He arrived in plain jail clothes, shackles around his ankles, the humbled former leader of America’s largest public pension fund ready to accept his punishment for taking bribes.
He left with a prison term of 4 1/2 years.
Fred Buenrostro, the former chief executive of CalPERS, was sentenced Tuesday by a federal judge who called his actions “a spectacular breach of trust.”
Buenrostro, 66, pleaded guilty to a conspiracy charge nearly two years ago, admitting he took more than $250,000 in cash and other bribes from his friend and former CalPERS board member Alfred Villalobos. Prosecutors said Villalobos, who killed himself last year, was attempting to steer pension fund investments to the private equity firms he represented.
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Court records show Buenrostro let Villalobos pay for his wedding in 2006 – and then accepted $200,000 in cash a year later to pay the fees from his divorce. Villalobos also took Buenrostro and a CalPERS board member, the late Charles Valdes, on a global junket, all expenses paid. Another $50,000 came later.
Buenrostro’s sentencing, following numerous postponements, appears to effectively wrap up a scandal that has dogged CalPERS for nearly seven years. “We feel like this is the end of a chapter that was painful for us (but) it is passed,” said Buenrostro’s successor, Anne Stausboll, in a phone interview. “CalPERS has emerged a stronger organization.”
Escorted into the courtroom by federal marshals, Buenrostro wore a two-piece blue jail outfit, the result of his recent imprisonment on unrelated battery charges. He hardly looked like the longtime state employee who ran the California Public Employees’ Retirement System for six years and often testified at the Capitol or pension board meetings in a dark suit, crisp white shirt and tie.
“I’m humiliated, embarrassed and deeply ashamed of my actions,” Buenrostro said moments before U.S. District Judge Charles Breyer pronounced sentence. Buenrostro, who had been volunteering since last fall at Shores of Hope, a West Sacramento social services organization, told the judge of his volunteer work and said, “I ask for mercy from the court.”
Prosecutor Timothy Lucey, an assistant U.S. attorney, called the case “one of the most startling and serious cases of public corruption in the history of the state of California.”
Still, Lucey had sought a sentence of four years, not 4 1/2 , saying Buenrostro gave government investigators substantial assistance before and after he pleaded guilty in July 2014. The maximum term would have been five years, and Breyer spent much of the half-hour hearing quizzing Lucey on why he recommended a term of just four years instead of the maximum.
Speaking to reporters after the hearing, Buenrostro’s lawyer William Portanova said he wasn’t surprised by the term. “It was a big case, it was a long series of criminal acts,” he said. “Mr. Buenrostro is trying to make up for it ... but at the end of the day, the original tab has to be paid.”
Brought into the courtroom through a side entrance, Buenrostro was transported from the Alameda County jail, where he had been held since late last week.
He had been held in Sacramento County Main Jail since late April on misdemeanor charges of committing battery against a former girlfriend, the second time he’d been arrested this year. While he completed his sentence on the battery charge, he was ordered held in the jail by a federal magistrate judge. Late last week, he was transferred to the Alameda jail to await sentencing in the bribery case, Portanova said.
Although white-collar defendants sometimes are allowed to remain free on bond and report to prison at a later date, Buenrostro was ordered kept in custody.
Buenrostro, who ran CalPERS from 2002 to 2008, admitted accepting $200,000 in cash in three installments from Villalobos during 2007. The payments were made, in paper bags and a shoebox, at the Hyatt hotel across from the Capitol. Villalobos also gave Buenrostro a $25,000-a-month job at his Nevada investment firm after he left CalPERS, a job for which he “did little work,” according to a presentence report filed by prosecutors.
He also accepted a $50,000 bribe from Villalobos to buy his silence when investigators began looking into their relationship in 2010. In the presentence report, Lucey said Buenrostro demanded the money from Villalobos to help pay for his legal fees stemming from the mounting investigations.
Earlier this year, Buenrostro settled a civil lawsuit filed by the state of California by agreeing to pay back the $250,000 in five yearly installments. Breyer also imposed a $250,000 fine Tuesday, but only as a backup in case Buenrostro doesn’t fulfill his obligation to pay the state settlement. “He’s not paying twice,” the judge said.
In the presentence report, Lucey said Buenrostro used much of the money to pay for his divorce. Ironically, Buenrostro also admitted to letting Villalobos pay for his wedding in 2006. The wedding was held at Villalobos’ Lake Tahoe mansion.
The two longtime friends were originally charged in 2013 with preparing phony documents on CalPERS’ stationery to fool Villalobos’ clients into thinking CalPERS knew that Villalobos stood to earn commissions if the private equity firms got investments from the pension fund. The charges changed when Buenrostro admitted in July 2014 that he took bribes from Villalobos.
Villalobos pleaded not guilty to all charges and always maintained his innocence. He was found shot to death at a Reno gun range in January; police ruled the case a suicide.
A “placement agent,” Villalobos earned roughly $50 million in commissions from the CalPERS investment deals he procured for his private equity clients. The investments have proved to be mostly profitable for the pension fund, but an investigative report commissioned by CalPERS concluded that it probably spent tens of millions of dollars in larger-than-necessary investment management fees because its bargaining power was undermined by Buenrostro’s actions.
After the scandal surfaced in late 2009, CalPERS instituted a series of internal reforms, including stricter controls on employee travel and acceptance of gifts from outsiders doing business with the pension fund. Several of its top private equity partners agreed to stop using placement agents when seeking CalPERS investments. The Legislature passed a law forbidding private equity firms from paying placement agents on a commission basis, as opposed to a flat fee. Placement agents also are required to register with the state as lobbyists.
“This closes a dark chapter in the history of an institution that stood tallest when it mattered most,” said Philip Khinda, the Washington, D.C., securities lawyer who ran the in-house investigation for CalPERS, in an email.
Whether the criminal investigation is completely finished remains to be seen. Lucey declined comment on his way out of court, and Portanova said he doesn’t know if the Justice Department is still investigating.
“This is something that is 100 percent in the Department of Justice’s camp,” the defense attorney said.