SACRAMENTO - California Attorney General Jerry Brown has sued two former officials of the nation's largest public pension fund for fraud, alleging they set up a system of kickbacks to guarantee outside firms won a piece of the fund's lucrative investment portfolio.
The lawsuit against the former officials at CalPERS, announced May 6, is the product of an investigation into the role of so-called placement agents, the middlemen hired by money-management firms to help them win business with investors.
The alleged kickback scheme raises questions about whether CalPERS board members and investment officers had the best interests of the state's pensioners at heart when they made investment decisions for the fund.
"In this case, we're talking about around-the-world trips, we're talking about limousine rides, we're talking about promises of jobs, and all of that really doesn't pass the smell test, and it doesn''t pass the test of the laws of California,' Brown said in a news conference last week.
The lawsuit says former CalPERS Chief Executive Federico Buenrostro Jr. accepted tens of thousands of dollars in gifts, a Lake Tahoe condominium and promises of a future employment from Alfred Villalobos, a former CalPERS board member turned placement agent. The two also partied together in Dubai and traveled extensively together. It accuses both men of violating securities law.
The lawsuit, which was filed Wednesday in Los Angeles County Superior Court, also says that ARVCO Capital Research LLC, the Stateline company that was founded and led by Villalobos, was acting without a securities broker-dealer license when it received at least $47 million in fees for steering CalPERS investments to its clients.
The attorney general's office obtained a court order to freeze the assets of ARVCO and Villalobos to recover more than $40 million in commissions, it said in a statement Thursday.
Brown also said the court will take control of Villalobos' 20 bank accounts and all of his assets, including two Bentleys, two BMWs, a Hummer, art worth more than $2.7 million and 14 properties in Stateline, Zephyr Cove, Reno, Los Angeles and Hawaii.
The suit filed by Brown's office also claims that two other CalPERS officials received gifts from Villalobos - current CalPERS Senior Investment Officer Leon Shahinian and former CalPERS board member Charles Valdes.
"Villalobos cultivated, through gifts and gratuities and promises of future employment, close and long-term relationships with Buenrostro, former board member Valdes and current Senior Investment Officer Shahinian with intent to influence them to make investment decisions in favor of the private equity funds ARVCO represented," the suit read.
The lawsuit says that while Buenrostro was on the CalPERS board, he had a standing job offer from Villalobos, which included the promise of a condominium.
Buenrostro later went to work for ARVCO, and in 2009 Villalobos transferred the title of one of the Lake Tahoe condominiums he owned to Buenrostro, the suit read.
Those gifts were not disclosed in the statements of economic interest that state officials are required to file, Brown said in a statement.
The lawsuit also says ARVCO is not a registered legal entity in California and that its current legal status in Nevada, where it is incorporated, is "default."
