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.

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Mon, 03/18/2013 - 18:00 | 3344651 AlaricBalth
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Enough with these peripheral puppies. Lets get to the big dogs.

Mon, 03/18/2013 - 18:05 | 3344669 WayBehind
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Dont be naive!

Mon, 03/18/2013 - 18:09 | 3344687 AlaricBalth
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I wasn't alluding to the SEC or the Justice Dept.
I'm thinking more in terms of Frontier justice.

Mon, 03/18/2013 - 18:14 | 3344709 Pladizow
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Fraud: Wall Street's business model since.

Mon, 03/18/2013 - 18:43 | 3344821 Son of Loki
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"Why steal less, when you can steal more," is Wall Street's mantra.

Mon, 03/18/2013 - 18:59 | 3344870 TruthInSunshine
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Is this latest of the many money managers to get caught red handed in fraud, criminal enterprise, outright theft or other illegal or prohibitive activity as big of an Obama Bundler as The Honorable Jon S. Corzine?

Mon, 03/18/2013 - 19:10 | 3344909 ACP
ACP's picture

I'm just wondering who he pissed off to even get indicted? Did someone catch him making a negative statement about the King?

Mon, 03/18/2013 - 23:29 | 3345769 jeff montanye
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i doubt either of these latino gentlemen walk.  they don't strike me as well-connected.  when you use photocopies to defraud, you take the big fall:

when you say i don't remember, the money evaporated, i used to be a senator and a governor, i bundle money for barack, then you walk.

Mon, 03/18/2013 - 20:53 | 3345295 Totentänzerlied
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"Just fucking take it." - The Honorable Jon Corzine

Mon, 03/18/2013 - 22:34 | 3345611 rayduh4life
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"We hang the petty thieves and appoint the truly great ones to Public Office".  ~ Aesop.

Tue, 03/19/2013 - 05:28 | 3346040 A Nanny Moose
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Tue, 03/19/2013 - 07:16 | 3346156 Dugald
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Never trust a man who hides behind face fungus......

Mon, 03/18/2013 - 18:14 | 3344711 WayBehind
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You can't have your cake and eat it (too) 

Mon, 03/18/2013 - 18:22 | 3344719 James_Cole
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Sadly, this is what passes for justice in America in this day and age.

Not that the US has ever been a bastion of justice but this pension fraud case will still likely be a better verdict than the case decided the other day where the two football players raped a 16 year old girl, uploaded photographs of the incident to their twitter, Facebook & Instagram, sued anonymous for defamation when they investigated and finally after a trial got a grand total of 1 year in juvenile prison and were forced to apologize for taking and distributing pictures of the sexual assault (but not the rape itself of course).

Yes, a brutally punitive sentence! Fortunately CNN was there to soften the blow explaining what a tragedy it is for these unfortunate young men - great athletes and students alike - to have their immediate futures ruined and wondering how long it will take for them to recover. 

The good news is, by the time they finally recover from this tragedy thrust upon them JPM will likely have a couple openings ready. 

Justice in the USA isn't quite 100% blind yet. 

Mon, 03/18/2013 - 18:33 | 3344771 Tijuana Donkey Show
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Their punishment is to live in Stubenville for the rest of their lives, which is pretty much hell on earth.....

Mon, 03/18/2013 - 18:38 | 3344798 Xibalba
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Mon, 03/18/2013 - 18:47 | 3344838 rlouis
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Exactly!  Anything less is a distraction.  Let's be distracted by Corzine's indictment. [not kidding, damn it!]

Mon, 03/18/2013 - 22:00 | 3345503 Acidtest Dummy
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Mon, 03/18/2013 - 20:03 | 3345135 CaptainObvious
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They're going to juvey, which is where the hard-core juvenile murderers that get caught are stored.  These boys are going to learn what it feels like to be raped.  Rapists don't do well in prison.  It's going to go on for a year that will seem ten times as long.  That seems to be a pretty fair punishment, don't you think?

Now, an unfair punishment is Corzine is still walking free.  An unfair punishment is Jamie Dimon getting into his limousine after his congressional testimony and going to his palatial home.  An unfair punishment is the average bankster getting a 1% slap on the wrist for defrauding magnitudes of order more than the amount he was fined.  Justice is not only blind, she's deaf, mute, and crippled if your bank account doesn't end with at least 7 zeros.

Tue, 03/19/2013 - 00:21 | 3345849 varnelius
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While I dont agree with the sentance, I was just thinking about this the other day.  Now in my mid-30s, I had realized just how fast this past year had gone by.  Even 1 year behind bars at a pre-18 age would have seemed like an eternity.  Years used to feel long, now they feel remarkedly short.  I can only assume this is going to get worse with even more passage of time.

Mon, 03/18/2013 - 18:57 | 3344869 Son of Loki
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Amish leader gets 15 years for beard attacks


...while Corzine, Paulson, et al walk free......


American Justice ain't what it used to be when over 700 bankers and financial service criminals went to prison in the 1980's bank frauds.

Mon, 03/18/2013 - 18:19 | 3344720 The Shootist
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BrotherJohn F called it.

Mon, 03/18/2013 - 18:28 | 3344747 Salah
Salah's picture

Sounds like Bill Richardson's buddies at the NM Finance Authority.....all Democrats, no doubt.

Mon, 03/18/2013 - 21:30 | 3345399 Buck Johnson
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And this guy was on CNBC not to long ago talking about the issue with Sequester.  It's amazing almost all these guys are crooks.

Mon, 03/18/2013 - 18:04 | 3344661 otto skorzeny
otto skorzeny's picture

 there is too much money involved in these huge pensions for there not to be corruption and theft on a massive scale.

