As I showed last blog on private sector pensions, most pension portfolios had pension investments in the bond market because previously the bond market was stable and a safe investment. You can see from this snippet from an article that a deliberate move of private sector pensions in this massive Pension Benefit Guaranty Corp happened as the stock markets crashed in 2008.
THIS WAS DELIBERATE AND PUBLIC MALFEASANCE WITH 1/2 OF PENSION VALUE LOST FROM THE FRAUD AND LOSS OF GAINS FROM THE BULL MARKET THAT FOLLOWED.
Pension Benefit Guaranty Corp.
'The PBGC regularly updates its investment strategy. In 2004, it chose to invest heavily in bonds. Under new leadership, the agency in 2008 shifted a substantial portion of its assets into stocks. Because of the market decline, PBGC's equity investments lost 23% during the year ending September 30, 2008.'
Today we want to look at public pensions and know that the same thing happened at state and local level as these public pensions also were thrown into a crashing market in 2007. So, it was Bush/Obama who made sure Federal pensions were used as fodder and in Maryland it was Baltimore City and Maryland public agency heads that made sure they hit the stock market as the crash was occurring. THIS IS FACT. When we hear corporate NPR/APM tell us that all of American savings and retirements were lost and now they have nothing going into their old age and have to work until they drop-------THEY ARE LYING TO YOU.
DO YOU HEAR YOUR INCUMBENT SHOUTING TO BRING PENSION FRAUD BACK TO FEDERAL, STATE, AND LOCAL PUBLIC PENSION FUNDS? EVERYONE OF THEM KNOWS THIS HAPPENED!
As I have said before pensions were underfunded for decades with the idea that they would be eliminated. This move in 2007-2008 was designed to cripple pension funds and to buoy the Wall Street banks that were crashing. Throwing the American people's pensions into bank stocks allowed these investment firms to earn billions of dollars more. I want to emphasize that the same is about to happen this year as pensions are now being used in a sovereign/municipal bond fraud as this market is now ready to implode. EVERYONE KNOWS THIS!
It was not only the losses to these pensions at the time of the collapse, it involves all of the gains those pensions would have had in the following BULL market. You heard about Wall Street making great gains these few years----pension gains worked with 1/2 the value and they will again lose most value with this next collapse. The rich are moving their investments out of US stocks while pensions are used to buoy the economies overseas and state and city credit bond schemes.
YOUR UNION LEADERS AT STATE AND NATIONAL LEVEL SHOULD BE TAKING THIS TO COURTS AND IF WE HAD A FUNCTIONING PUBLIC JUSTICE ERIC HOLDER AND DOUG GANSLER WOULD BE FIGHTING FOR PENSION JUSTICE. THEY ONLY WORK FOR SHAREHOLDER LOSSES AND WE KNOW SHAREHOLDERS PROFIT ON PENSION LOSSES.
WHAT KIND OF PUBLIC ADMINISTRATION GOES BACK TO THE SAME PEOPLE WHO DEFRAUDED THE AMERICAN PEOPLE TO MANAGE RETIREMENT SAVINGS?
May 28 2013 | 12:10pm ET FIN Alternatives
A Maryland public pension fund has a new hedge fund consultant and a pair of new private equity managers.
ORGANIZATIONAL STRUCTURE STATE RETIREMENT & PENSION SYSTEM
BOARD OF TRUSTEES Nancy K. Kopp, State Treasurer, Chair (chosen by Board in June, 1-year term)
Peter V. R. Franchot, Comptroller of Maryland, Vice-Chair (chosen by Board in June, 1-year term)
Appointed by Governor with Senate advice & consent to 4-year terms: Robert R. Hagans, Jr., 2015; Harold Zirkin, 2015; Thurman W. Zollicoffer, Jr., Esq., 2015; David S. Blitzstein, 2016; Linda A. Herman, 2017; F. Patrick Hughes, 2017.
