Ex-CalPERS chief to plead guilty

The former chief executive of California’s massive pension fund will plead guilty in connection with an influence-peddling scandal that rocked the state capital in 2009 and 2010, his attorney said.

Federico Buenrostro Jr., 64, of Sacramento, has agreed to enter a plea to a single count of conspiracy, said his lawyer, William Portanova, a specialist in white-collar crime defense from Sacramento. The charge carries a maximum penalty of five years in prison.

As part of the agreement, Buenrostro will help prosecutors build a criminal case against co-defendant Alfred J.R. Villalobos, his longtime friend and a former board member at the California Public Employees’ Retirement System.

Buenrostro’s cooperation with the U.S. attorney’s office is “the right thing to do,” Portanova said.


“In my experience, people who tell the truth about these matters, even if it comes very late, tend to see dramatic improvement in their lives on every level,” said Portanova, “even if it carries with it some certainty of punishment.”

Buenrostro and Villalobos, a former Los Angeles deputy mayor, were indicted in March 2013 on federal fraud, conspiracy and obstruction charges. At the time, both men pleaded not guilty and denied all wrongdoing.

Those charges capped a 21/2-year investigation by the U.S. Department of Justice, the Securities and Exchange Commission, the FBI, the Secret Service and the Postal Service. The probe looked at the way the pension agency invested its money and the enormous fees collected by now ex-insider Villalobos. In all, Wall Street firms paid him more than $50 million in fees for helping to steer CalPERS business their way.

Buenrostro’s change of heart and his decision to accept a plea agreement became public Monday during a routine pre-trial hearing before U.S. District Judge Charles R. Breyer in San Francisco. Buenrostro’s lawyer disclosed the agreement in court, and he discussed it later in a phone interview.

Buenrostro is expected to formally enter his plea at a July 11 hearing in San Francisco.

Villalobos, 70, of Reno, still plans to go to trial, probably some time in October, Portanova said. Villalobos could receive a sentence of up to 30 years in prison and a fine of more than $250,000. Villalobos’ lawyer, Bruce Funk, could not be reached for comment.

CalPERS is the nation’s largest public pension fund with $296.3 billion in investments. Since the scandal broke, the agency’s board of directors and the Legislature have enacted a series of ethics and fiscal reforms. They were designed to open the process for finding new investments and to reduce the potential for conflicts of interest by the agency’s investment officers and top managers.

On Monday, CalPERS, in a short, written statement, highlighted its “continued focus on integrity and transparency” in dealing with the retirement and healthcare benefits for 1.7 million state, local government and school employees, retirees and their families.

“CalPERS looks forward to the closure of these cases at the appropriate time in the due course of the justice system,” the statement said.

Central to the federal investigation and related state and SEC probes has been the role of so-called placement agents. During their heyday in the last decade, placement agents were hired by private equity firms and other financial institutions to win business from CalPERS and other large state pension funds.

Villalobos, who was a member of the CalPERS board between 1993 and 1995, later became a placement agent. In that role, he collected fees of between 1% and 2% for deals worth hundreds of millions of dollars to the clients of his Nevada firm, ARVCO Capital Research.

According to the indictment, Villalobos and Buenrostro were involved in a series of transactions in 2007 and 2008 when Buenrostro was the boss at CalPERS.

The two men conspired to commit fraud by creating phony documents related to a deal Villalobos was working on behalf of Apollo Global Management, a New York private equity fund manager, the indictment said. It said the disclosure documents were needed to comply with an Apollo requirement that CalPERS provide proof that top officials knew Villalobos was being paid large commissions to secure a $3-billion investment for Apollo.

Buenrostro retired from CalPERS and went to work for Villalobos shortly after the documents were allegedly falsified, the indictment said.

Apollo has not been accused of any wrongdoing and has stated publicly that it cooperated with prosecutors.

Villalobos received $14 million in fees from Apollo for deals mentioned in the indictment and a total of $48 million from 2005 to 2009, according to an April 2012 SEC filing.

Both Villalobos and Buenrostro continue to be listed as defendants in lawsuits brought by the SEC and the California attorney general’s office.

Twitter: @MarcLifsher