(June 28, 2011) — The $232 billion California Public Employees’ Retirement System (CalPERS) paid $11 million to a law firm — Washington, DC-based Steptoe & Johnson — to conduct an internal review, exposing the fund to allegations of corruption, bribery and influence peddling.
According to the Los Angeles Times, lawmakers and financial experts were surprised by the high costs of legal fees. However, CalPERS Chief Investment Officer Joseph Dear said the study “was worth every penny.”
Others asserted CalPERS’ legal fees need to be closely scrutinized. California controller John Chiang, a CalPERS board member and former tax attorney with the IRS, told the LA Times that he “wants to see a full accounting of the dollars spent.”
The 18-month review was summarized in a 56-page report, completed by Steptoe partners Philip Khinda in Washington, DC, and Donald Wellington in Los Angeles, along with Ellen Zimiles, a managing director and head of global investigations and compliance at Navigant Consulting in New York. CalPERS revealed that it used the findings of the review to negotiate $215 million in fee reductions.
“Steptoe continues to work for CalPERS on various matters following the special review, including related pending litigation, federal and state investigations of placement agents and former public officials and, as noted in the special review report, CalPERS’ ongoing assessment of claims and remedies it may have against those who may have harmed the institution, its members or beneficiaries,” CalPERS said in an emailed statement.
CalPERS continued in its email statement:
As a reminder and matter of context, the work performed by Steptoe included:
- An 18 month review that explored the actions of current and former CalPERS executives, staff and Board members as they related to investment decisions and interactions with external managers and placement agents
- A review of millions of pages of information. Interviews with more than 140 people, including current and former staff members, executives and Board members, a number of external money managers, investment consultants and placement agents
- An examination of fitness issues related to external money managers and consultants that lead to fee reductions for CalPERS of more than $200 million
- Legislative and policy recommendations that lead to a number of significant reforms to strengthen and enhance accountability, transparency and ethics at CalPERS. The full set of those reforms are documented in a public news release issued by CalPERS at the following link http://www.calpers.ca.gov/index.jsp?bc=/about/press/pr-2011/mar/special-review-report.xml
- Coordination and assistance with state and federal government authorities
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