Former CEO Of Calpers Indicted On Financial Fraud Scheme Charges

Tyler Durden's picture

There was a time when pervasive financial crimes would if not shock and appall people, then at least make them think for a minute or two. Sadly, now that even the biggest bank by assets is found to have misled regulators, shareholders and the broad public and its CEO is proven to have perjured himself before Congress, and absolutely nothing happens, not even one of those token SEC wristslap settlements, we are way past the point of even pretending to care. Which is why there is little we can comment on the news that Federico Buenrostro Jr., 62, the former CEO of the nation's largest pension fund, California's Calpers, has been indicted by a federal grand jury in a scheme to defraud Apollo Management, one of the biggest private equity firms in the nation, of $20 million. How is one supposed to have any faith, or worse, any hope that there is something more than mere criminality pushing the US capital markets to "new highs", and why is anyone surprised the retail investor has given up on the Fed-backstopped US "wealth creation mechanism" long ago.

From Reuters:

A federal grand jury has indicted former California Public Employees' Retirement System Chief Executive Officer Federico Buenrostro on conspiracy charges in connection with a scheme to commit fraud, the U.S. Department of Justice said on Monday.

 

The grand jury also indicted Alfred Villalobos, a former member of the pension fund's board, in connection with the scheme involving fraudulent documents related to a $3 billion investment of the retirement system in funds managed by Apollo Global Management.

The full story, from a year ago, courtesy of the LA Times:

Federal securities regulators sued a former chief executive and a former director of the California Public Employees' Retirement System, accusing them of scheming to defraud an investment firm of $20 million.

 

The Securities and Exchange Commission alleged that former CEO Federico Buenrostro Jr., 62, and former director Alfred J.R. Villalobos, 68, fabricated documents requested by Apollo Global Management, a New York private equity firm.

 

Apollo had hired Villalobos, a close friend of Buenrostro, as a so-called placement agent to secure billions of dollars of investments from the country's largest public pension fund.

 

The documents were used by Villalobos and his companies — Arvco Capital Research and Arvco Financial Ventures of Zephyr Cove, Nev. — to bill Apollo for helping to win private equity investment management contracts.

 

In all, Apollo paid Villalobos more than $48 million from 2005 to 2009.

 

Villalobos received at least $12 million in additional placement fees from other investment funds that managed CalPERS money.

 

Both Buenrostro and Villalobos have denied any wrongdoing. Buenrostro was not involved "in any type of fraud or illegal conduct," said his attorney, Bill Kimball.

 

Villalobos does not have an attorney, the SEC said. The telephone at Villalobos' onetime office near his Lake Tahoe mansion was disconnected.

 

The alleged phony documents were patched together to make it look as if the fees had been approved by CalPERS investment staff, the suit alleged. Apollo's lawyers had wanted Villalobos to provide them with proof that CalPERS consented to the fees.

 

"Those documents gave Apollo the false impression that CalPERS had reviewed and signed placement agent fee disclosure letters in accordance with its established procedures," the SEC said in a statement.

 

"In fact, Buenrostro and Villalobos intentionally bypassed those procedures to induce Apollo to pay placement agent fees to Villalobos' firms," the SEC said.

 

The false documents bore a fake CalPERS logo and in at least one instance a copy of Buenrostro's signature taken from an otherwise blank paper, the SEC said.

 

The suit alleged that Villalobos, Buenrostro and an Arvco staffer created the bogus documents beginning in 2007 after CalPERS investment officers were advised by their lawyers not to sign such disclosure orders.

 

"Buenrostro and Villalobos not only tricked Apollo into paying more than $20 million in placement agent fees it would not otherwise have paid, but also undermined procedures designed to ensure that investors like CalPERS have full disclosure of such fees," said John M. McCoy III, associate regional director of the SEC's Los Angeles office.

 

Buenrostro and Villalobos also are the target of a civil fraud suit brought by the California attorney general's office in Los Angeles County Superior Court.

 

And CalPERS, which has an investment portfolio valued at $235 billion, has confirmed that a federal criminal investigation is pending.

 

The SEC action is the latest by law enforcement in a probe that began in October 2009, when CalPERS released documents in a Public Records Act request that showed Villalobos was paid unusually high placement agent fees for helping Apollo and other investment firms close deals with the pension fund.

 

Philip Khinda, a Washington securities lawyer hired by CalPERS to conduct a special review of the placement agent scandal, applauded the SEC.

 

"It's another impressive action by law enforcement authorities, and I expect more from them to come," Khinda said.

 

Sure: more wristslaps of the kind that continue to make crime pay - because paying a $1 million "settlement", assuming one is caught, when the profits throughout the life of the crime are orders of magnitude higher, not only do not serve as a deterrence mechanism, they make more financial executives seek illegal, criminal shortcuts, in hopes they can rake up enough ill-gotten booty before the SEC comes knocking, and forces them to disgorge a grand total of some 3-5% of their gains.

Sadly, this is what passes for justice in America in this day and age.