As we know Governor O'Malley was central in all public pension losses first at the level of city and then state. We know as well he is a great big Wall Street pol who based his entire political career moving the public's wealth to the top earners. While states handle these shortfalls in pensions victimized by massive fraud and corruption by cutting what the people receive.......O'Malley/Brown pulls their regular routine of saying one thing and doing another. Pension contributions were cut from what the article below suggests. Remember, this coming economic crash will gut all these pensions again especially how they are currently invested. Above you see the State of Maryland went immediately to the Wall Street investment firms who fleeced the public in 2007/2008 to hand our pensions for investment again. O'Malley/Brown doubled-down on Wall Street financial instruments right after this crash from massive Wall Street fraud acting as nothing had happened. SEE WHY BROWN IS THE DARLING OF MARYLAND 1%?
The LIBOR frauds, stock transaction frauds, and illegal stock management fees all took lots of money from the people's pensions, both public and private and has yet to get justice. A governor would be shouting this if he/she worked for the public and not wealth and profit.
DO YOU HEAR ANY OF THE CANDIDATES FOR GOVERNOR SHOUTING AS CINDY WALSH FOR GOVERNOR OF MARYLAND HAS FOR YEARS?
Governor Martin O'Malley Announces Plans to Put Pension System on Path to Sustainability
ANNAPOLIS, MD (January 21, 2010) – Governor Martin O’Malley outlined plans today to address Maryland’s unfunded pension and retirement liabilities and begin to put the public system on a path of sustainability. In introducing the FY 2012 budget proposal today, Governor O’Malley committed approximately $1.5 billion to the pension system next year, nearly $1 billion more than in FY 2003.
“Some of the toughest choices we face in this legislative session are the choices we make to fix our pension system,” said Governor O’Malley. “We owe it to our police officers, teachers and other hardworking state employees and we also owe it to our children and our taxpayers, to find a sustainable way forward that protects our commitments and maintains fiscal responsibility. This is a bill that we have to pay and all of us have a vested interest in finding the most fair and equitable way to keep our pension commitments.”
Governor O’Malley has outlined the basic principles on which pension reform is based:
- Continue to maintain a public system as a critical component of recruiting and retaining the best teachers.
- Improve the funding level in the State and Teacher retirement system.
- Reduce the pension and retirement liability, and therefore, we must ask current and future members of the system to contribute more to strengthen the system and preserve benefits.
- Identify certain milestones so as our economic circumstances change, we can revisit some of these reforms.
In each of his first four years, Governor O’Malley has submitted budgets that fully funded the State’s required pension contribution. But despite rapid increases in this contribution, the funded status of the pension system has dropped from 95% ten years ago to a project 59% next year.
The Governor’s proposed reforms will allow the state to reinvest more than $1 billion into the retirement system over the next six years. These reforms will achieve 80% funding of the pension system by FY 2023 and require bi-annuals reports assessing the financial health of the pension system, including recommendation for adjustments to state funding and/or future benefits.
Current employees and retirees The Governor’s proposed pension reform has no impact on current retirees and no impact on benefits already earned by active or former employees and teachers.
For benefits earned for service in FY 2012 and future years, active employees and teachers are offered a one-time choice between:
- Continue to pay 5% of salary towards retirement with adjusted benefit (1.5% benefit multiplier for each future year of service rather than current 1.8% benefit multiplier).
- Increase contribution to retirement from 5% to 7% of pay and continue to earn benefits at the current level (1.8% benefit multiplier for each future year of service).
In addition, the Governor announced plans to direct the appropriate Compensation Commissions to review pensions for elected officials for sustainability and fairness.
Health benefits Almost half of the unfunded liability associated with retiree health benefits relates to Maryland’s prescription drug benefit. For current retirees, the proposes reform plan establishes a state-run Medicare Part D-like plan that mirrors the federal program but fills the current coverage gap. In 2020, the plan transitions these retirees to Medicare Part D coverage in 2020 when the coverage gap is phased out.
