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Former CEO of CalPERS pleads guilty to fraud, corruption charge

BusinessTrials and ArbitrationJustice SystemFinanceCalifornia Public Employees' Retirement SystemLocal GovernmentPublic Employees
Former CalPERS chief executive admits taking bribes, pleads guilty to charge of fraud and corruption
Ex-CEO of CalPERS pleads guilty to fraud and admits receiving money and gifts in influence-peddling scandal

A former chief executive of the country's biggest public pension fund admitted that he took more than $250,000 in bribes and other valuable gifts from a friend and co-defendant in an influence-peddling scandal that rocked the pension investment world five years ago.

Federico R. Buenrostro Jr. pleaded guilty Friday to one federal charge of conspiracy to commit corruption and fraud in funneling deals through his friend, Alfred J.R. Villalobos, for outside firms to manage funds for the California Public Employees' Retirement System.

"It's a good day for justice, and was time for Mr. Buenrostro to admit his wrongdoing," said Philip Khinda, a Washington lawyer who led an 18-month internal investigation into a scandal that led to a slew of changes in CalPERS operations and state law.

CalPERS, which manages about $300 billion in investments, said that it has taken "aggressive steps" to put into place new policies and reforms to ensure that its 1.6 million members — state and local government workers, retirees and their families — are not victims of future criminal fraud by insiders.

"We condemn the misconduct and ethical breaches admitted today by Mr. Buenrostro," the fund said in an email. "CalPERS looks forward to justice being served in this case and for the individuals involved to be held accountable for their actions."

Buenrostro, CalPERS' top official from 2002 until he was fired in 2008, said in his plea agreement that Villalobos personally delivered $200,000 in cash bribes in paper bags and shoe boxes, which were handed over at a Hyatt Hotel across from the state Capitol.

After the exchange, Villalobos gave him tips on how to handle the money without alerting law enforcement agencies, Buenrostro said.

The former CalPERS executive also said he received numerous valuable gifts from Villalobos, including domestic and international travel, meals, entertainment and an all-expenses-paid wedding at Villalobos' Lake Tahoe mansion.

Villalobos, a former CalPERS board member in the 1990s and former Los Angeles deputy mayor, ran a lucrative business helping Wall Street firms secure multibillion-dollar investments from CalPERS.

In all, Villalobos was paid at least $48 million in fees for his work as a so-called placement agent, or middleman, from 2005 to 2009, the Securities and Exchange Commission reported in 2012.

Villalobos has denied wrongdoing and is expected to go to trial in the coming months.

Buenrostro, 64, of Sacramento is cooperating with federal prosecutors and investigators and is expected to be a key witness at Villalobos' trial, prosecutors said. He faces a maximum prison term of five years and a fine of at least $250,000.

The confession amounts to a "disgraceful mess that a good man slid into," said Buenrostro's lawyer, William Portanova. "He's climbing out by telling the truth to anyone who wants to hear it."

The scandal that enveloped the two longtime friends became public in 2009. They were indicted by federal prosecutors last year. Separate civil lawsuits and SEC action against the two also are pending.

Much of the criminal case brought by U.S. Atty. Melinda Haag focused on Villalobos' role as a placement agent after he served on the CalPERS board from 1992 to 1995. As an independent deal maker, Villalobos collected fees of 1% to 2% of the deal amount from clients of his Nevada firm, Arvco Capital Research.

According to the indictment, Villalobos and Buenrostro conspired to commit fraud by creating phony disclosure documents related to a deal Villalobos was involved with on behalf of Apollo Global Management, a New York private equity fund manager.

The indictment said Apollo demanded the documents as proof that top CalPERS officials knew Villalobos was being paid large commissions to secure a $3-billion investment for Apollo to manage.

Apollo has not been accused of any wrongdoing and has said it cooperated with federal investigators.

Villalobos, 70, of Zephyr Cove, Nev., received $14 million in fees from Apollo for deals mentioned in the indictment.

Buenrostro's plea agreement also acknowledged that he defrauded state and local government workers and pensioners, as well as taxpayers in general, of their right to honest services by "attempting to defeat and obstruct" federal securities regulation.

Buenrostro's admission confirmed and elaborated on Khinda's findings in his 2011 CalPERS investigation.

marc.lifsher@latimes.com

Twitter: @MarcLifsher

Copyright © 2014, Los Angeles Times
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BusinessTrials and ArbitrationJustice SystemFinanceCalifornia Public Employees' Retirement SystemLocal GovernmentPublic Employees
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