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:

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