More than a quarter century has passed since a CalSTRS chairman, Gilbert Chilton, got a $1 million kickback on an investment deal, abandoned his wife and daughter and went on the lam for several years with his girlfriend, Chickie.
There was no mention of Chilton this month during an annual “fiduciary” training session for CalSTRS board members. No one needs to be told that taking a $1 million bribe is a flagrant violation of the law, which sent Chilton to prison.
But after having a board chairman go astray in a big way it seems fitting that the Califronia State Teachers Retirement System, after all these years, works at reminding board members of their obligations and in some ways is a pacesetter.
A CalSTRS policy on disclosing communications between board members and staff on investments was the model for a policy adopted, in part, by the larger California Public Employees Retirement System last fall.
The fiduciary training is conducted by CalSTRS’ own fiduciary counsel, Ian Lanoff, a member of the Groom law firm in Washington, D.C. He talked about prudence, loyalty and diversifying investments.
One of the burdens of being a fiduciary, entrusted with power over the property of others, is the possibility of personal liability. But Lanoff said that for public employee pension board members, liability is basically limited to gross negligence or fraud.
The warning he underscored several times: “You need to be very careful in what you receive in the way of gifts … It’s a very serious thing that always worries me.”
Lanoff cited the example of a board member of the Ohio teachers retirement system indicted even though legal counsel had given approval for accepting dinner, theater tickets and a $75 bottle of wine during a trip to New York.
Chilton’s downfall apparently began when he accepted a skiing trip to Colorado. Calpensions asked Jim Lewis, a member of a team that covered Chilton for the Sacramento Bee, to tell the story once again.
Lewis is a retired investigative reporter who also teamed up on stories for the now-defunct Sacramento Union in the early 1970s that exposed misconduct resulting in the conviction of a Sacramento city housing official.
Here’s the Chilton story:
State Controller Kenneth Cory and Gilbert W. Chilton, who was chairman of the State Teachers’ Retirement System in 1982, engineered a $50 million loan from the teachers’ pension fund to finance a Texas oil drilling scheme operated by a convicted oil securities swindler named Charles Francis Raymond. Raymond had served a term at a federal prison in Lompoc for an oil and gas securities fraud.
Chilton was 39 years old and a vice president of Fresno-based Guarantee Savings and Loan until he was fired shortly after the deal went down. He resigned from the CalSTRS board in January 1983, abandoned his wife and daughter in Fresno and ran off with his girlfriend, one Cheryl Ann “Chickie” Chiccarelli. He and Chicarelli were fugitives for five years before they came in from the cold in 1988 and he served time in the federal pokey at Pleasanton. I forget how long he was there — several years, I think.
Here’s how the deal was to work: STRS lent Raymond’s firm, TXPACCO, $50 million at 15 percent interest. TXPACCO was to use about $39 million of the loan to buy U.S. Treasury bonds with a face value of $50 million. The bonds would be kept as collateral in an escrow account at a Denver bank. TXPACCO was a shell corporation that Raymond operated out of Denver. The difference between the face value of $50 million and the $39 million purchase price of the bonds was to provide TXPACCO with the capital it needed to drill 40 oil wells in the Permian Basin near Midland, Texas.
The government interest rate on the bonds — paid directly to STRS — was 9.125 percent. That amount was to be credited toward the 15 percent interest rate STRS was to receive on the $50 million loan. Payment of the remaining 5.875 percent interest owed to STRS was to be made from TXPACCO’s earnings in the oil venture.
In addition to the combined 15 percent interest rate, STRS was to receive a 10 percent share of TXPACCO’s working interest in the Texas oil wells. Raymond told STRS that the “production kicker” would raise STRS’ effective rate of return on the $50 million loan to about 20 percent after the first year.
But when the stories ran, about 9 months after the loan was made, TXPACCO had drilled only 14 of the 40 proposed wells, and no more drilling took place as STRS tried to get its $50 million back. Only $6.4 million was escrowed by TXPACCO to pay Saxon Oil Co. of Dallas for oil leases and drilling operations. What happened to the remaining $4.4 million of the nearly $11 million in operating funds could not be determined at the time the stories first ran. But the day the deal was closed, Chilton authorized an immediate disbursement of $2 million to TXPACCO. Some of that money apparently was funneled through the account of an accomplice of Raymond, TXPACCO Vice President Anthony J. Truex, a Beverly Hills attorney.
It was later determined that TXPACCO paid Chilton approximately $1 million of that $2 million, and not long after that, Chilton disappeared with his girlfriend. In the months before he disappeared, Chilton paid off more than $70,000 in personal loans and spent more than $132,000 on cars, motorcycles and a cabin cruiser. After that, he still had more than $300,000 in a Beverly Hills checking account, a banker told The Bee.
To court Chilton, and probably to hatch the bribery scheme, Raymond had treated the Chilton family to a skiing vacation at Raymond’s condo in Breckenridge, Colo., after Raymond and Chilton met in San Francisco in February 1982. Authorities said they were first put onto Chilton’s trail by Cory, who said he became suspicious of Chilton several months after the TXPACCO deal went through. The TXPACCO loan request was brought to STRS by Chilton in the summer of 1982 after he and Cory traveled to Texas to meet with Raymond and others connected with the deal.
Raymond was never successfully prosecuted because he dropped dead at age 55 of a heart attack on a Denver tennis court in late October 1983 before federal investigators could close in.
Cory’s political career was ruined. He was going to be a leading Democratic candidate for governor in 1984, but that plan was scrapped and he died of cancer not very many years after that — basically, a broken man.
An experienced Denver oil company executive told me, Paul Avery and Jim Boren — all of us worked on the story — that Chilton’s claim that the Texas oil field where they drilled sometimes produced 400 to 600 barrels a day was wildly exaggerated. Thirty to 40 barrels a day is the norm out there, he said.
As I recall, STRS lost at least $11 million on the deal.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 17 Mar 09