A lawyer hired to investigate bribes and kickbacks at one of the nation’s largest pension funds, the California Public Employees’ Retirement System, said on Monday its former board member Alfred Villalobos, corrupted top officials there and likely cost the fund tens of millions of dollars in extra investment fees.
Independent attorney Philip Khinda reported that Villalobos, a so-called “placement agent,” corrupted five senior CALPERS officials including former CEO Fred Buenrostro, former board members Charles Valdes, Kurato Shimada and Robert Carlson, and former investment officer Leon Shahinian.
Both Villalobos and Buenrostro have been sued by the state’s attorney general and federal prosecutors are conducting their own investigation.
Authorities claim that a handful of investment firms paid Villalobos and his cronies over $50 million in secret fees to help make introductions and convince CALPERS executives to do business with them. Buenrostro attempted to shield Villalobos from legal liability by signing papers saying that CALPERS was aware of the fees that Villalobos was collecting.
In his 56-page report, Khinda said that Villalobos created a perception that investment firms needed to pay for connections to secure business for their firms. The firms likely inflated their fees they charged CALPERS in order to offset the secret fees paid to Villalobos.
Since the scandal was discovered, Khinda has renegotiated deals with the investment firms that were clients of Villalobos and obtained over $300 million in fee discounts.
In a matter unrelated to the investment firms, Khinda’s report provides details about a $4 million consulting paid to Villalobos by Medco Health Solutions, a New Jersey company that handles the CALPERS employees’ drug benefit plan.
In 2005, when the drug administration contract came up for bidding, a copy of an internal CALPERS report was leaked to Medco that showed that the company was the leading contender for the contract. The contract was worth $8 million annually.
After Medco was awarded the contract, the company began paying Villalobos an additional $20,000 per month in consulting fees until 2009, when the scandal was first reported.
CALPERS has since enacted new rules and reform procedures including a prohibition on the payment of “placement” fees by investment firms.