For active employees, the proposed plan aligns co-pays with national trends and raises out-of-pocket caps from $700 to $1,000 for individuals and $1,500 for couples.
The current unfunded liability of retiree health insurance stands at $16 billion. After the proposed reforms, that figure drops by almost 50%.
The articles below show that states actually having public justice and unions working for their membership are exposing massive statewide fraud and demanding justice. The same conditions here in Maryland have silence from both politicians and union leaders.
I bet if a governor was elected who shouted out for justice-----labor and justice would shout as well.
STOP ALLOWING SYSTEMIC FRAUD AND CORRUPTION END DEMOCRACY IN MARYLAND AND AMERICA!
Take a look below at the other raging Wall Street pol thinking of running for President in 2016 with O'Malley. Now, the State of New York Attorney General was the one responsible for holding Wall Street banks accountable and as we all know------CUOMO LET THEM ALL KEEP THE LOOT.
Below you see Cuomo feeling the pain of the people he was elected to protect but didn't. WHAT, FRAUD IN THE PUBLIC PENSION SYSTEM?
Cuomo declared his candidacy for the Democratic nomination for New York State Attorney General in 2006
He won the general election against the Republican nominee, former Westchester District attorney, Jeanine Pirro on November 7, 2006, winning 58% of the vote.
NEEDLESS TO SAY ALL OF THE BRAVADO IN THE ARTICLE BELOW USED TO GET HIM ELECTED GOVERNOR NEVER MATERIALIZED IN CONVICTIONS OR RECOVERING FRAUD. IT WAS AN ELECTION YEAR SCAM JUST AS THE CONGRESSIONAL FINANCIAL REFORM BILL HAS TURNED OUT TO BE.
Hedge Fund Donor List Raises Question: Is Cuomo "Governor 1% ...www.wnyc.org/blogs/empire/2012 Between June 1, 2007 and December 21, 2011, hedge fund employees, founders and their families have given Cuomo more than ...
WHY DO YOU NOT HEAR ABOUT MARYLAND'S PENSION FRAUD THAT WERE AS BAD AS NEW YORK AND CALIFORNIA? DOES MARYLAND HAVE A PUBLIC MEDIA? NO!
Systemic Fraud at Public Pension Funds?
New York's Attorney General Andrew M. Cuomo said on Friday that his office was issuing more than 100 new subpoenas to investment firms and intermediaries who brokered deals with public pension funds, in the latest expansion of his corruption investigation:
Mr. Cuomo said a preliminary review by his office found that as many as half of the intermediaries in pension fund transactions in New York State and New York City were not properly licensed and registered with a broker-dealer, as required by federal securities laws. Failing to register could violate both federal securities laws and the Martin Act, a sweeping state securities law.
“The troubling pattern of unlicensed agents highlights yet another systemic weakness in New York’s pension fund, creating a situation which is fraught with peril and prone to abuse,” Mr. Cuomo said in a statement.
He also conferred with the offices of 35 other attorneys general Friday afternoon by teleconference. The pension corruption inquiry has raised questions about public investment practices in other states, in particular New Mexico and California.
Afterward, Mr. Cuomo said the group had “decided to create a multistate task force to explore pension fund abuse.”
Mr. Cuomo’s office has been working with the Securities and Exchange Commission, which is conducting a parallel investigation. Federal investigators are also reviewing public investment transactions in New Mexico, and the S.E.C. is reviewing pension transactions in California.
Among the firms being scrutinized in the latest round of Mr. Cuomo’s inquiry is Wetherly Capital Group, according to people with knowledge of the inquiry. Investigators are scrutinizing whether employees of Wetherly and other firms were properly licensed when they arranged deals with pension funds in New York.
Wetherly is a Los Angeles-based placement agent firm run by Dan Weinstein, a prominent Democratic fund-raiser. In a statement, Wetherly said it was fully registered with the Financial Industry Regulatory Authority and the S.E.C.
