Will anything new emerge in CalPERS scandal?

July 14, 2014

After former CalPERS chief executive officer Fred Buenrostro pleaded guilty to bribery and fraud conspiracy last week, he now must earn a reduced sentence by helping prosecutors convict the man who allegedly bribed him, Alfred Villalobos.

The plea agreement had one new and juicy detail. At the Hyatt hotel near the Capitol, Villalobos is said to have given Buenrostro two payments of about “$50,000 each in a paper bag” and about “$100,000 was delivered in a shoebox.”

But the main plea incident is the previously reported heart of the case against Buenrostro. He provided phony documents telling a private equity firm, Apollo, that CalPERS knew Villalobos would get a big fee for its billions invested in Apollo.

A senior CalPERS investment officials refused to provide the disclosure documents requested by Apollo. So Villalobos got Buenrostro to cook up fraudulent documents, enabling Villalobos to collect a $14 million placement agent fee.

“He is starting a new chapter in his life,” Buenrostro’s attorney, William Portanova, said after a federal judge in San Francisco accepted the plea agreement last week. “He is a 64-year-old man who is ready to tell all.”

Buenrostro

Buenrostro


What’s left to tell? Except for the cash, most of the Villalobos gifts and pay-offs to Buenrostro listed in the plea were already known: hosting his wedding, a trip to Dubai, Hong Kong, and Macau and, after leaving CalPERS, a promised $300,000-a-year job.

Apart from providing the bogus disclosure documents for Apollo, the plea agreement has few specifics about what Buenrostro accomplished for Villalobos while taking gifts and cash from late 2004 until leaving CalPERS in May 2008.

“I continued to provide Villalobos with access to CalPERS’ confidential information relating to investments and other proprietary matters while also continuing my efforts to influence the CalPERS investment staff and CalPERS board, as directed by Villalobos, on matters including the funds selected for investment and the amounts to be invested in such funds, to benefit Villalobos and his current and prospective clients, investment consultants and other associates,” Buenrostro said.

Would Buenrostro tell what success he had in influencing specific CalPERS investment decisions? Does he know if confidential information helped Villalobos, who received at least $50 million in fees, get specific clients seeking CalPERS investments?

What additional information, if any, federal prosecutors may want is not mentioned in the plea agreement. Lawsuits against Buenrostro and Villalobos also have been filed by the state attorney general and the U.S. Securities and Exchange Commission.

The Buenrostro plea agreement twice uses the phrase “I did knowingly and intentionally conspire with Villalobos and others.” Whether “others” refers to persons not yet named or is just a legal catch-all term is not clear.

Villalobos

Villalobos


An oddly veiled incident briefly described in the plea agreement seems to suggest that Villalabos used undue influence, if not small bribes, to get the CalPERS board to approve a pharmacy benefits contract.

“In approximately 2005, I observed Villalobos provide valuable casino chips to certain (now former) members of the CalPERS board as well as my wife before the board considered a proposal from Health Care Company No. 1 in connection with CalPERS’ health care benefit program,” said Buenrostro.

Without naming the company or board members, Buenrostro said he saw two of the board members recommend a contract with the company in a CalPERS committee, and then at the full CalPERS board all three chip recipients voted for the contract.

A similar incident is described with names and more detail in a special review of placement agents done for CalPERS by the Steptoe & Johnson law firm and Navigant Consulting, costing $11 million and issued in March 2011.

In 2004, Medco Health Solutions, which lost the CalPERS pharmacy benefits contract several years earlier, hired Villalobos as a consultant for $4 million, said the special review.

Later that year three CalPERS board members — Charles Valdes, Kurato Shimada and Robert Carlson — met with Villalobos, Buenrostro and the Medco CEO, David Snow, at Villalobos’ home at Lake Tahoe.

The five men (excluding Snow) had served together on the CalPERS board ten years earlier, said the review. Buenrostro was hired as CEO in 2002 with the support of Valdes, Shimada and Carlson.

“Valdes also reportedly joined Buenrostro and Villalobos at casinos local to the Villalobos home, where he and others are said to have accepted hundreds of dollars in playing chips from Villalobos while there,” said the review.

“We understand that the chips were offered to Valdes, Buenrostro’s wife at the time, and others to allow Villalobos more time to speak with Buenrostro alone.”

The review said “Shimada also reportedly joined Buenrostro, Valdes and others on visits to casinos local to the Villalobos home and has, at different times, denied and acknowledged accepting playing chips from Villalobos while there.”

Carlson is not named as a chip recipient. But the review does say that Carlson and Valdes voted for the Medco contract at a crucial committee meeting in October 2005, which Shimada spoke at even though he was not a committee member.

“Medco apparently had a check cut for hand-delivery that same day – a $1 million payment to Villalobos, the final installment of the initial $4 million agreement,” said the review.

“Thereafter, Medco would pay Villalobos a $20,000 monthly retainer, reportedly until sometime in 2009 when Villalobos’ placement agent activities relating to investment managers came under public scrutiny.”

Valdes invoked his right to avoid self-incrimination when government attorneys questioned him about the Medco contract years later. He left the CalPERS board in 2009 after not seeking re-election.

Shimada resigned from the board in August 2010. While off the board Shimada had briefly worked for Villalobos in 2000, said the review, and he chaired a CalPERS committee that rejected a staff proposal in 2007 to require disclosure of placement fees.

Carlson served on the board for 37 years, nine as president. The large auditorium in the CalPERS building is named in his honor. He retired early in 2008 and died in September 2010.

Shortly before issuing the special review in March 2011, CalPERS announced the attorney general and the SEC were investigating the Medco Villalobos payment that “may have included improper conduct” by Buenrostro and former board members.

“These allegations are appalling and leave a deep scar,” Anne Stausboll, the current CalPERS chief executive officer, said in a news release. “We have and will continue to evaluate every remedy that we can to ensure that his never happens again.”

CalPERS provided investigators with information from the special review and urged Medco to conduct an independent investigation. CalPERS also cut off talks to renew the $48 million Medco pharmacy contract, later awarded to CVS Caremark.

Attorney General Kamala Harris announced in March 2012 that Medco, being purchased by rival Express Scripts, would pay $2.75 million to settle the investigation of the Villalobos fee.

“Under the terms of the settlement, Medco denied any liability or wrongdoing arising from the investigation into whether fees paid to Villalobos were used to fund improper gifts, payments or campaign contributions to CalPERS board members or staff,” Reuters reported.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 14 Jul 14


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