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May 6, 2010
Big lawsuit in CalPERS scandal

California officials filed a fraud suit against the former chief executive of CalPERS and his close friend, a former pension fund board member turned placement agent, in an explosive new twist in the influence-peddling scandal that's been simmering at CalPERS for months.

The lawsuit by Attorney General Jerry Brown says former CalPERS CEO Fred Buenrostro accepted thousands of dollars worth of gifts from Alfred Villalobos, a former CalPERS board member who has earned tens of millions of dollars as a placement agent. These agents are hired by private equity firms to obtain investments from public pension funds such as the California Public Employees' Retirement System.

Among other things, the suit says Villalobos "substantially subsidized" the cost of Buenrostro's 2004 wedding at Villalobos' Lake Tahoe mansion - an incident first reported by The Bee last fall. Buenrostro has said he reimbursed his host.

The suit demands the return of at least $70 million in commissions earned by Villalobos over the years from CalPERS investments.

The suit was filed in Los Angeles County Superior Court. Brown, at a press conference today in Sacramento, said CalPERS "should have run a much tighter ship."

The state won a court order freezing Villalobos' 21 bank accounts and numerous properties at Lake Tahoe, Hawaii and elsewhere. It said it needed to freeze the assets because Villalobos is a "frequent, high-stakes gambler" with a history of "moving large sums of money" around. He could squander his money paying gambling debts before the state can pursue its case, the state argued.

The suit says Villalobos' gifts "compromised the integrity of CalPERS' investment process." It says he has a reputation in the investment industry as someone "who attempts to exert pressure on CalPERS' representatives."

It also says Villalobos frequently entertained Buenrostro and recently retired CalPERS board member Chuck Valdes "and paid for their meals, drinks and entertainment at Christmas parties." Valdes wasn't named as a defendant. The Bee reported last fall that he accompanied Villalobos on a round-the-world trip in 2006, and while Valdes produced a check indicating he reimbursed Villalobos for the cost, the lawsuit called that statement "questionable."

The suit also said Villalobos arranged for Valdes to attend the Oscars in 2006. Moreover, Villalobos arranged for three of his employees, including his daughter Carrissa, to contribute thousands of dollars to Valdes' re-election campaign for the CalPERS board in 2005, the suit says, reimbursing them for their costs. 

The suit also said CalPERS investment official Leon Shahinian accompanied Villalobos on a trip to New York in 2007 to attend a fundraiser hosted by Leon Black, the founder of private equity firm and frequent Villalobos client Apollo Global Management. Two weeks later, Shahinian recommended that the CalPERS board approve a $700 million investment with Apollo. Eventually the board approved a $600 million deal with Apollo, one of CalPERS' biggest investment partners.

CalPERS officials said Shahinian, who wasn't named as a defendant in the suit, has been placed on administrative leave, with pay. 

According to the lawsuit, neither Buenrostro, Valdes or Shahinian disclosed their gifts from Villalobos on the conflict-of-interest forms they filed with CalPERS.

CalPERS praised Brown for bringing the suit and said it was "deeply troubled" by the allegations. Villalobos, Shahinian and Buenrostro couldn't be reached for comment. Someone answering the phone at Valdes' home said, "We don't do interviews." 

Buenrostro was CalPERS' chief executive until 2008. He has acknowledged going to work for Villalobos' firm, Arvco Capital of Stateline, Nev., a year later. But the lawsuit said he became Villalobos' business associate just a day after leaving the pension fund, earning $300,000 a year. "Buenrostro was compromised by Villalobos' gifts so much that he was already working for Villalobos before he even left CalPERS," the state said. For instance, he planned a trip to India to make a speech on Villalobos' behalf nearly a month before he left CalPERS in June 2008. 

(Photo of former CalPERS CEO Fred Buenrostro/Bee file, 2005)

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