Archive for the 'CalPERS' Category

Gerald Parksy Deposed today in Villalobos Case

May 3, 2012, by Seth Hettena. 0 Comments

икона за подарък

Not Having a Good Day

California GOP bigwig Gerald Parsky of Rancho Santa Fe is being deposed today about his relationship with Alfred Villalobos, a former board member CEO of CalPERS, the Golden State’s giant pension, who has been accused of accused of bribing pension fund officials with luxury trips and gifts to influence investment decisions.

CalPERS tried to forestall this airing of its dirty laundry, but a federal judge blocked the pension’s request to stop the deposition from taking place.

Villalobos was paid more than $47 million in commissions by private equity and real estate investment managers to help them win CalPERS contracts to manage about $4.8 billion worth of the fund’s securities from 2005 to 2009, according to a lawsuit filed by the California Attorney General’s office.

One of those private equity firms was Aurora Capital Group of Los Angeles, which hired Villalobos in 2008. Parsky is Aurora’s chairman. He’s also a former assistant Treasury secretary, a UC regent and was George W. Bush’s major doom in California.

So politically connected is Parsky that ARVCO allegedly intervened with CalPERS staff to obtain investment money for Aurora, pointing out the political juice that Parsky brought with him, according to an independent law firm investigation of the matter. CalPERS coughed up $400 million for Aurora Resurgence in 2008, earning Villalobos and his firm, ARVCO, a $4 million fee. Another $150 million CalPERS investment in a different Aurora fund, netted nearly $2 million for ARVCO.

Today, Parsky is being deposed in Los Angeles. Tomorrow, Aurora’s general counsel, Timothy Hart, will get his turn.
 

Gerald Parksy Subpoena

CalPERS fires Pacific Corporate Group

October 11, 2010, by Seth Hettena. 1 Comment

The Sacramento Bee’s Dale Kalser:

CalPERS today severed its ties with Pacific Corporate Group, a longstanding investment advisor that had close ties to the man accused of bribing CalPERS officials.

The big pension fund said Pacific Corporate Group, based in La Jolla, would no longer manage more than $1 billion worth of money for the California Public Employees’ Retirement System. Pacific Corporate Group has been working for CalPERS since 1990.

Pacific Corporate is being replaced by two firms, Aviva Capital LLC and Capital Dynamics.

Earlier this year, Pacific Corporate lost its job advising CalPERS on investments proposed by others. But until today the La Jolla firm was still managing several CalPERS portfolios, including one dedicated to clean-tech.

The pension fund wouldn’t explain its decision to fire Pacific Corporate. But the firm had close ties to Alfred Villalobos, the Nevada businessman accused in a lawsuit of bribing three former CalPERS officials in an effort to steer investments to his clients.

CalPERS is saying goodbye to PCG’s founder, Christopher Bower, but the giant California pension fund is sticking with PCG Corporate Partners, now known as KMCP Advisors, which was headed by Timothy Kelleher and Douglas Meltzer and ran private equity funds for PCG. Kelleher and Meltzer recently sued their boss, Christopher Bower, for withholding more than $2 million in pay:

Bower Kelleher Meltzer Action 2010

Did an LA money man give up ex-NY Comptroller Alan Hevesi?

September 29, 2010, by Seth Hettena. 0 Comments

Broidy and Bibi

Did admitted felon, Bush fundraiser and former RNC finance committee chairman Elliott Broidy give up the goods on former New York Comptroller Alan Hevesi?

Broidy, former chairman of Markstone Capital Group, pleaded guilty in December to a felony and admitted showering officials at the New York state pension fund with nearly $1 million in exchange for a $250 million investment in Markstone. As part of his plea, Broidy agreed to cooperate with investigators with the New York State attorney general’s office.

The news today is that Alan Hevesi, the New York comptroller who oversaw the pension fund, reportedly intends to plead guilty apparently for taking Broidy’s “gifts.” Broidy paid $75,000 to send Hevesi and his relatives on five trips to Israel, including first-class airfare, luxury hotel accommodations and a security detail, according to several reports.

According to the Wall Street Journal:

A person familiar with the matter at the time said Mr. Hevesi had long expressed a desire to stay at the historic King David hotel, which overlooks Jerusalem’s Old City. Mr. Broidy paid for a stay there, this person said.

Readers of this blog might note how similar this is to the $63,000 trip CalPERS investment officer Leon Shahinian made to New York in 2007. Shahinian’s private jet and his lavish hotel suite were paid for by billionaire Leon Black. At the time, Black and his agent, Al Villalobos, CalPERS was considering investing $700 million Black’s Apollo Global Management. Guess Jerry Brown isn’t as determined to root out pension corruption as Cuomo.

