Federico Buenrostro, the former chief executive officer of the California Public Employees’ Retirement System, pleaded guilty to steering $14 million in placement fees to a former board member in exchange for cash bribes and gifts.
Buenrostro, who headed the country’s biggest pension fund from 2002 to 2008, entered his plea today in federal court in San Francisco. He admitted to conspiring to commit bribery and defrauding the U.S. and the state of California for his efforts on behalf of Alfred Villalobos, an ex-board member who brokered a $3 billion investment by Calpers in funds managed by Apollo Global Management LLC. (APO)
Calpers had $288 billion under management as of March 31.
Buenrostro gave Villalobos access to confidential information on Calpers investments and advised the board to make financial decisions that would benefit Villalobos and his clients, according to the plea agreement.
In return, beginning in 2005, Buenrostro accepted money, gifts, domestic and international travel, meals and entertainment that Villalobos provided “to influence and reward me in exchange for the exercise of my powers and duties,” he said in the agreement.
Buenrostro said he took $200,000 in cash bribes from Villalobos. The first two $50,000 installments were delivered in paper bags at a Sacramento hotel. A final $100,000 payment came in a shoebox, he said.
In 2004, Villalobos hosted and paid for Buenrostro’s wedding at his home in Nevada, he said. He also reported he saw Villalobos give “valuable casino chips to certain (now former) members of the Calpers board as well as my wife.”
Villalobos has pleaded not guilty to the charges against him.
The relationship culminated in Buenrostro’s going to work as a consultant for Villalobos for $300,000 a year after he left Calpers on May 12, 2008.
“There is no doubt the chickens have come home to roost for Mr. Buenrostro,” his laywer, William Portanova, said outside the courtroom. “He is a 64-year-old man and he is ready to fully cooperate.”
Calpers said in a statement that the “violation of the sacred trust of our members, employers and the public can’t be tolerated.” The fund “looks forward to justice being served in this case.”
Buenrostro faces as long as five years in prison when he’s sentenced on Jan. 7. U.S. District Judge Charles Breyer allowed him to remain free until then.
Fees for middlemen were at the center of a corruption probe that saw Villalobos, a Calpers board member from 1993 to 1995, sued by state prosecutors and the pension system’s head of private equity resign.
In the wake of the scandal, Calpers adopted rules compelling any company seeking a contract worth more than $10,000 to report any hiring of a placement agent to win its business. The rule requires disclosure of how much was paid and for what services.
Villalobos, founder and managing director of Arvco Capital Research LLC, allegedly acted as a placement agent in helping Apollo to secure investments by Calpers in 2007 and 2008, prosecutors said.
Apollo required Arvco to obtain an investor disclosure letter from Calpers before paying fees for securing the investments, they said. One purpose of the letter was to record that investors were aware of the relationship between the agent and Apollo, according to the indictment.
After Calpers’s legal and investment offices declined to sign a letter, Villalobos and Buenrostro allegedly conspired to create a series of fraudulent letters that were transmitted to Apollo in 2008 and 2009, according to the indictment.
The case is U.S. v. Villalobos, 13-cr-00169, U.S. District Court, Northern District of California (San Francisco).
To contact the reporter on this story: Karen Gullo in federal court in San Francisco at firstname.lastname@example.org.