A former chief executive of Calpers, the biggest U.S. public pension fund, and a former board member were charged by federal regulators on Monday with scheming to defraud Apollo Global Management, a private equity firm, of more than $20 million in placement fees.
The U.S. Securities and Exchange Commission said that Federico Buenrostro, a former chief executive of the California Public Employees' Retirement system, and Alfred Villalobos, a friend and former board member who became a placement agent, fabricated documents as part of the fraud.
Villalobos is also a former deputy mayor of Los Angeles.
Investment firms hire placement agents to help them land business at pension funds.
According to the SEC, Buenrostro and Villalobos, gave Apollo Global the impression that Calpers, which has $235 billion in assets, had reviewed and signed placement-agent fee disclosure letters in accordance with its procedures.
"In fact, Buenrostro and Villalobos intentionally bypassed those procedures to induce Apollo to pay placement agent fees to Villalobos's firms," the SEC said in a statement. "The false letters bearing a fake Calpers logo and Buenrostro's signature were provided to Apollo, which then went ahead with the payments."
Villalobos generated more than $70 million in placement agent fees over approximately a 10-year period, at least $58 million of which was related to Calpers' investments, according to the SEC.
Buenrostro served as Calpers' CEO from 2002 to 2008.
Buenrostro and Villalobos have been the focus of long-running probes by the SEC and the California attorney general's office regarding placement agent activity at Calpers, which has been cooperating in the investigations.
Calpers at the same time has been implementing changes to better police placement agents.
"We condemn in the strongest way possible the alleged misconduct of these individuals, and pledge to continue working with all law enforcement authorities investigating these issues," Rob Feckner, president of the Calpers board, said in a statement.
Calpers Chief Executive Anne Stausboll said the fund continues to assist authorities with its probes of placement agents.
Apollo is also cooperating with authorities, a spokesman for the firm, Charles Zehren, said.
"The allegations described in the complaint filed today by the SEC, if true, are troubling," Zehren said.
"Apollo believes it follows best practices in handling its placement agent relationships, and only learned of the alleged misconduct while cooperating with the regulatory agencies investigating this matter," Zehren added.
The SEC said it seeks an order requiring Buenrostro, Villalobos, and Villalobos' firm to disgorge any ill-gotten gains, pay financial penalties and be permanently enjoined from violating the antifraud provisions of federal securities law.
The SEC filed its complaint in U.S. District Court, District of Nevada.
Representatives of Villalobos could not be reached for comment, but he has denied any wrongdoing.
Buenrostro's lawyer, Bill Kimball, said the former Calpers CEO "strongly denies any allegation that he was involved in any fraud or illegal conduct."
The office of California Attorney General Kamala Harris had no comment on the SEC's action, but said a case management hearing regarding the state's fraud lawsuit against Villalobos and Buenrostro is scheduled for early May in state court in Los Angeles County. (Reporting By Jim Christie; Editing by Steve Orlofsky, Tim Dobbyn, Leslie Adler)
Copyright 2010 by Reuters. All rights reserved.