Wetherly has come under scrutiny in California for paying a firm affiliated with Hank Morris, a top aide to Alan G. Hevesi, the former New York State comptroller, as part of an investment deal it brokered for Calpers, the giant California pension fund.
Another California firm being scrutinized in the latest round of the investigation is Gold Bridge Capital, which has acted as a placement agent on at least one deal involving the New York State pension fund.
The inquiries by Mr. Cuomo and the S.E.C., under way for two years, have focused on the millions of dollars that friends, relatives and aides of Mr. Hevesi’s gained by selling access to the $122 billion New York State pension fund. Mr. Morris and David Loglisci, another former top aide to Mr. Hevesi, have been indicted on a variety of corruption-related fraud charges, and Raymond B. Harding, the former head of the state Liberal Party, has also been charged in the case. All three have pleaded not guilty. Mr. Hevesi has not been charged.
The inquiries took on more national relevance on Thursday when Mr. Cuomo charged a top consultant to pension funds around the country, Saul Meyer, with a fraud-related felony. Mr. Meyer and his firm, Aldus Equity, which is based in Dallas, were also charged in a civil complaint by the S.E.C. Both Mr. Meyer and Aldus denied wrongdoing.
The new phase of the inquiry focuses on lobbyists, political consultants and others who brokered deals between investment firms and the New York pension funds but were not properly registered to do so.
In a preliminary investigation, Mr. Cuomo’s office found that from 2003 to 2006 — the period when Mr. Hevesi was comptroller — 22 of the 45 intermediaries used in deals at the state pension fund were not registered. In the New York City pension funds, 17 of 41 intermediaries were unregistered in deals from 2003 to this year, a review found.
While acknowledging that there could be exceptions, Mr. Cuomo said during a separate teleconference with reporters on Friday, “If you’re brokering a security, you need to be regulated.”
Thomas P. DiNapoli, the New York State comptroller, and William C. Thompson Jr., the New York City comptroller, both said this week that they would move to ban placement agents from deals with their pension funds.
Mr. Cuomo also highlighted a shortcoming in state lobbying rules, which do not require lobbyists to register with the state’s Commission on Public Integrity when they appear before the state comptroller.
The increased scrutiny on placement agents in recent years has led to concerns that lobbyists and political consultants are trying to find ways to perform similar services without registering as placement agents.
In 2007, Mr. DiNapoli met with the chief partner of the private equity firm InterMedia Partners, Leo J. Hindery Jr., and Roberto Ramirez, a lobbyist and former colleague of Mr. DiNapoli’s from the Assembly. The goal for the meeting was to convince the state comptroller’s office to increase its investment with InterMedia, which it later did. A spokesman for Mr. Ramirez has said he was not paid by InterMedia and appeared only as a friend of Mr. Hindery’s.
Mr. Cuomo would not say which lobbyists or consultants were being scrutinized, but said the intersection of unregistered agents and the pension fund was potentially “the Wild West of government relations.”Mr. Cuomo also said that pension kickbacks are a national problem:
New York state's criminal probe of kickbacks paid by companies eager to manage its $122 billion state pension fund has exposed "a national network of actors" whose schemes are ongoing, state Attorney General Andrew Cuomo said on Thursday. "This is all across the nation, and it's continuing today," the Democratic attorney general said on a conference call.
The probe, which began two years ago, has fixed the spotlight on the use of placement agents hired by investment firms to open the doors of the New York State Common Retirement Fund. Cuomo said he is also is scrutinizing lawyers and lobbyists.
The investigation is another effort to stamp out graft and the practice of "pay to play," which involves giving gifts or campaign donations to win public contracts. So far the probe has looked into the web of relationships and business contracts involving money managers, politicians and pension officials spanning the country from New York City and the state capital, Albany, to Texas, New Mexico and California.
On Thursday, the U.S. Securities and Exchange Commission, which is working with Cuomo, charged that Dallas-based Aldus Equity Partners won New York pension business because of "its willingness to illegally line the pockets of others."
