has submitted based on privilege. But its failure to comply with § 11126(e) means that this memorandum is not privileged under that section or the one it references, § 6254.25.

Section 11126(e) states that a litigation memorandum prepared under that statute “shall be exempt from disclosure pursuant to Section 6254.25.” Section 6254.25 in turn makes confidential “a memorandum submitted to a state body … by its legal counsel” under subdivision (e) (former subdivision (q) (emphasis added).3 § 6254.25 (emphasis added). This protection ends when the litigation does…

Hopefully, what CalPERS presented to Judge Markman is so far outside what he expected that he will say that CalPERS needs to deliver the full transcript to him or be cited for contempt. We should find out relatively soon.

00 2022.01.27 Reply Plaintiffs response to CalPERSs Jan. 21, 2022 submissions with PoS
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  1. PlutoniumKun

    Thanks for the update. I’m still astonished that this rampant maladministration is not making headline news in California.

    1. Yves Smith Post author

      Sadly, all that matters for CalPERS is the coverage it gets in Sacramento, as in from the Bee. And it’s really captured its reporters. The only exception are occasional critical pieces from Dan Waters, the retired dean of California political columnists, who sometime writes for the Mercury News. He is taken seriously.

      1. Tom Stone

        Cal-Pers is not an outlier when it comes to corruption in Sacramento and the “Bee” ‘s owners and editors are part of the power structure that benefits from the status quo.
        The California Attorney General’s main job is to make sure no one upsets the apple cart, as Harris Becerra and Bonta have so amply demonstrated.
        Marcie did not get her job or keep it by accident, neither did Jacobs, they are just more blatant in their lack of respect for the law than most.

  2. The Rev Kev

    I have to admit that even after all these years, one question fascinates me. You just know that sooner or later there is going to be a criminal investigation of the CalPERS Board and Staff as nothing lasts forever. If not the local cops, then more likely the Federal. This being the case, those detectives will have available only one get-out-of-jail-for-free card for the first person to turn State’s evidence. Being the second person to come forward means absolutely nothing. So you have to ask yourself that when the CalPERS Board have their meetings, are there furtive glances at each other to assess who might be the first to jump? My money is on Marcie though.

  3. Sacramento Sal

    It’s finally wonderful to see CalPERS held accountable. Thank you to Judge Markham and Mr Jelinsic. Without this lawsuit beneficiaries would not be able to peek behind the CalPERS curtain. I believe the lawsuit will continue to expose weak men (and women) posing as great and powerful wizards (Matt, Marcie and the Board)

  4. David in Santa Cruz

    This story is not unique to CalPERS or to California. It is merely the tip of the iceberg. Government officials and agencies from the President of the United States, on down to the Cabinet, the Congress, and the Pentagon are rotten with corruption, conflicts of interest, insider trading, self-dealing, and elite impunity.

    California has had a very strong anti-corruption law on the books for over 40 years. It is emblematic of the rot in our government that this story is based on a lawsuit filed by a private citizen, rather than an investigation by the U.S. or California Justice Departments. Does any reader actually think for a minute that the litany of wrongdoing recited above hasn’t been walked through the doors of the agencies putatively charged with regulating and policing public pension investments, or that their inaction is anything but intentional?

    As always: Follow the money

    1. Brian Beijer

      During a secret meeting on March 10, 1975 in the Turkish Capital of Ankara with Mehli Esenbel, Turkey’s Foreign Minister, Kissinger, then Secretary of State and Assistant to the President for National Security Affairs, told Esenbel:

      Before the Freedom of Information Act, I used to say at meetings, “The illegal we do immediately; the unconstitutional takes a little longer.” [laughter] But since the Freedom of Information Act, I’m afraid to say things like that.

      The corruption has been ongoing for at least the past 50 years, if not since the country was founded. Notice that Kissinger said that now he’s “afraid to say things like that” not that he’s afraid of doing things like that.

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