Door appears to revolve too fast for pension boss
The top executive at Los Angeles’ largest municipal pension fund wasted little time last spring jumping from his government post to a private sector job -- one that required him to drum up business from agencies like the one he had just left.
On May 5, Robert Aguallo Jr. e-mailed his resignation to the chairman of the Los Angeles City Employees’ Retirement System. The very next day, he sent another e-mail to the system’s officials, but this time in his role as managing partner of Cardinal Americas, a Los Angeles-based company.
Aguallo expressed concern about the fees that the pension system planned to pay Cardinal Americas, which sought to make $10-million worth of investments on behalf of the city agency. “I want to have this revisited,” Aguallo wrote to two officials who had reported to him a week earlier. Last month, The Times reported that the Los Angeles City Ethics Commission has been investigating Aguallo’s move to Cardinal Americas, three months after the agency reaffirmed the $10-million deal. Under city ethics laws, high-level officials who leave for the private sector must observe a one-year cooling-off period, during which they are barred from directly attempting to “influence” a decision at their former agency.
The ethics probe comes as City Council members have voiced increasing concerns about a “revolving door” at other city agencies, such as the Department of Water and Power. Councilman Greig Smith, who has monitored pension issues while on the council’s Budget and Finance Committee, said he was dismayed to see Aguallo lobbying the pension system within days of leaving it.
“It’s a real abuse of trust for me. It stinks,” said Smith, after reviewing the e-mails. “Whether there’s a violation of the law, the city attorney will have to decide.”
Mark Vargas, a spokesman for Cardinal Americas, said in a brief statement that Aguallo was responding to issues raised by the pension system’s outside consultant. Aguallo “withdrew the e-mail shortly thereafter,” Vargas said.
A request by The Times for all e-mails between Aguallo and pension officials between May 1 and May 15 did not produce such a document.
Aguallo took the job with Cardinal Americas three months after his agency made a decision favorable to the firm, which offers pension funds a way to invest in construction companies not traded on Wall Street. Sally Choi, Aguallo’s replacement at the pension agency, would not discuss the e-mails, saying any potential improprieties “were referred to the Ethics Commission.”
E-mail correspondence obtained by The Times shows that as Aguallo moved from one job to the other, the line between his two roles grew increasingly blurry. May 2 was Aguallo’s last day on the payroll as the top executive at the fund, also known as LACERS, which manages an $11-billion pension portfolio for retired city employees.
Yet on the same day, Aguallo also attended a meeting with representatives of another Los Angeles city pension system, the one that covers retired police officers and firefighters. During that meeting, Aguallo appeared as a representative of Cardinal Americas, according to city e-mail records.
The Police and Fire Pension Fund occupies the same building in Little Tokyo as LACERS. The two pension systems also share the same meeting rooms, and their employees talk regularly.
The following week, Aguallo continued to e-mail his former staff, asking them to send him the invitation list for a retirement party planned in his honor, and tying up loose ends. At the same time, Aguallo pressed officials who once reported to him to keep the city’s lawyer from determining the size of certain fees paid by the public agency to Cardinal Americas.
The firm had been seeking business for nearly two years with LACERS, where four of the board’s seven members are appointed by Mayor Antonio Villaraigosa. The agency’s board voted in 2007 to invest up to $10 million in Cardinal Americas, even as it received a caution from its investment committee that the executives at Cardinal Americas were inexperienced in working together on their investment strategy.
Because of those concerns, the pension board required Cardinal Americas to show that it could raise $50 million from other investors before it could tap LACERS’ money. After Cardinal Americas failed to find that money, the pension board -- still relying on Aguallo as its general manager -- voted Feb. 12 to provide a six-month extension.
Aguallo sent a May 6 e-mail to his temporary replacement, acting General Manager Tom Moutes, accusing the pension board’s lawyer, Assistant City Atty. Alan Manning, of trying to limit Cardinal Americas to $600,000 in organizational fees.
“I am not sure this works for a new start up fund, particularly as we [are] out trying to fundraise,” Aguallo wrote to Moutes, who had reported to him the prior week.
In the same message, sent from his BlackBerry, Aguallo questioned whether the city’s lawyers should determine organizational fees for his firm.
“I also don’t believe Alan should be making [such] decisions,” wrote Aguallo, who copied the message to the agency’s chief investment officer.
Robert Stern, a Los Angeles government watchdog who helped write the state Political Reform Act of 1974, said Aguallo’s e-mail exchange may have violated state and local conflict-of-interest laws. Stern, executive director of the nonprofit Center for Governmental Studies, said Aguallo should not have come back so quickly to influence former employees.
“The whole purpose of the law was to remove that conflict, where people who formally worked for him would feel obligated to help him out,” he said.
Pension board members were told by their outside consultants as early as 2007 that some of the terms proposed by Cardinal Americas were “unacceptable.”
Those consultants concluded, however, that because the city’s pension board would be the lead investor, it would be able to improve the deal points during negotiations.
Those terms were still up in the air a year later, when Cardinal Americas announced that it had hired Aguallo -- to the surprise of other officials.
Asked about the timing of the hire, Cardinal Americas spokesman Vargas told The Times two weeks ago that Aguallo negotiated his employment with the company in April. An e-mail obtained from the city’s Fire and Police Pension system puts that time frame earlier, however.
In an April 30 e-mail to one of his staffers, the system’s general manager, Michael Perez, said he had just learned from Cardinal Americas Chairman George Pla that Aguallo had taken a job with the company.
“George said he couldn’t tell me about this at the lunch he and I had March 19, as it was still in the works,” Perez wrote.