CalPERS investment staff receive luxury travel, gifts from financial firms
The state’s embattled public pension fund for years allowed its top investment staff to accept private jet trips around the world and other luxury travel from financial firms with whom they were doing business — without disclosing any of the trips publicly, according to the court testimony of a senior portfolio manager.
The manager, Joncarlo Mark, was testifying as the designated representative of the California Public Employees’ Retirement System in pretrial proceedings that are part of a corruption probe. As such, his statements were meant to reflect the official view of the pension system’s management.
Mark testified that he had taken 10 or 12 private jet trips paid for by firms doing business with CalPERS to locations including Shanghai, Mumbai and New York. Financial firms paid for dozens more such trips for him on commercial airlines, he said, often in first or business class.
Mark reported none of the travel on disclosure forms that government officials must file with the state when they accept gifts valued over $50. CalPERS spokeswoman Pat Macht said Mark and other CalPERS officials did not have to disclose the payments because the luxury travel was part of CalPERS’ contracts with the investment firms. CalPERS has never allowed those contracts to be made public, arguing that they contain trade secrets.
CalPERS changed its policy in 2008 to require staff to travel more modestly and make their arrangements only through the CalPERS travel office, Macht said.
Ethics experts were troubled to learn that private equity firms on the hunt for ever-bigger government contracts were secretly jetting CalPERS senior investment staff around the world.
“Not only should the public have been told that these trips were going on, the public should have been stopping them,” said Robert Fellmeth, executive director of the Center for Public Interest Law at the University of San Diego. The investment staff “shouldn’t be getting anything from anybody. … There is no position in government more amenable to bribery and where the damage is more serious. This is where the retirement money for hundreds of thousands of people is going to go.”
Mark’s testimony came to light in court filings made by former CalPERS board member Alfred Villalobos, who is accused of using his connections to run a multimillion-dollar kickback scheme at the pension fund. The attorney general’s office in May filed a civil suit accusing Villalobos of fraud and has frozen his assets.
Villalobos is asking a federal bankruptcy court in Nevada to overturn that freeze. His lawyers cited Mark’s depositions to support their argument that the fraud charges against Villalobos are a sham because CalPERS did not have any rules in place restricting him from using his connections to earn tens of millions of dollars in commissions. They also argue that no law at the time prohibited him or his Wall Street clients from showering gifts upon CalPERS staff.
Officials at the attorney general’s office said Mark’s testimony does not undermine their case, as the bribes Villalobos is alleged to have made were under different circumstances that were clearly violations of existing laws. The alleged bribes to high-level CalPERS investment staff include luxury trips, a condominium and the promise of lucrative future employment. Villalobos denies the allegations.
The court filings reveal a culture at CalPERS where it was common for large private equity firms such as Yucaipa, the Carlyle Group and Oak Hill Capital Partners to fly CalPERS investment staff around the country and the world, sometimes for what were described as “one on one” strategic meetings.
In addition to the travel, Mark testified that he has accepted personal gifts from financial firms and insiders paid by such firms to help them secure CalPERS business. Villalobos bought him a meal at Morton’s steakhouse in Sacramento and a toy for his child. Another consultant bought him a meal at the Kitchen in Sacramento, where dinner often needs to be booked weeks in advance and typically costs $125, plus wine, tax and tip. Mark said he had also received bottles of wine, boxes of chocolates, books and various trinkets.
None of those gifts is reported on his statement of economic interest, where he is required to disclose gifts worth more than $50. CalPERS officials offered no explanation, referring questions to Mark, who did not respond to a request for comment.