SAN FRANCISCO -- The former chief executive of CalPERS is about to plead guilty to a conspiracy charge in connection with the bribery scandal that erupted at the nations largest public pension fund five years ago.
Fred Buenrostro, who ran CalPERS from 2002 to 2008, will enter a guilty plea next week. The dramatic twist was revealed Monday by his lawyer, William Portanova, during what was scheduled as a routine pretrial hearing in U.S. District Court.
Portanova said Buenrostro will cooperate with the governments prosecution of his old friend and mentor, Nevada businessman Alfred Villalobos, and fully lay out the full story between the two of them. The two men stood about 10 feet apart during the court hearing and didnt appear to acknowledge each other.
Until Monday, Buenrostro, 64, insisted hed done nothing wrong. He had no comment, during the hearing or afterward.
Portanova said, Sometimes the truth takes a while to bubble to the surface. When it does, its better for everybody, including the defendant.
Portanova said Buenrostro plans to plead guilty to a conspiracy charge that carries a maximum penalty of five years in prison. The plea is expected July 11.
The trial, which was expected to begin next week, will now be postponed, probably until this fall.
The criminal case against Buenrostro and Villalobos resulted from the biggest scandal in the history of the California Public Employees Retirement System. The indictment focuses on a fairly narrow allegation: that the two men created fake letters on CalPERS stationery in order to ensure Villalobos was paid millions in fees for his work on behalf of a Wall Street investment firm.
Much broader allegations have been raised against Buenrostro and Villalobos in other venues.
A 2010 state lawsuit accuses Villalobos, a former CalPERS board member, of bribing Buenrostro and other pension fund officials to influence investment decisions. The suit says Villalobos hosted Buenrostros 2004 wedding at his Lake Tahoe mansion and paid for Buenrostro and another former board member, Charles Valdes, to accompany him on a global junket in 2006.
Also, the lawsuit says Villalobos promised Buenrostro a $25,000-a-month job with his Nevada investment firm, plus a free Tahoe condo, if Buenrostro ever left CalPERS a pledge that was fulfilled in 2008.
Villalobos has continued to maintain his innocence. Hes facing up to 30 years in prison if convicted on all charges; the maximum penalty against Buenrostro would have been 40 years under the original indictment. The indictment, filed in March 2013, accuses the duo of conspiracy, making false statements and obstruction of justice.
Neither Villalobos nor his lawyer, Bruce Funk, had any comment on Buenrostros change of heart.
An investigative report conducted for CalPERS concluded that it was unlikely that Villalobos was able to steer any investments to his clients through his bribes. But the report said Villalobos actions likely prompted his Wall Street clients to charge CalPERS millions of dollars in extra investment-management fees to make up for the commissions they paid Villalobos.
The indictment says nothing about the bribery alleged in the states lawsuit. Rather, it focuses on Buenrostro and Villalobos actions after a big Wall Street firm, Apollo Global Management, insisted on getting disclosure letters from CalPERS in 2007. The letters said CalPERS understood Villalobos was working for Apollo and would earn a fee if the pension fund invested with Apollo.
According to the indictment, Buenrostro created phony letters on the pension funds letterhead after another CalPERS official refused to sign the disclosure documents. After receiving the letters, Apollo was able to obtain $3 billion in CalPERS investments between August 2007 and April 2008. The firm, which has said it was unaware of any misconduct charged in the criminal case, paid Villalobos $14 million in commissions.
Altogether, Villalobos, 70, earned about $50 million in commissions off CalPERS deals.
The scandal was an embarrassment to CalPERS, which has cooperated with authorities.
CalPERS looks forward to the closure of these cases at the appropriate time in the due course of the justice system, the pension fund said in a statement issued shortly after Mondays court hearing. We appreciate the dedicated efforts of the prosecutors and others in law enforcement.
Portanova said Buenrostro will plead guilty to an expanded charge that includes some of the meat and potatoes of the broader allegations against the two men.
Timothy Lucey, an assistant U.S. attorney, said the government plans to file a new indictment, containing more allegations, against Villalobos.
Villalobos and Buenrostro have known each other since the early 1990s, when they served together on the board of the California Public Employees Retirement System. According to the states still-pending lawsuit, Buenrostro went to Villalobos for advice after he got a poor job review in 2008 from the pension funds board president, Rob Feckner. Court records say Buenrostro was fired shortly afterward by CalPERS.
Buenrostro was deputy director of the Department of Personnel Administration when he was named CEO of CalPERS in 2002.
Villalobos is a one-time deputy mayor of Los Angeles. Despite the millions he earned from his CalPERS deals, Villalobos filed for personal bankruptcy shortly after he was sued by the state in 2010.
His lawyers have said hes been in poor health the past couple years. Dressed in a black, open-collared shirt and black pants, he walked into court with two metal canes, his breathing labored.
Call The Bees Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.