The state pension fund had aimed to hire more women and minority-owned investment firms and had begun talks with one. But Aldus was chosen, Cuomo said, when the minority-owned firm "allegedly refused to pay kickbacks to Morris and another associate."
Aldus, a private equity firm, says it manages over $5 billion, and the probe already has cost Aldus clients in New Mexico and New York. Cuomo said Aldus also is active in Louisiana, Oklahoma, Texas, California, and New York City.
ANOTHER VIEW OF GIVE AND TAKE
Both Cuomo and the SEC charged that Saul Meyer, an Aldus founder, paid about $320,000 to a shell company owned by Henry Morris, a top fund-raiser for New York's former state comptroller. This led the New York state pension fund's then-chief investment officer, David Loglisci, to invest $375 million with Aldus from 2004 to 2006.
Demonstrating the power that Morris wielded over pension investments, Cuomo said Morris told a Meyer intermediary: "Tell that little peanut of a man that I can take business away as easily as I provided (it)."
Lawyers for Morris and Loglisci, who were indicted in March, say they are innocent.
On Thursday, Meyer was charged with a state securities felony and released on $200,000 bail. His lawyer Paul Shechtman said: "Time and evidence will show that Saul Meyer did nothing wrong."
Aldus knew that Morris was "working both sides of the deal," Cuomo said, by marketing funds for investments in the Aldus/NY Emerging Fund in which Morris had a 35 percent stake.
Aldus Equity lawyer Matthew Orwig faulted the SEC for acting before finishing its probe, calling the threatened legal action "appalling and careless with the law and with people's reputations." Aldus partners said they were disappointed by the "unexpected legal developments."
Aldus could face more legal peril. The New York state pension fund is weighing legal remedies against Aldus and Meyer after ending its investment with the firm. New York City pensions could cut ties with the firm, while New Mexico's governor called on the state Education Board to drop its contract with Aldus a day after ordering the state investment officer to do so.
Cuomo said that while Meyer was seeking more business with New York's pension fund, he helped Daniel Hevesi, a son of Alan Hevesi, the former state comptroller whose oversight of the state pension fund is being probed, earn a $250,000 fee on a New Mexico pension deal.
Alan Hevesi's lawyer Bradley Simon has said the former comptroller "has not been charged with any misconduct with respect to mismanagement of the New York state pension fund."
Bloomberg reports that L.A. pension is baffled by fees paid to firm in probe:
Los Angeles retirement plan managers say they’re baffled over fees paid by Quadrangle Group LLC to a key player named in New York’s pension fund kickback probe for helping the private equity firm land work in California. Quadrangle paid Searle & Co. $150,000 in connection with the Los Angeles Department of Fire and Police Pensions fund’s $10 million investment with the New York firm, which was co- founded by Steven Rattner before President Barack Obama appointed him to oversee the auto industry rescue.
Searle employed Hank Morris, a political adviser accused by New York State Attorney General Andrew Cuomo and the U.S. Securities and Exchange Commission of using the Greenwich, Connecticut, brokerage to collect “sham” placement fees from firms that manage New York pension plan money.
After the SEC this month said Quadrangle paid Morris a “finders fee” related to a New York pension fund investment, Quadrangle told the Los Angeles fund that it also had paid placement fees to him for work there. The Los Angeles fund publicly disclosed the fee April 24.
“We don’t know how or why a placement fee related to our investment in Quadrangle was made,” Michael Perez, the general manager of the Los Angeles pension, said in written responses to questions from Bloomberg News.
‘Shocked’ at News
Perez said the fund’s investment in Quadrangle was arranged through Pension Consulting Alliance Inc., which evaluates investments on its behalf. Allan Emkin, that company’s founder and managing director of its Los Angeles office, said it didn’t have any contact with Searle or Morris and worked directly with Quadrangle. Emkin said he had been unaware that Searle was paid a fee in connection with the deal.
