Nearing the finish line in the biggest scandal in CalPERS’ history, California officials accepted $20 million to settle civil charges over the bribery case that has hounded the giant pension fund for years.
Arvco Capital Research, a defunct Nevada investment bank owned by late financier Alfred Villalobos, agreed to pay the state $20 million to resolve a state lawsuit accusing Villalobos and his firm of bribing officials at CalPERS. The sum includes $10 million in attorneys’ fees.
“This settlement brings us one step closer to closing this unfortunate chapter in our history,” said CalPERS general counsel Matt Jacobs in an email.
The settlement is subject to approval by a bankruptcy judge, who has scheduled an April12 hearing.
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Next up: Fred Buenrostro, the former chief executive of CalPERS, is scheduled to be sentenced in May on criminal charges. Buenrostro pleaded guilty in 2014 to accepting cash and other bribes from Villalobos.
The state filed a civil suit against Villalobos, Arvco Capital and Buenrostro in 2010, accusing them of defrauding CalPERS by engaging in a multiyear scheme to steer pension investment dollars to private equity firms represented by Villalobos. The suit said others at CalPERS accepted gifts from Villalobos as well, although no one else was ever charged with wrongdoing. The suit was filed by Gov. Jerry Brown, then serving as California’s attorney general.
Villalobos, who consistently denied wrongdoing, shot himself to death in Reno in January 2015, just weeks before he was scheduled to go on trial on criminal bribery charges connected to the case.
The investments themselves, totaling $4.4 billion, have been mostly profitable for the California Public Employees’ Retirement System. But state officials said the bribery scheme hurt CalPERS nonetheless.
A 2011 investigative report by a securities lawyer hired by CalPERS concluded that the private equity firms probably padded the investment fees they charged to the pension fund to compensate for the fat commissions they paid Villalobos. In addition, the report said that CalPERS probably lost out on other investment deals because some private equity firms, believing the playing field was tilted toward Villalobos’ clients, may have stopped bringing deals to CalPERS’ attention.
All told, the state’s lawsuit demanded damages of more than $41 million.
The state’s settlement with Villalobos’ firm, Arvco Capital, was filed in Los Angeles Superior Court and U.S. Bankruptcy Court in Reno, where lawyers and trustees have been attempting for years to sort out Villalobos and Arvco’s tangled financial affairs. The settlement is subject to the approval of a bankruptcy judge, who has scheduled a hearing on the matter for April 12.
Buenrostro has already settled the civil suit. Last month he agreed to forfeit $250,000 to the state in five yearly installments, scheduled to begin after he completes a prison term he’s expected to receive in connection with the scandal.
The $250,000 represents the lion’s share of the bribes Buenrostro admitted receiving from Villalobos, much of it paid in cash stuffed in shoeboxes and hand-delivered at a downtown Sacramento hotel. Buenrostro also said he accepted casino chips and an around-the-world junket from Villalobos, and let the Nevada financier pay for his wedding.
During a six-year stretch beginning in 2002, Villalobos’ clients paid Arvco more than $45 million in commissions for the investments it secured on their behalf from CalPERS. His clients included some of the titans of the private-equity world, including Apollo Global Management of New York and Aurora Capital Group of Los Angeles. The firms have said they had no knowledge of the bribes Villalobos was paying to Buenrostro.
Villalobos’ success with CalPERS effectively ended when Buenrostro resigned from CalPERS under pressure from the pension fund’s board in 2008 and went to work for Villalobos’ firm in Stateline, Nev.
Buenrostro pleaded guilty in 2014 to criminal charges of taking bribes from Villalobos, his longtime friend and a former CalPERS board member. He is due to be sentenced in May and is expected to receive a prison term of up to five years. Villalobos pleaded not guilty. His lawyers said he was determined to prove his innocence but killed himself because of his serious health problems.