California AG Jerry Brown yesterday filed civil charges against former CalPERS CEO Fred Buenrostro and ex-CalPERS board member Al Villalobos, alleging fraud related to CalPERS investments in private equity firms Apollo Management and Aurora Capital Group. No charges against the firms — both of which had hired Villalobos as a placement agent to secure fund commitments from CalPERS and other public pension systems.
This news should not come as a surprise to peHUB readers. We’ve known for quite some time that Brown was investigating CalPERS, and also that there were some obvious problems with the Villalobos-CalPERS relationship. For example, we reported last October that Villalobos was not a registered broker-dealer when pitching Apollo funds. Seems that’s in violation of California law.
We also wondered about a series of placement agent disclosure forms, which CalPERS released last year with Buenrostro’s signature. More specifically, we wondered why they had a fax stamp from Apollo, as if CalPERS didn’t have its own copies. According to Brown, they didn’t (and never did).
But this isn’t to say that there weren’t some surprises. The most notable involves Leon Shahinian, the CalPERS senior investment officer responsible for alternative investments. Brown alleges that in May 2007, Villalobos and Shahinian on a private jet to New York City in order to attend an Apollo-related fundraiser. The two also stayed in a suite at the Mandarin Oriental Hotel. Both expenses were paid by Villalobos, and later reimbursed by Apollo (total of around $63k). Shahinian allegedly did not disclose the gifts to CalPERS, as he was required to do. Just a couple of months later, CalPERS invested $581 million for a minority ownership stake in Apollo’s management company, with Shahinian’s positive recommendation. That 9% position was valued at just $124.6 million at the end of last June.
Shahinian is not being charged in the complaint, but CalPERS has placed him on “administrative leave.” In a letter sent yesterday to general partners, CalPERS chief investment officer Joe Dear wrote: “If your organization has given permission to Leon Shahinian to access any CalPERS related information via the web or any other remote access, please have his account suspended.” A CalPERS spokesman declined further comment on what he termed “a personnel matter.”
A few other notes:
*** In his complaint, Brown alleges that Apollo boss Leon Black did have an interaction with both Villalobos and Shahinian. There is no accusation that Apollo engaged in fraud. Of course, there also continues to be no explanation for why Apollo was using Villalobos as a placement agent, or why it continued to do so after the management company deal was closed.
*** Buenrostro has been working for Villalobos since leaving CalPERS, which has been public record for a while. What’s new, however, is Brown’s allegation that Buenrostro had a longstanding job offer from Villalobos while still CalPERS CEO, including the promise of a condominium. Buenrostro is accused of not disclosing to offer to CalPERS.
*** The complaint seems to suggest, at points, that Buenrostro and Villalobos hoodwinked the rest of CalPERS – save for board member Chuck Valdes, who has his own related troubles. It may well be true, but it’s also true that many at CalPERS were aware of the relationship between the two. Not only was Villalobos a regular presence in Buenrostro’s office, but Villalobos even opened his Lake Tahoe home in 2004 for Buenrostro’s wedding. Many within CalPERS knew something was rotten, even if they wouldn’t – or perhaps couldn’t – do anything about it.