Mon, 03/18/2013 - 18:12 | 3344700 McMolotov
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What's funny is that the pensions may be huge and involve a lot of money, but there still isn't enough of it...

Mon, 03/18/2013 - 21:56 | 3345485 Vendetta
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"calculations" of 6-8% returns ad infinitum for the pension payouts was pretty dumb from the git go.

Mon, 03/18/2013 - 20:38 | 3345251 DollarMenu
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The first law of money:

There is never enough.

Mon, 03/18/2013 - 18:03 | 3344663 Croesus
Croesus's picture

Grand Theft, Bank Account Edition!

Mon, 03/18/2013 - 18:08 | 3344685 centerline
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Grand Theft Accounting.

Mon, 03/18/2013 - 18:11 | 3344698 fonzannoon
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These guys are stealing from our pensions, no different than stealing our deposits. The Cypriots must be outraged we are not rioting in the streets...

Mon, 03/18/2013 - 18:15 | 3344713 bania
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Chief Scalper!

Mon, 03/18/2013 - 18:17 | 3344716 centerline
centerline's picture

These guys are the cockroaches we now see starting to pop up here and there.  Like one or two popping out from behind a wall panel or something.  God only knows what things would look like if someone could yank the whole wall panel off at once.  Holy shit.

Mon, 03/18/2013 - 20:22 | 3345192 Freddie
Freddie's picture

More Mexifornia Democrats. 


I bury those cockroaches!

Mon, 03/18/2013 - 21:57 | 3345491 Vendetta
Vendetta's picture

What's a pension?  /non-snark

Mon, 03/18/2013 - 18:03 | 3344664 DoChenRollingBearing
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The cure for a "California":  Gold!

Mon, 03/18/2013 - 18:03 | 3344665 fuu
fuu's picture

Shocking really.

Mon, 03/18/2013 - 18:04 | 3344667 disabledvet
disabledvet's picture

BIG story..."but we're only getting a glimmer" in this presentation. Is that mutual fund stuffed to the gills with MBS? Do they have tens of billions in "notional"(?) CDS (contracts? Agreements? Tax free life insurance?) sitting on their books? I would think the Governor would want to know.

Mon, 03/18/2013 - 18:10 | 3344695 centerline
centerline's picture

Ohhh, don't look man.  Don't look.

Mon, 03/18/2013 - 19:39 | 3345025 disabledvet
disabledvet's picture

Taking your marching orders from Wall Street "works until it doesn't." And when it doesn't...well, let's just say the Street is ALWAYS paid for forward thinking...though the only place where "they will think for you" is....yep, here and only here of course. The honesty here really is "the best you will get." I think a quality cost benefit/slashing would be well advised now that we know the ENTIRE US housing market was fraudulently conceived, fraudulently conveyed, fraudulently manifested "to the various States and nations of the world" and...the worst part..."a failure." (was it failed or did it fail is an interesting question. Gotta say that Yen action is truly amazing.) amazingly the dollar didn't collapse...apparently the scheme was far larger than even the most optimistic...are they criminals?, you all tell me. "if everyone is doing it it can't be wrong" strikes me as a bad system of finance. To which I say "if the Swiss National Bank is doing everything it can to devalue its currency"...well, what asset is safe again?

Mon, 03/18/2013 - 18:07 | 3344668 NoDebt
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You're right, Tyler.  I just can't work up the outrage any more.  However, I think this guy's going down.  Sounds like they got this documented pretty well.  And he doesn't work for Dimon or Blankfein (and he's clearly not in the same social strata as John Corzine) so I think he'll actually wish he had never tried this in the end.


Mon, 03/18/2013 - 18:08 | 3344679 otto skorzeny
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plus-no berg or stein at the end of his name

Mon, 03/18/2013 - 18:10 | 3344693 francis_sawyer
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he's toast... The 'bergsteins' are polishing off their jelly donuts...

Mon, 03/18/2013 - 18:05 | 3344670 OptionNinjaNYC
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Justice In America:

A common person gets 10 years for pissing on his neighbours lawn.

A wall-street piece-of-shit CEO gets a reach-around from the President for trading with his customers' hard earned money.

In God We Trust. By GOD they mean Lloyd Blankfein.

Mon, 03/18/2013 - 18:26 | 3344737 centerline
centerline's picture

About 30 years ago someone told me that if I was ever going to steal, make it big.  Big enough to afford a good lawyer and come out of it with loads of cash after a short stint in some white collar "golf academy" prison.

I'm the honest type... regular boy scout... so stealing never even made it on my radar.  But, I put that one away as a "note to self" sort of thing.

Have to say that I really am amazed in a way that we are in a place now where the stint in Club Fed doesn't even happen.  Just got to pay the "tax"  (errr.... fine) on the newly acquired cash.

Without a doubt, the free for all looting of the system is on like donkey kong.

Tue, 03/19/2013 - 00:56 | 3345882 newengland
newengland's picture

No sympathy and no surrender to the wrong doers, and their willingly ignorant 'clients'.

Mon, 03/18/2013 - 18:06 | 3344674 Larry Dallas
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There is too much money. He probably outed himself by being to conspicuous about it, driving Bentley's or some other nonsense.

If he had just acted like a public servant a little longer, then quit, he'd be fine. But the ego always is the death knell for these guys. Always. Never quit when they are ahead.

Mon, 03/18/2013 - 18:20 | 3344727 de3de8
de3de8's picture

Yep, greed will get you every time. Unless of course your of the insulated class.

Mon, 03/18/2013 - 19:55 | 3345103 ozzz169
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500k to obama campaign gets you quarterly meetings at the white house, praise as "the smartest man I know" from the VP, and permanent get out of jail free card, I guess he didnt make his "donation".

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