California Sues Two Former CalPERS Heads

The state is suing California pension fund officials Federico Buenrostro Jr. and Alfred R. Villalobos for their role in an alleged scheme to obtain business for investment firms, providing pension officials with luxury trips and other gifts.

(May 6, 2010) — From round-the-world trips to private jet flights for fund executives, gifts to CalPERS’ former CEO compromised the integrity of the fund’s investment process and violated the state corporations code, a suit against two former CalPERS officials alleges.

The lawsuit by Attorney General Jerry Brown claims that the CEO of CalPERS from 2002 to 2008, Buenrostro, benefited from tens and thousands of dollars’ worth of gifts from Alfred Villalobos, a former Los Angeles deputy mayor, the Los Angeles Times reported. Currently, Villalobos works as a go-between for investment firms. The two men are accused of participating in a scheme to win pension business for investment firms.

The suit highlights the rise of placement-agent activity, which the attorney general’s office began investigating last fall after CalPERS, the largest public pension fund in the US, disclosed that some of its wealthiest investment partners had paid huge fees to Villalobos.

The LA Times reports that Villalobos and his company, Arvco Capital Research, obtained more than $47 million in unlawful commissions for selling about $4.8 billion of securities to CalPERS from 2005 to 2009. The suit seeks civil penalties, disgorgement of profits and restitution to state pension fund investors of $95 million from Villalobos and Buenrostro.

A day after leaving the top job at CalPERS, Buenrostro became a business associate of Villalobos. According to the suit, Buenrostro discussed employment opportunities with Villalobos, a friend of more than two decades, while still serving at CalPERS.

“Buenrostro…played a key role in assisting Villalobos and Arvco in their fraudulent activities,” according to the suit, filed by the state attorney general’s office in Los Angeles County Superior Court.

As a result of the suit, Villalobos’ bank accounts and other assets are frozen.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742