CalPERS ‘Disturbed’ by Goldman Fraud Case

The country’s largest government pension fund, which owns 1.8 million shares in the embattled investment bank, says the fund’s corporate governance staff will examine Goldman practices and influence the makeup of Goldman's board if needed.

(April 20, 2010) — Joe Dear, chief investment officer for the California Public Employees Retirement System (CalPERS), which manages assets totaling about $210 billion, said he is disturbed by the allegations of fraud against Goldman Sachs.

CalPERS reportedly owns 1.8 million shares of Goldman Sachs stock valued at $330 million as of last week. With such a large holding, CalPERS — either alone or with other pension systems — could exert influence on Goldman’s board, its management structure, and its investment behavior, Dear said, according to The Los Angeles Times.

Since the Securities and Exchange Commission (SEC) filed civil charges against Goldman on Friday, the investment firm’s shares have plunged more than 12%. Nevertheless, Goldman Sachs reported stellar first-quarter earnings this morning — $3.46 billion or $5.59 a share, on revenue of $12.78 billion — that nearly doubled from a year ago, beating analysts’ expectations.

“We’re very disturbed about the SEC charges,” said Joe Dear at a media conference on Monday. “We’ll see how this develops, and our corporate governance group will be examining Goldman Sachs’ corporate governance with respect to their practices,” Dear said, adding that CalPERS did not purchase the type of troubled mortgage securities under scrutiny and has no plans to sell any of its Goldman stock. Similarly, other pension funds that invest with Goldman Sachs Asset Management — Florida State Board of Administration in Tallahassee and the Western Conference of Teamsters Pension Trust in Seattle — plan to maintain their investments with the firm.

The SEC claims that Goldman Sachs defrauded investors by failing to disclose conflicts of interest in risky mortgage-backed securities that allegedly were set up to fail. According to some analysts, the charges could result in Goldman forced to pay fines and restitution of more than $700 million and some say the charges against the Wall Street giant may lead President Obama to push more rapidly for financial overhaul and federal regulatory oversight of the securities industry.

According to the AP, Dear said the recent news involving Goldman “adds an exclamation point to the urgency to address financial market reform regulation now.” CalPERS said that even though Goldman does not manage money for the fund, as an investor, CalPERS intends to question company executives at an upcoming meeting to discuss the way they operate, keeping a close eye on the SEC investigation.

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