Villalobos bankruptcy judge is skeptical that state’s suit won’t get in the way

A U.S. Bankruptcy Court judge was skeptical of the California attorney general’s efforts Tuesday to keep on track a civil fraud lawsuit against Alfred J.R. Villalobos, a key go-between in arranging investment deals for state public pension fund money.

The state, alleging that he violated state securities and unfair-business laws, had sued Villalobos in May seeking up to $95 million in restitution and penalties. But a month later, Villalobos, a Nevada resident, filed for bankruptcy protection, getting the automatic order that halts other courts from proceeding on existing lawsuits.

California, which accused him of attempting to bribe state pension fund officials with such gifts as luxury international travel to help his clients close deals, asked the judge in Reno to grant an exemption from the automatic stay.

U.S. Bankruptcy Judge John Peterson, who promised to issue a ruling in “a couple of weeks,” said he wasn’t buying arguments that continuing the California civil case wouldn’t interfere with the federal bankruptcy proceeding.

“I’m unclear as to what you really think you can get” in state court, he said, noting that the state can’t get restitution or any other money from Villalobos “until you get permission from us.”

Deputy Atty. Gen. Richard Sintek said the two cases could go forward at the same time and the state could collect any judgment it won after the bankruptcy was resolved.

He had argued that granting the stay “thwarts the mandate of the attorney general of the state of California to protect the people.”

The lawsuit in Los Angeles County Superior Court, Sintek said, is aimed at “punishing and deterring” illegal activities that have fueled an alleged influence-peddling scandal at the country’s biggest public pension fund, the $200-billion California Public Employees’ Retirement System. Villalobos is a former CalPERS director.

The lawsuit also names as a defendant Federico Buenrostro Jr., a former chief executive of CalPERS. Buenrostro, who worked as a consultant for Villalobos after retiring from state service in 2008, has denied wrongdoing. He is not part of the bankruptcy case.

Villalobos’ lawyer, Neal Stephens, asserted that Bankruptcy Court was the best and quickest place for Villalobos to reorganize his business and financing to pay his creditors. Villalobos “is not improperly seeking a haven in this court,” he said.

Stephens contended that the state had not backed up its fraud claims.

In his bankruptcy petition, Villalobos listed almost $5 million in gambling debts to Nevada casinos.

Despite the filing, Villalobos, who earned $50 million in commissions from private equity fund managers as a so-called placement agent for helping them do business with CalPERS, said he expected to have enough money to pay his creditors once he was out of bankruptcy.

The state in its legal filings said it feared that Villalobos could deplete his holdings, which include 16 homes, 21 bank accounts and a fleet of luxury cars, while using the bankruptcy protection to avoid a California law enforcement action.

The petition was the second personal bankruptcy for Villalobos, who also is a former Los Angeles deputy mayor.

On Tuesday, the state Legislature passed a bill to regulate placement agents and their fees for directing public pension money to investment firms. The investment industry at first strongly opposed the bill but later withdrew its objections.

The measure was sent to Gov. Arnold Schwarzenegger to sign into law. He has not indicated whether he supports the legislation.

Also on Tuesday, longtime CalPERS director Kurato Shimada resigned to “focus on personal matters,” the fund said.

marc.lifsher@latimes.com