SAN FRANCISCO (Reuters) – California’s attorney general has sued two former top officials of the biggest U.S. public pension fund, charging them with taking part in fraudulent broker-dealer activities involving fund investments worth billions of dollars..
The complaint, filed in state court on Wednesday, claims Alfred Villalobos, a former board member of the California Public Employees’ Retirement System (Calpers) who served as a placement agent for investment companies, cultivated a former Calpers chief executive with gifts, gratuities and promises of future employment to help influence investment decisions at the fund.
Federico Buenrostro Jr, who was Calpers’ CEO from 2002 to 2008, is charged with helping Villalobos and his firm, ARVCO Capital Research, win investment work at the fund.
Buenrostro played a “key role in assisting Villalobos and ARVCO in their fraudulent activities,” according to the complaint, which seeks to recover at least $70 million.
Villalobos, a former deputy mayor of Los Angeles, served on the board of Calpers, a $212 billion fund, from 1992 to 1995.
Placement agents act as middlemen to help private equity funds promote themselves to potential investors.
The investments, made from 2005 to 2009, were worth about $4.8 billion of Calpers money and earned ARVCO more than $47 million in unlawful commissions, according to the civil complaint by Attorney General Edmund G. “Jerry” Brown Jr’s office.
Villalobos was not immediately available for comment. Buenrostro could not immediately be reached for comment.
Brown’s office said in a statement that Calpers had cooperated with efforts behind the complaint.
The complaint also discusses Villalobos’ connection to another Calpers former board member, Charles Valdes, who was the fund’s veteran investment committee chief.
In November Valdes agreed to pay $12,500 to settle a campaign contribution dispute over his 2005 board reelection effort, which included backing from CF Partners, a firm owned solely by Villalobos, and three ARVCO employees, according to the complaint.
The complaint said Villalobos paid for or arranged for the payment of Valdes’ expenses for attending the 2006 Academy Awards ceremony and suggested Valdes’ expenses from a 10-day trip with Villalobos and Buenrostro later that year to Dubai were subsidized by Villalobos or ARVCO because Valdes had been “struggling for years” to pay off debts that led to bankruptcy petitions in the 1990s and in 2006 faced $17,917 lien on his house.
Valdes declined to comment.
A Calpers spokesman said the fund would make a statement regarding the complaint after a press event scheduled by the attorney general for Thursday afternoon.
Calpers has backed a bill before California’s legislature that would require placement agents to be regulated as lobbyists to increase scrutiny of their contacts and methods, but Calpers Chief Investment Officer Joseph Dear has said that might not be enough.
“I want to run Calpers such that no investment manager will feel they need a placement agent,” Dear told Reuters during an interview at the recent Milken Institute Global Conference in Beverly Hills, California.
Calpers has over the past year been investigating activities of placement agents at the fund after an investigation by New York Attorney General Andrew Cuomo of his state’s pension fund drifted west.
Cuomo last May won a guilty plea to securities fraud from a former associate of Los Angeles placement agent firm Wetherly Capital Group that raised interest in deals it had helped sell at Calpers.
A parallel effort by the U.S. Securities and Exchange Commission cast a spotlight on former Calpers board member Sean Harrigan and he resigned last May as president of the board of the Los Angeles Fire and Police Pensions fund, citing the SEC looking into his having been a consultant for Wetherly.
Wetherly in February said it would return $1 million associated with investments by New York’s pension fund to resolve its role in Cuomo’s investigation and agreed to exit the placement agent business. (Editing by Leslie Adler)