“We were shocked when we heard about it,” Emkin said in a telephone interview.
Morris, who faces a civil SEC complaint and criminal charges by Cuomo, has denied wrongdoing. Quadrangle and Rattner haven’t been charged. Adam Miller, a spokesman for Quadrangle, declined to comment. Searle referred calls to Peter Anderson, an attorney, who didn’t respond to requests for comment.
The SEC has asked the Los Angeles fund and two of its board members for information about investment decisions and firms tied to the New York probe.
Cuomo said today that New York was formalizing agreements to coordinate its investigation with authorities in California, as well as with Connecticut, Illinois and New Mexico.
Los Angeles Connection
“We are disclosing a national network of actors, who often acted in concert,” Cuomo said. “They collaborated, they often partnered and victimized states and taxpayers all across the country.”
The SEC and Cuomo today charged Saul Meyer, the managing partner of one of the firms in the New York probe, Aldus Equity Partners, with paying Morris to secure investment business with New York. Aldus has served for more than a year as a private equity consultant to the Los Angeles pension fund. Meyer met with the fund’s board at least once, city records show.
Morris, the one-time chief fundraiser and political adviser to former New York City Comptroller Alan Hevesi, has been charged by the SEC with collecting $15 million in kickbacks from money managers doing business with New York’s pension fund. The SEC says the kickbacks were masked as placement fees and that he “rarely, if ever” provided legitimate services.
Quadrangle hired Morris as a placement agent before winning a $100 million investment from New York, the SEC said in an April 15 complaint. The firm paid Searle $1.125 million, and 95 percent of that went to Morris, the SEC said.
The Los Angeles pension approved investments in 10 private equity funds linked to the New York investigation, according to an April 2 memo to the board. Two of the investments were later canceled. Aldus Equity Partners, which was drawn into the New York probe, also advised the fund on private equity investments.
I have already written about the Mother of all stealth scams. Nothing like a huge financial crisis to bring out all the cockroaches. This hardly surprises me and remember my dire warning: Madoff was the tip of the iceberg. There will be many more fraudsters that will get nabbed in the next few years.
Just how systemic is fraud in the financial industry and at public pension funds? We don't know, but when you mix greedy placement agents with public pension fund managers who control billions, the potential for kickbacks is huge.
What can pension funds do to stop abuse before it happens? First, they should segregate duties so the person(s) making the investment has to pass through several checks, including an internal auditor, before the decision is cleared. Importantly, there should also be clear segregation of duties between those making the investment decisions and the finance professionals valuing them.
Second, pension funds need to beef their whistleblower policies so people are encouraged to report abuse. This is one of the most effective ways to stop fraud. Maybe there should be a direct link between public pension fund employees and the state's Attorney General's office or the provincial or federal Auditor General's office.
Third, have your fraud procedures verified by a certified fraud examiner (read more on CFEs by clicking here). This should include someone who scrutinizes travel/meal/entertainment expenses to make sure there is no abuse going on when some hedge fund or private equity manager is trying to woo a pension fund manager to invest with them.
Fourth, there should be tight rules governing the relationships between investment managers and the funds they invest with. If you are investing billions with Fund Z, then you should not be allowed to go work for them for a period of five years after you leave a public pension fund. This is just common sense, but you'd be surprised how common sense often falls by the wayside.
Fifth, all board decisions should be made public so they are open to scrutiny. Several of the large U.S. state plans already do this. For example, Alaska's Permanent Fund publishes its board schedule, their minutes and their consultants on their website.
Finally, on the legal front, I would ban all placement agents and place tight rules on pension consultants who recommend funds to pension funds. Do not underestimate the abusive practices of pension consultants and the potential for fraud with them. They are the gatekeepers at most U.S. pension plans.
It truly is the Wild West out there, but I am glad to see the Attorney General of New York is pursuing the pension probe and trying to clean up public pension funds.
