CalPERS

CalPERS indictment leaves key questions unanswered

March 20, 2013: 1:17 PM ET

CalPERS_LogoThe former head of America's largest public pension has been indicted for fraud, but key questions remain.

FORTUNE -- A federal grand jury this week indicted the California Public Employees' Retirement System's former CEO Fred Buenrostro, on fraud and obstruction of justice charges. Also indicted for fraud was notorious "placement agent" Alfred Villalobos, a Buenrostro pal who was regularly hired by private equity firms seeking fund commitments from CalPERS.

The fraud charges are virtually identical to what was laid out last year in an SEC civil suit, alleging that the two men forged documents related to CalPERS commitments to funds managed by Apollo Global Management (APO). And, like with those SEC charges, this is like nailing Al Capone for tax evasion.

To be sure, Buenrostro and Villalobos were an unholy alliance -- the hen-house gatekeeper and the friendly fox. But these charges don't allege that the pair improperly influenced CalPERS to invest in a fund that it otherwise would not have invested in, or that Buenrostro personally benefited from a successful Villalobos placement.

Instead, they relate Villalobos' attempts to get paid by Apollo for work he actually completed -- but for which CalPERS didn't want to acknowledge. When CalPERS staff refused to sign the verifying documents, Villalobos and Buenrostro took matters into their own hands. Kind of like creating a phony receipt for an expense report, because you lost the real one and no one at the store will create a duplicate (yes, this is far more serious, but you get the picture).

We still have no valid explanation from CalPERS as to why it didn't sign the initial disclosure letter, leading me to believe it was an attempt to establish plausible deniability of Villalobos' dealings in Sacramento. Likewise, Apollo has steadfastly refused to explain why it not only used Villalobos in the first place, but why it paid him more and more money to raise subsequent capital (the opposite of how placement agent compensation usually works).

At this point, I'm beginning to fear that neither Apollo nor CalPERS will ever be asked to answer such questions by someone with subpoena power.

Below is the unsealed indictment:

View this document on Scribd
  • Exclusive: CalPERS asks for a break

    America's largest public pension tries to cut fees.

    FORTUNE -- Most California public employees are facing a 5% pay cut. Now the state's largest pension system, CalPERS, wants its contractors to accept a similar reduction.

    Fortune has learned that CalPERS last week sent a letter to 112 service providers, asking them to voluntarily help "reduce the operating expenses of the system." Recipients included many firms that work with CalPERS' private markets group, MORE

    - Aug 8, 2012 10:35 AM ET
    Posted in: ,
  • Exclusive: Private equity firm accuses CalPERS of racial discrimination

    Why did America's largest public pension system ask an investment manager to fire its co-founder?

    FORTUNE -- Last year, the California Public Employees' Retirement System rejected a proposal from Centinela Capital Partners to continue managing the pension system's domestic emerging manager private equity program.

    It was a fairly big surprise, given that Centinela had led the program for the previous five years – two vehicles totaling $1 billion – with decent returns MORE

    - Jun 28, 2012 11:13 AM ET
  • CalPERS discloses Blackstone deal details

    America's largest public pension cuts a big check.

    FORTUNE -- Last week we reported that The Blackstone Group (BX) was negotiating a custom managed account with the California Public Employees' Retirement System (CalPERS), but details were scarce. Now the pension giant has posted materials for next week's Investment Committee meeting, which lays out a few related details:

    1. It appears that CalPERS has committed $500 million to the Blackstone custom managed account. I MORE

    - May 9, 2012 10:57 AM ET
  • Exclusive: Blackstone nears deal with CalPERS

    America's largest public pension closes in on a major agreement.

    FORTUNE -- A running joke in private equity circles is how the California Public Employees' Retirement System (CalPERS) has become the industry's invisible 800 lb. gorilla, having made just a small handful of new fund commitments since Real Desrochers took over the program early last year. Seems the pension giant has been driving a very hard bargain on fees, causing even MORE

    - May 4, 2012 10:59 AM ET
  • The Carlyle IPO discount?

    Has Carlyle Group lost value in the past year?

    FORTUNE -- The Carlyle Group is expected to go public later this week, and would be worth approximately $7.3 billion were it to price in the middle of its IPO offering range. But this wouldn't be the first third-party valuation for Carlyle, which has been closely-held by its founding partners since being formed in 1987.

    In early 2001, the California Public Employees' Retirement MORE

    - Apr 30, 2012 2:41 PM ET
  • My response to 'CalPERS responds'

    CalPERS takes issue with fraud post.

    FORTUNE -- On Monday, the SEC filed fraud charges against ex-CalPERS president Fred Buenrostro and private equity placement agent Al Villalobos. I reported on the situation Tuesday morning, concluding that the complaint raised several new questions about decisions made by CalPERS during Buenrostro's leadership (for the record, Buenrostro has denied wrongdoing).

    The largest one, from my perspective, was why CalPERS chose not to sign an investor MORE

    - Apr 26, 2012 2:56 PM ET
    Posted in: ,
  • CalPERS fraud case raises new questions

    New charges in public pension corruption saga.

    FORTUNE -- The Securities and Exchange Commission yesterday filed federal fraud charges against CalPERS CEO Fred Buenrostro and his placement agent pal Alfred Villalobos, alleging that they bilked private equity firm Apollo Global Management (APO) out of around $20 million.

    For regular readers, this shouldn't be too surprising. Buenrostro and Villalobos were the tips of a pay-to-play spear that corrupted the nation's largest public pension MORE

    - Apr 24, 2012 9:58 AM ET
  • CalPERS CIO: Carried interest tax 'indefensible'

    Joe Dear bites the hand he feeds.

    The nation's largest public pension system thinks it's time to do away with one of private equity's most cherished tax breaks.

    Joe Dear, chief investment officer of the California Public Employees' Retirement System (CalPERS), said the following during an investment committee meeting earlier today: Private equity "general partners should recognize that tax treatment of their income has become indefensible."

    This is a pretty major statement, given that MORE

    - Feb 13, 2012 1:40 PM ET
  • Exclusive: CalPERS considers KKR account

    The nation's largest pension system considers a new type of alternative investment commitment.

    I've been giving thought to 2012 storylines in private equity. One of them certainly will be the rise of large custom managed accounts, of the type recently agreed upon by the New Jersey Division of Investment with The Blackstone Group (BX) and the Texas Teachers' Retirement System with Apollo Global Management (APO) and Kohlberg Kravis Roberts & Co. MORE

    - Dec 16, 2011 9:46 AM ET
    Posted in: , ,
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.