Key figure in CalPERS probe shielded from state fraud lawsuit

A state fraud lawsuit against Alfred J.R. Villalobos, a key player in an investigation into alleged influence-peddling in California’s largest public pension fund, has been put on hold indefinitely by a federal Bankruptcy Court judge in Reno.

Judge John Peterson denied a petition from California Atty. Gen. Jerry Brown to allow the lawsuit filed in May to proceed. The suit seeks $95 million in restitution to the California Public Employees’ Retirement System and civil penalties.

The state accused Villalobos of attempting to bribe pension fund officials with such gifts as luxury international travel to help his private equity manager clients win CalPERS investment contracts.

Villalobos and a co-defendant, former CalPERS Chief Executive Federico Buenrostro Jr., have denied any wrongdoing.

The lawsuit, which still could move forward against Buenrostro, ran into trouble in June when Villalobos and three of his State Line, Nev., companies sought Bankruptcy Court protection from debtors.

After deliberating for almost two weeks, Peterson ruled that he saw no legal reason to give California an exemption from an automatic stay, which halts proceedings in outside lawsuits for debtors trying to reorganize their finances under the Bankruptcy Code’s Chapter 11.

In his order, Johnson specifically rejected the attorney general’s assertion that the fraud lawsuit should move forward because the state was exercising its “police powers” to protect the public.

“The AG has not identified a single ongoing or proposed CalPERS investment in which Mr. Villalobos or his firm is involved,” the judge wrote. He pointed out that none of the claims alleged against Villalobos or Arvco Capital Research, one of his firms, involves “the need to protect the public health or welfare.”

Since there is no ongoing threat to the public, there is no urgency to allow the California lawsuit to be active while the bankruptcy case is unresolved, the judge said.

The judge’s findings buttress defense arguments that Villalobos “has always acted appropriately and has done nothing wrong,” said attorney Neal Stephens.

“We are disappointed with the decision and intend to appeal it,” said Christine Gasparac, a spokeswoman for Brown’s office.

CalPERS declined to comment.

marc.lifsher@latimes.com