SAN DIEGO -- Charles Valdes, chairman of the CalPERS investment committee, was reprimanded this month by the pension fund's board for making ethnic remarks about state treasurer and fellow board member Philip Angelides.
Mr. Valdes last month had referred to Mr. Angelides as the "Greek treasurer" and said he was attempting to drive policy at the $156 billion California Public Employees' Retirement System, Sacramento, through hatred of the Turks.
Despite his apology and the official reprimand, Mr. Valdes is not out of the woods. Elections for key board positions will come up in February and March.
And California's legislators are threatening to exercise greater control over CalPERS. Assemblyman Louis Papan, who chairs the Banking and Finance Committee, questioned Mr. Valdes' qualifications to chair the committee, citing Mr. Valdes' two earlier filings to reorganize his personal debts.
"I don't know if he's the suitable individual to chair the investment board of PERS," he said. Mr. Papan added that "a lot of us in the legislature are going to re-examine our relationship with the board."
Plus, some legislators may use the controversy as a wedge to pressure Turkey. Assemblyman Howard Kaloogian said he thinks CalPERS should be forced to divest its holdings in Turkish securities until Turkey ends a blockade of Armenia. CalPERS has $90 million invested in Turkish securities.
Mr. Kaloogian added, however, that Mr. Papan will be calling the shots on political strategy.
Assemblyman Louis Correa, who chairs the Public Employees, Retirement and Social Security Committee, said he would be happy to look at appropriate legislative remedies. Saying he had not spoken with either Mr. Papan or Mr. Kaloogian, Mr. Correa said the Legislature will have to look at insensitive behavior by individuals, although his general view is that investments should not be restricted.
Mr. Angelides declined to comment on whether CalPERS should be invested in Turkey, deferring the issue to a Dec. 13 workshop on eligible country investments. The board needs to adopt a standard that applies to all countries, he said. "I have doubts about a number of countries, one of which is Turkey," he said.
Mr. Valdes had said Mr. Angelides had been motivated by ethnic hatred of the Turks in seeking the ban of an outside political risk consultant. The consultant, University of Chicago professor Marvin Zonis, had written a sentence in an article on Turkey that was viewed as insensitive to the genocide of more than 1.5 million Armenians between 1915 and 1923.
"The very large Greek minority fled to Greece. The Armenian minority was dealt with in a different way," Mr. Zonis wrote in a March 1999 newsletter distributed by his Chicago-based consulting firm.
In a Nov. 10 letter to William D. Crist, president of the CalPERS Board of Administration, Mr. Zonis wrote that he had apologized to Mr. Angelides "for the hurt that I have caused him and the Armenian people."
Furthermore, Mr. Zonis added, any "interpretation that I defamed the memory of the Armenian genocide could only have been made by taking words I have written out of the context in which I have written them."
In an interview, Mr. Zonis explained he never intended to offend Greeks or Armenians, and that sophisticated investors -- the readers of his newsletter -- would be knowledgeable about the genocide.
In his letter to Mr. Crist, Mr. Zonis also included numerous examples of his writings in favor of ethnic minorities and letters of support from leading academics and others, including W. Robert Grafton, managing partner and chief executive of Andersen Consulting; Lucien W. Pye, Ford professor of political science emeritus at the Massachusetts Institute of Technology; and Richard H. Solomon, president of the United States Institute for Peace.
While the CalPERS staff decided not to use Mr. Zonis' consulting services, Mr. Valdes came in for a sharp rebuke for his Oct. 18 comments directed at the treasurer.
Two dozen California legislators had called for Mr. Valdes' resignation from the board.
Despite a written apology from Mr. Valdes, some legislators were not satisfied. Gov. Gray Davis, himself a former CalPERS board member, intervened Nov. 12, calling on those involved to resolve the matter swiftly, sources said.
At the Nov. 15 investment committee meeting, Mr. Valdes was forced to eat humble pie.
He apologized to Mr. Angelides, Mr. Papan and others in the Greek-American community. "I recognize that I was wrong, that my comments were intemperate," he said.
Two panels of Greek and Armenian experts then addressed the board, attesting to the horror of the Turkish genocide of Armenians.
Berj Boyajian, professor of Islamic law at Loyola University in Los Angeles, said the board must not employ Mr. Zonis. "You have to cut the cancer out and you know it."
Mr. Karolsian also thanked Mr. Angelides for his "clarion call" that alerted the Greek and Armenian communities to the issue.