Business & Real Estate

Court revives two investment suits against CalPERS

The late Alfred Villalobos, a key figure in the CalPERS bribery case, speaking at the dedication of A.J. Villalobos Hall on campus of Whittier in 2008.
The late Alfred Villalobos, a key figure in the CalPERS bribery case, speaking at the dedication of A.J. Villalobos Hall on campus of Whittier in 2008. Whittier College

In a case with racial overtones and ties to the CalPERS bribery scandal, an appeals court Friday revived two lawsuits targeting the pension fund’s refusal to invest $100 million with a private equity firm.

The 2nd District Court of Appeal ruled that Centinela Capital Partners of Los Angeles and one of its former partners, Cesar Baez, can proceed with separate lawsuits they filed against the California Public Employees’ Retirement System.

A lower court had dismissed both claims.

CalPERS hired Centinela in 2006 to manage $1 billion of the pension fund’s money. In 2011, the two sides informally agreed that Centinela would manage another portfolio for CalPERS worth $100 million.

There was a hitch, however. Court papers say the late Joseph Dear, who was CalPERS’ chief investment officer at the time, insisted that Centinela get rid of Baez because of his apparent links to “several businessmen and individuals” who were being investigated in connection with the bribery scandal at CalPERS.

Those individuals weren’t named in court papers. Two men were later indicted in connection with the scandal: former CalPERS Chief Executive Fred Buenrostro and the late Alfred Villalobos, who earned millions in commissions helping private equity firms obtain pension fund investments.

Baez agreed to resign from Centinela but then sued CalPERS for $30 million, claiming the pension fund didn’t want to do business with “anyone whose name ends with an ‘ez.’”

CalPERS has denied any racial bias, saying it has an enviable record in hiring investment management firms led by women and ethnic minorities.

Meanwhile, the tentative deal to let Centinela manage more of CalPERS’ money fell apart. Centinela sued the pension fund for breach of contract, claiming $35 million in damages.

While both claims were dismissed in the lower courts, the Court of Appeal rulings mean the two suits can go forward.

Baez’s lawyer, Jeffrey Eilender, said his client’s reputation was harmed by CalPERS’ actions. “He took a very big hit,” he said, adding that Baez has struggled to find work since leaving Centinela.

In a prepared statement, CalPERS said it “continues to emphatically deny all of Mr. Baez’s allegations and looks forward to the facts speaking for themselves.”

CalPERS general counsel Matthew Jacobs said the two rulings are “not all bad here” for the pension fund. He noted that the Court of Appeal expressed skepticism that Centinela could ultimately prevail in the case, but was entitled to pursue the suit.

“We did not have an agreement to give” Centinela additional funds, Jacobs said.

Lawyers for Baez and Centinela couldn’t be reached.

Separately, a federal judge this week postponed sentencing Buenrostro for his role in the bribery saga.

Buenrostro is expecting a five-year prison term after pleading guilty last July to charges that he took bribes from Villalobos. The former pension fund CEO admitted accepting more than $250,000 in cash and benefits from Villalobos. As part of his plea agreement, Buenrostro was set to testify against Villalobos.

Buenrostro was supposed to be sentenced next Wednesday in U.S. District Court in San Francisco. Now it’s scheduled for July 29.

Sentencing was postponed to give Buenrostro more time to cooperate with government investigators. Even though Villalobos died in January in an apparent suicide, Buenrostro is talking to federal and state officials in a pair of civil lawsuits that are still pending.

“He’s fully cooperating with all government agencies,” said Buenrostro’s lawyer, Bill Portanova of Sacramento.

Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.