Several dozen members of the California Public Employees’ Retirement System investment staff apparently are facing disciplinary action and fines from the state’s Fair Political Practices Commission, peHUB has learned.
The potential fines are the latest in a series of damaging revelations regarding the pension fund’s disclosure of financial statements and relationships with private service providers, and could hasten the flow of executives from CalPERS.
Last Wednesday, pension fund CEO Anne Stausboll addressed more than 200 CalPERS investment staff employees in a closed session meeting. At that meeting, between 50 and 60 staffers at varying levels of the CalPERS investment team were told they faced warnings and possible fines of $200 to more than $20,000, two sources with knowledge of the meeting said. The staffers have until June 3 to decide whether to pay fines and accept disciplinary action or to proceed with public hearings.
One source at CalPERS, who attended the meeting and confirmed the potential fines, told peHUB the pension fund has been under increasing pressure to curb staff involvement with sponsored industry events, and that the fines pertain specifically to this. State law requires investment office managers to be provided with ethical guidelines training.
“It’s nearly all the people who do investments” that are facing fines, the source said. The fines stem from conduct over the last five years, the source said.
CalPERS has sought to implement tighter personnel guidelines in the last two months in the wake of the release of an audit by Steptoe & Johnson, which came at the pension fund’s behest and identified misconduct and ethical breaches committed by staff.
The report recommended CalPERS establish “stringent new procedures [for employees] when traveling for meetings with investment managers, including prohibiting staff from accepting gifts of entertainment and meals held apart from business meetings.”
CalPERS was not available for comment despite several phone calls and e-mail messages. UPDATED: CalPERS’ Chief of Public Affairs Brad Pacheco tells peHUB: “CalPERS has been fully cooperating with the FPPC on this investigation over the last several months… In 2009, we launched our special review of placement agent activity. As we learned about apparent misconduct in the review, our CEO issued a request to CalPERS staff who are required to file Form 700s and asked them to review their records since 2005 and ensure that they were in compliance – and if not in compliance, to take the steps necessary to become compliant,” Pacheco said.
“We have strengthened our policies to ensure full reporting and compliance in the future, including a complete ban on gifts to our staff. We are supporting legislation introduced by State Controller John Chiang that would reduce gift limits. We have, and will continue, to provide additional training to all staff that [is] required to file, to ensure full understanding of the law and we annually notify our vendors and contractors about our gift ban policy,” he said.
This is not the first time in recent years CalPERS officials have found themselves facing penalties from the California Fair Political Practices Commission. Board member Priya Mathur last year was dealt the most recent in a series of fines after being too slow in reporting financial disclosure statements. Another board member, Charles Valdes, was fined in 2009 for accepting donations for a campaign runoff years prior that exceeded the limit.
Sources did not identify any of the CalPERS staff currently facing fines from the state commission.
The pension is facing an exodus by investment office management already. Senior portfolio manager Joncarlo Mark left the pension fund in February and Mike Dutton, an alternative investment portfolio manager, departed around the same time, as did James Lasher, a real estate portfolio manager. Lorne Johnson, a portfolio manager for asset allocation, left CalPERS last week, one source told peHUB. Johnson’s LinkedIn profile continues to list him as a current employee. UPDATE: CalPERS confirms Johnson’s departure.
Reports on CalPERS’ staffing woes cite executives that argue the pension’s rules regarding professional relationships are too restricting. One source said the fines could damage investment staffers’ career prospects outside the pension.
CalPERS has been under heavy scrutiny internally and from investigators including the S.E.C., according to published reports, as the pension responds to investigations and law suits stemming from investment managers’ relationships with placement agents.