Corrupting public officials is a crime so as the public officials who we know were involved in these frauds are exposed we know these investment firms buying favor committed these crimes too. You have yet to hear of these private equity people charged and prosecuted because that takes public justice. Whether it is blowing up the Federal Housing Agency with fraud, the Federal Student Loan Agency with fraud----we are being told by Moody's and S and P -----the rating agencies that were ground zero for all of this fraud-----that public and private pensions are just not viable anymore.
If your incumbent politician goes after the people's pensions as the problem------if your incumbent is silent about all of this, they are neo-liberals working for wealth and profit. These pensions are not a burden on the public-----all fraud recovery comes from these corporations.
I listened to a Governor's Forum on Education (to which I was not invited obviously) where Heather Mizeur says that the way to fund school building in Maryland is to have public employees give back some of their pensions. THIS IS THE PHONY PROGRESSIVE IN THIS GOVERNOR'S RACE!
Monday, March 14, 2011
Corruption at CalPERS?
Marc Lifsher and Stuart Pfeifer of the Los Angeles Times report,
Scathing report alleges corruption at CalPERS:
In a scathing report, a former chief executive of the California public employee pension fund was accused of pressuring subordinates to invest billions of dollars of pension money with politically connected firms.
A 17-month investigation also found that Federico Buenrostro Jr. — along with former pension fund board members Charles Valdes and Kurato Shimada — strong-armed a benefits firm to pay more than $4 million in fees to consultant Alfred J.R. Villalobos, who later hired Buenrostro.
The report, prepared for the California Public Employees' Retirement System by Washington law firm Steptoe & Johnson, comes amid widening attacks on public employee pension funds in California, Wisconsin, Iowa and other states for providing lavish benefits that cash-strapped governments can no longer afford.
The findings of insider dealings at CalPERS could provide fresh ammunition to Republican lawmakers here who want Democratic Gov. Jerry Brown to convert traditional pensions with guaranteed payments for life into 401(k)-type plans that rely heavily on employees' own contributions.
"Fixing California's pension problem is difficult enough without the stench of corruption and collusion that saps public confidence and gives taxpayers a reason to withhold support," said Dan Pellissier, president of Californians for Pension Reform, a group that is pushing a 2012 ballot initiative that would diminish state employee pension benefits.
Shimada, Buenrostro, Valdes and Villalobos either declined to comment or did not return calls.
Buenrostro served as CalPERS chief executive for six years, leaving in August 2008. The day after quitting, he went to work for Villalobos — a former CalPERS board member and deputy Los Angeles mayor who acted as an agent for investment firms seeking CalPERS money. The report said Villalobos hired Buenrostro with a $300,000 annual salary and gave him a Lake Tahoe condominium.
While at CalPERS, Buenrostro repeatedly "inserted himself in the investment process in a manner inconsistent with prior practice at CalPERS, pressing its investment staff to pursue particular investments without evident regard for their financial merits," the report said.
It said Buenrostro intervened with staff on behalf of Aurora Capital Group of Los Angeles to obtain investment money. Buenrostro told subordinates that Aurora was politically powerful, and that Aurora principal Gerald Parsky served on a state commission dealing with public employee benefits, the report said.
Aurora was a Villalobos client, and Buenrostro told CalPERS staffers that he would represent it once he went to work with Villalobos, the report said.
The report also noted that Buenrostro often intervened on behalf of favored private equity funds that staff called "friends of Fred."
Staffers ultimately complained about Buenrostro to the board, and those complaints "became a basis for the board's efforts to replace him as CEO," the report said.
CalPERS is the nation's largest public pension fund, with $228 billion in assets, providing benefits to about 1.6 million state and local government employees, retirees, spouses, children and other beneficiaries.
In May 2010, the California attorney general sued Villalobos and Buenrostro, accusing them of scheming to enrich themselves through self-dealing and other misconduct in seeking CalPERS investment money on behalf of clients.
According to the report, one of those investment funds — Apollo Global Management — asked Buenrostro to sign documents acknowledging that CalPERS was aware of so-called placement agent fees it was paying to Villalobos.
