(March 19, 2013) — A former CEO of the largest public pension plan in the United States and one of its former board members have been indicted on multiple charges relating to allegedly fraudulent payments made to placement agents.
Federico Buenrostro, who led the California Public Employees’ Retirement System (CalPERS) from December 2002 to June 2008, and Alfred Villalobos, who served on the fund’s board, were indicted by a judge in the Northern District of California federal court yesterday on several charges.
The counts against the pair included: conspiracy to defraud the United States; false scheme against the United States; conspiracy to commit mail fraud and wire fraud; Forfeiture of fraud and obstruction proceedings.
Buenrostro also faced the charges of false statement to the United States and obstruction of Justice.
Both were released on bond to reappear at a later date.
The charges centre on the dealings of ARVCO Capital Research, a consulting firm founded and managed by Villalobos. Buenrostro joined the firm upon leaving the pension fund’s helm. Through “deceit, craft, trickery, and dishonest means,” the indictment alleges that the pair sought to “defeat and obstruct the lawful functions” of several governing bodies that were investigating dealings between all the related financial partners.
The case alleges the pair falsified documents to show CalPERS had agreed – through the middleman of ARVCO – to commit to a private equity vehicle, referred to as Fund VII, run by Apollo. ARVCO subsequently reported it had evidence of this letter to the Securities Exchange Commission (SEC). According to the indictment, the pension fund never issued a requisite letter to agree to placement fees being paid to ARVCO, so instead the pair created a document themselves. Through this, the consulting firm received $14 million from Apollo.
The case also states that the pair conspired and effected changes to documents that had already been signed by the pension fund on similar matters.
“ARVCO transmitted the last fraudulent Investor Disclosure letter in June 2008, a few weeks before Mr. Buenrostro retired from CalPERS,” a statement issued by the court yesterday said. “On July 1, 2008, Mr. Villalobos hired Mr. Buenrostro to work for ARVCO. When civil and later criminal investigations were opened into the operations of ARVCO and its role as a placement agent in connection with CalPERS’ investments in Apollo-managed funds, both defendants made false statements to, and concealed information from, the SEC, the United States Postal Inspection Service (USPIS), and the Federal Bureau of Investigation (FBI), about the authenticity of the Investor Disclosure letters in order to defeat and obstruct the lawful functions of those agencies.”
A statement from CalPERS said the fund “applauded the indictments”.
“We are extremely pleased that law enforcement authorities are moving to hold individuals accountable for activities which violate the public trust,” said Rob Feckner, president of the CalPERS board. “This long-awaited indictment of two former officials is another step on the road toward justice for California’s taxpayers, public employees and for all of CalPERS staff and stakeholders.
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“This type of behavior has no place in our organization. We have enacted numerous reforms and policies to enhance transparency, to guard against future activities of this nature and to demonstrate our commitment to the highest levels of ethics. The work we have done has made CalPERS a stronger organization,” he said.
Legal firm Steptoe&Johnson and Navigant Consulting conducted an 18-month investigation of public corruption and pay-to-play issues for CalPERS and issued a report on the matters two years ago.
The indictment came days after the lawyer who led the investigation, Steptoe partner Philip Khinda, was sued by a private equity company that was fingered in his report.
Yesterday Khinda said: “It’s a great day for justice, and the beginning of the end for those who harmed the pension fund. Given its many reforms, CalPERS is a better, stronger and more transparent pension system than ever.”
The prosecution is the result of a two-and-a half year investigation by the USPIS and the FBI, with substantial assistance from the Los Angeles Regional Office of the SEC as well as the United States Secret Service.
The federal court stated that Buenrostro and Villalobos were innocent until found guilty. The pair could not be reached from London this morning.
The indictment document can be found here.
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