Proposed Bill Would Require CalPERS, CalSTRS to Divest Fossil Fuels

California lawmakers have introduced a bill that would require the California Public Employees’ Retirement System and the California State Teachers’ Retirement System to divest all their fossil fuel assets, which are worth more than $9 billion combined, within five years.

Senate Bill 1173, introduced by Sen. Lena Gonzalez, D-Long Beach, and co-sponsored by Sen. Scott Wiener, D-San Francisco, would prohibit the $474.6 billion CalPERS and the $308.6 billion CalSTRS from making new investments or renewing existing investments in fossil fuel companies. The bill defines a fossil fuel company as one of the 200 largest publicly traded fossil fuel companies as established by carbon content in the companies’ proven oil, gas and coal reserves.

The bill would force the two pension fund giants to liquidate investments in fossil fuel companies by or before July 1, 2027, and the funds’ boards would be required to file an annual report with the state legislature and governor beginning Feb. 1, 2024, that contains specified information, including a list of fossil fuel investments that have been liquidated.

California’s state Constitution grants the retirement board of a public employee retirement system the authority and fiduciary responsibility for financial investment and the administration of the retirement fund and system. However, the state legislature has the authority to prohibit investments if it believes it is in the public interest and if it satisfies standards of fiduciary responsibility required by a retirement board.

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The bill says that requiring the retirement systems to divest their fossil fuel holdings is “consistent with, and not in violation of, their fiduciary responsibilities.” Current state law prohibits the CalPERS and CalSTRS boards from making new investments or renewing existing investments of public employee retirement funds in thermal coal companies, which refers to companies that burn coal to generate electricity.

“As a leader in the fight against climate change, California must align the investment choices we make with our moral and environmental goals,” Gonzalez said at a virtual news conference. “Investing billions in the fossil fuel companies that are polluting our environment while at the same time trying to meet ambitious emissions reduction goals is contradictory and incongruous.”

Gonzalez said the bill would align the pension funds’ investment strategy with the state’s efforts to mitigate global warming.

“While California has taken a leading role on the world stage in advancing landmark and far-reaching policy and budget solutions to fight climate change, we are also unfortunately faced with the contradictory and incongruent fact that our state’s two largest employee pension funds use their enormous investment power to finance the very companies that are driving climate change.”

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Tags: Bill, California Public Employees’ Retirement System, California Teachers’ Retirement System, CalPERS, CalSTRS, Climate Change, divest, Fossil Fuels, Lena Gonzalez

CIO-031522-Former CIO Charged with Overvaluing Funds by $1 Billion-1346656333-web

The former chief investment officer and founder of investment adviser Infinity Q Capital Management faces a slew of criminal and civil charges for allegedly overvaluing the assets of funds he ran by more than $1 billion while raking in nearly $27 million in ill-gotten fees.

The Federal Bureau of Investigation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission have accused James Velissaris of altering inputs and manipulating the code of a third-party pricing service used to value the funds’ assets.

According to an unsealed six-count indictment and other court documents, Velissaris told investors and others for four years that certain holdings of the Infinity Q funds were valued by an independent third-party pricing service. However, the agencies say this was false and accuse Velissaris of manipulating the valuation models from the pricing service and altering inputs to hide the poor performance of the firm’s funds.

“Unbeknownst to investors, Velissaris knowingly inflated the Infinity Q Funds’ stated valuations in at least four ways,” the SEC said in its complaint. “Velissaris manipulated computer code in the pricing service’s valuation models; entered inputs he knew were incorrect into the pricing service; selected certain valuation models in the pricing service that he knew could not properly value the relevant positions; and knowingly cherry-picked one of the key valuation inputs.”

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The SEC said Velissaris’ manipulations were so rampant that he couldn’t even keep up with his own deceptions. The regulator alleges that there were times when Velissaris had different valuations in the firm’s mutual fund and the private fund for the same position, and that he also had the mutual fund report positions at “mathematically impossible valuations.” The SEC also alleges Velissaris was aware that the Infinity Q Funds’ counterparties were valuing the same positions at “massively different amounts.”

According to the charges, when the COVID-19 pandemic sent markets into a tailspin in March 2020, Velissaris knew his funds were not well positioned for turmoil and were at risk of failing.

“To try to stave off the Infinity Q Funds’ failure, Velissaris stepped up his manipulation of the valuations of positions held by the Infinity Q Funds, resulting in the overvaluation of each of the funds’ net assets by hundreds of millions of dollars,” the SEC’s complaint stated. “This overvaluation attracted hundreds of millions of dollars in additional investments and forestalled investor redemptions, all while some funds with similar investment strategies struggled or failed.”

The SEC has also accused Velissaris of trying to obstruct the regulator’s staff during its investigation. It said he produced altered compliance manuals and private placement memoranda that differed from what had been sent to investors in order to cover up inconsistencies within the firm’s practices. Velissaris also allegedly drafted and backdated valuation committee minutes for meetings that never happened and then produced them to the SEC.

The SEC has charged Velissaris with violating antifraud and other provisions of the federal securities laws, and is seeking permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. The SEC is also seeking to bar Velissaris from serving as a public company officer and director. The CFTC is looking for restitution to defrauded pool participants, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and permanent injunctions against further violations of the Commodity Exchange Act and CFTC regulations.

The charges of securities fraud, wire fraud, lying to auditors, and obstruction of justice against Velissaris each carry a maximum sentence of 20 years in prison, while the charges of investment adviser fraud and conspiracy to obstruct justice each carry a maximum sentence of five years in prison.