CalPERS likely spent millions of dollars unnecessarily because former CEO Fred Buenrostro steered contracts to clients represented by a placement agency run by former CalPERS board member Alfred Villalobos, concludes a 56-page special investigative report commissioned by the pension plan.
The report, posted on the website of the $230.1 billion California Public Employees' Retirement System, Sacramento, was the result of a 17-month investigation by Washington lawyer Philip Khinda and adds new details to a bribery scandal that has engulfed the nation's largest public pension plan.
The California Attorney General's Office last year filed corruption charges against Messrs. Buenrostro and Villalobos. The case has yet to go to trial.
Among the new report's findings:
• While CEO of the system between 2002 and 2008, Mr. Buenrostro pressed the system's investment staff to pursue particular investments without regard for their financial merits.
• Mr. Buenrostro signed dubious statements claiming CalPERS knew of Mr. Villalobos' fees as a placement agent representing investment clients who won contracts with CalPERS. Otherwise, the report said, Mr. Villalobos would have been denied $20 million in fees by his top client, Apollo Global Management.
• Mr. Buenrostro tried to pressure investment staff to direct investments to Mr. Villalobos' clients who became known around CalPERS as “friends of Fred.”
• Some investment firms doing business with CalPERS likely inflated their fees to make up for money they were secretly paying Mr. Villalobos. Mr. Villalobos had received $50 million in placement fees helping his clients win CalPERS contracts.
• Mr. Buenrostro, along with former pension fund board members Charles Valdes and Kurato Shimada, strong-armed benefits firm Medco Health Benefits to pay more than $4 million in fees to Mr. Villalobos, who had become a consultant and placement agent after leaving the CalPERS board. The SEC and the California Attorney General's Office are investigating the deal between CalPERS and Medco to provide drug benefits for CalPERS members.
In a statement Monday night, Rob Feckner, CalPERS board president, said, “Let this episode in our history never be forgotten.”
Efforts to reach Messrs. Villalobos, Buenrostro, Valdes and Shimada were unsuccessful.
The CalPERS board has scheduled a special meeting Tuesday afternoon to discuss the report's findings.