(April 23, 2012) — The Securities and Exchange Commission (SEC) has charged the former CEO and board member of the largest public pension in the United States with falsifying letters in a $20 million placement agent fee scheme.
The SEC alleged that the former CEO of the $235 billion California Public Employees’ Retirement System (CalPERS) from 2002 through 2008, Federico R. Buenrostro, and his friend Alfred J.R. Villalobos, who served on the CalPERS board from 1992 to 1995, fabricated documents given to New York-based private equity firm Apollo Global Management.
“Buenrostro and Villalobos not only tricked Apollo into paying more than $20 million in placement agent fees it would not otherwise have paid, but also undermined procedures designed to ensure that investors like CalPERS have full disclosure of such fees,” said John M. McCoy III, Associate Regional Director of the SEC’s Los Angeles Regional Office, in a statement.
“In fact, Buenrostro and Villalobos intentionally bypassed those procedures to induce Apollo to pay placement agent fees to Villalobos’s firms,” the statement continued. “The false letters bearing a fake Calpers logo and Buenrostro’s signature were provided to Apollo, which then went ahead with the payments.”
According to the statement by the SEC, the US regulator seeks an order requiring Buenrostro, Villalobos, and Villalobos’s firm ARVCO Capital Research LLC (which later became ARVCO Financial Ventures LLC) to disgorge any ill-gotten gains, pay financial penalties, and be permanently enjoined from violating the antifraud provisions of the federal securities laws.
Last March, CalPERS released a special 56-page review on placement agent activity, accusing former employees of steering billions of dollars to politically connected firms. While placement agent activity is not illegal, scandals involving public employee pension funds around the country have placed a spotlight on the industry, leading many funds to reassess their relationships. In May 2010, California’s attorney general filed a civil lawsuit that alleged Buenrostro and Alfred Villalobos participated in a scheme to obtain business for investment firms, providing pension officials with luxury trips and other gifts. Worries about lack of disclosure in the pension fund community further exploded in 2010 when a pension-fund scandal in New York exposed the role of placement agents in bribery and corruption charges.
The CalPERS report — released in March 2011 — asserted that while at the giant pension, Buenrostro repeatedly “inserted himself in the investment process in a manner inconsistent with prior practice at CalPERS, pressing its investment staff to pursue particular investments without evident regard for their financial merits.”