Several CalPERS investment officers refused to sign the disclosures, the report said — but Buenrostro did, using pasted-on letterhead to make them look more official.
Buenrostro made "representations regarding placement agent fees and related deal documents that are either demonstrably false or sufficiently suspect," the report said.
The report, citing Buenrostro's ex-wife and an unnamed girlfriend, described Buenrostro as "a puppet" of Villalobos, who the report said earned more than $50million in placement agent fees.
During his six years as head of CalPERS, Buenrostro received many valuable gifts from people and firms with financial interests in doing business with CalPERS, the report said.
When he was married in 2004, he allowed Villalobos to host the wedding at his Zephyr Cove, Nev., home. Buenrostro also traveled with Villalobos and Valdes to the Middle East and Asia — with Villalobos picking up much of the costs, the report said.
"Buenrostro does not appear to have ever disclosed these gifts or recused himself from any CalPERS matters based on any of these apparent relationships," the report said.
Valdes also pressured CalPERS investment staff to do business with Villalobos' firm, Arvco Capital Research, the report said.
In September 2000, Valdes was close to being ruled out of order for raising his voice in support of a Los Angeles real estate investment firm, CIM Group, the report said. CalPERS staff had recommended a smaller investment than originally proposed. Arvco and Villalobos received a $9-million commission on the investment transaction.
CIM also provided Academy Awards tickets to Valdes and other CalPERS people, the report said. Valdes attended in 2005 and 2006 but did not report the gifts on state financial disclosure documents.
The report also provided new details about CalPERS dealings with Medco Health Solutions Inc. before the firm was awarded a $26-million contract to provide drug benefits to members.
In May 2004, Villalobos hosted a meeting at his Lake Tahoe home with Medco CEO David Snow. Buenrostro attended.
"Soon after the May 2004 meeting at the Villalobos home, Medco agreed to retain Villalobos as a consultant and pay him $4 million," the report said.
Villalobos received a final check for $1 million immediately after the CalPERS board approved the contract, according to the report, and also received a $20,000-a-month retainer until sometime in 2009.
Last year Villalobos filed for personal bankruptcy protection, citing nearly $5million in debts to Nevada casinos. It was his second personal bankruptcy.
The report recommended that CalPERS improve accountability and reduce the risk of future abuses, including providing additional training to board members so that board business is not conducted in clandestine meetings with managers, and prohibiting the release of sensitive CalPERS information outside the organization.
This is a perfect example of serious governance gaps leaving a fund vulnerable to fraud. There is absolutely no accountability when this type of abuse goes on at the highest level. And trust me, it's not hard for a couple of guys at the top to collude and award sweet contracts to some consultant, hedge fund manager or private equity manager in return for "future favors". When you're in charge of billions, power gets to your head and you start thinking you're invincible.
This type of fraud makes me sick to my stomach. It's not common but it's going on a lot more often than people want to admit. How do I know? Let's just say I've seen things that made my skin crawl. It doesn't matter whether the investment officer has a CFA, FRM, PhD, etc., if they're crooked, they're crooked and they'll do whatever it takes to profit by abusing the power they have within a pension fund. And it's not just the large funds; in fact, some of the worst abuses happen in dinky city pension plans where corruption is rampant.
That's why I believe you have to properly compensate senior pension officers to deter this type of corruption. But that's not enough because some people are so sleazy, so greedy, they'll look to game the system and will stop at nothing to profit by abusing their power. One of the best ways to root out corruption is simply to segregate duties and implement iron clad whistleblower policies where employees can anonymously inform board members or better yet, the FBI or RCMP. That should make these idiots think twice before they abuse their power at a public pension fund.
Finally, this is a particular case that in no way reflects what's going on at CalPERS now. I think it's disgusting that some would use this report as "ammunition" to break up CalPERS or to dissolve other public pension funds. Get the governance right and you can root out corruption at most public and private pension funds.