A U.S. Bankruptcy Court judge blocked a California state lawsuit that had accused former placement agent Alfred Villalobos with bribing officials at CalPERS to win investment business for his manager clients.
The written decision by Judge John Peterson in U.S. Bankruptcy Court in Reno, Nev., on Sept. 13 bars a petition filed by California Attorney General Jerry Brown to allow the state action to proceed simultaneously with Mr. Villalobos' bankruptcy case.
In May, Mr. Brown filed a civil suit against Mr. Villalobos seeking $95 million in restitution. The suit claimed Mr. Villalobos tried to bribe officials at the California Public Employees' Retirement System, Sacramento, with gifts such as luxury travel to help his private equity clients win contracts with the $205.5 billion system.
Mr. Villalobos, who served on the CalPERS board, and his co-defendant in the state civil suit, former CalPERS CEO Federico Buenrostro Jr., have insisted the lawsuit has no merit.
In June, Mr. Villalobos and his company, ARVCO Capital Research, filed for Chapter 11 bankruptcy protection. Under federal law, other lawsuits seeking payment from debtors are stayed while those seeking bankruptcy protection reorganize their finances. While the state could pursue its case in bankruptcy court, its claims would be lumped together with those of other creditors.
Mr. Villalobos' attorney, Neal Stephens, could not immediately be reached for comment.
Jim Finefrock, a spokesman for Mr. Brown, said in a Sept. 14 telephone interview that the office would appeal Mr. Peterson's decision.
Part of Mr. Peterson's decision, however, questioned the strength of the state's case against Mr. Villalobos. Mr. Peterson said current and former CalPERS officials testified behind closed doors at court depositions in the bankruptcy case and defended the investments they made with Mr. Villalobos' clients.
“The CalPERS witnesses testified that Mr. Villalobos never bribed, attempted to bribe, defrauded, victimized, manipulated or deceived them in any way,” Mr. Peterson wrote. “The investments at issue are universally regarded as good and appropriate deals.”
In a July deposition taken by Mr. Villalobos' attorney, Joncarlo Mark, a CalPERS senior portfolio manager, said CalPERS' top investment staff regularly accepted private jet trips to discuss strategy and attend annual meetings with various private equity firms.
He said CalPERS was entitled to send a representative to the meetings at no cost because the private equity group had agreed to host CalPERS personnel as part of the management fee charged to the pension fund.
Mr. Peterson noted in his decision that testimony that CalPERS investment staff regularly engaged in luxury travel paid for by investment managers showed “the misrepresentation in the state's case against Mr. Villalobos.”