But I digress.

Broidy used his New York connections to leverage an investment in CalPERS. At the time of Broidy’s guilty plea, the LA Times reported that:

In 2003, Broidy mounted a major selling effort to get CalPERS to invest in his firm, according to documents released by CalPERS that report meetings between investment pitchmen and board members. Letters from Broidy to board members indicate that Markstone sought to leverage the New York investment into business with CalPERS, which eventually agreed to invest $50 million in Markstone.

Broidy even brought New York state Comptroller Alan Hevesi with him to a meeting in Sacramento with CalPERS staff to pitch Markstone in 2003. One of those meetings was with then-state Treasurer and CalPERS board member Phil Angelides. Broidy offered to bring Angelides and other California officials to Israel to see its economic strength.

Broidy also cultivated another influential ally at CalPERS, then-state Controller Steve Westly, who also was on the CalPERS board. Broidy had met privately with Westly at least half a dozen times by October 2004, according to Westly’s desk calendar. One of those meetings was at Broidy’s office in Tel Aviv.

Broidy once hosted fundraisers for President Bush and other lavish parties in his Bel Air manse. Bush appointed him to the Kennedy Center’s board and U.S. Homeland Security Advisory Council. He was a trustee of the Los Angeles Fire and Police Pension fund from 2002 until he resigned in May 2009.

He also has ties to San Diego, serving in the 1980s as a money manager for Glen Bell, the late Taco Bell founder and Rancho Santa Fe resident. That a relationship that ended acrimoniously, with Bell accusing Broidy in court papers of cheating him while he suffered from Parkinson’s disease.

RICO lawsuit filed in SD over NY pension corruption

September 23, 2010, by Seth Hettena. 1 Comment

Pacific Corporate Group of La Jolla, the long-time adviser to CalPERS and other big U.S. pension funds, is accusing one of its former employees “racketeering, illegal kickbacks, betrayal and deceit” for his role in a corruption scandal at the New York State Common Retirement Fund.

PCG and its former officer, Stephen J. Moseley, have locked horns in San Diego County Superior Court, trading charges and counter-charges in an unusually public spat in the staid world of pension management. I’ve posted the documents here.

Moseley fired the first shot by suing his former employer for refusing to pay the amounts he claims he is owed as a former officer. In his complaint, Moseley and his attorneys at Gordon & Rees accuse PCG and its founder, Christopher Bower, of misleading clients:

Defendants, through Christopher Bower, have engaged in a systematic scheme of hiding and concealing material facts from clients regarding investment opportunities which were sponsored by PCG. Once discovered, Defendants’ conduct contributed to the subsequent resignations of all partners in PCG Asset Management, including Plaintiff. In addition, Defendants, through Bower, have made a practice of misleading key PCG clients regarding staff size and turnover of PCG personnel, all in an effort to influence investment decisions in favor of PCG. Moreover, Defendants, through Bower, have fraudulently concealed Bowers’ interactions and relationships with various placement agents and intermediaries; fraudulently concealed Bowers’ interactions and relationships with current and former CalPERS board members including Alfred J. Villalobos; and denied and/or concealed the existence of material conflicts of interest. Defendants, through Bower, have used such acts to influence investment valuations and investment decisions, in order to advance the personal interests of Bower and certain unregistered placement agents in contravention of PCG’s fiduciary obligations.

PCG responded a few months later with guns blazing. It was Moseley, PCG says, who misled his employer by secretly paying kickbacks to officials at the New York state pension fund as a reward for in exchange for participating in a joint venture seeded in 2006 with $750 million from the New York State Common Retirement Fund. Moseley resigned shortly before the money was committed.

PCG last year settled with New York Attorney General Andrew Cuomo by forfeiting $2 million in fees that it earned from the New York state pension fund. The La Jolla money management firm says it settled because it can be held liable for an employee’s actions even if it was unaware of them.

Moseley’s allegations, PCG says, are the most recent example of a competitor seeking to do it harm by making false and defamatory allegations. According to PCG’s lawsuit, Moseley’s greed was the real reason he left the firm and if anything, he has been overpaid. Moseley threatened his former employer with “adverse publicity and injury to its reputation” if he wasn’t paid what he says he was owed.

PCG and its law firm, Sullivan, Hill, Lewin, Rez & Engel, filed its counter-claim under the Racketeering and Corrupt Organizations statute. The RICO statute carries the threat of treble damages, punitive damages and the right to recover attorney fees and litigation costs. Very few of these cases ever make it to trial because of the tremendous sums that are at stake for both sides.

Moseley’s conduct resulted in “tens of millions of dollars in damages,” and those damages would potentially be trebled under the RICO statute. In addition, PCG says it will seek punitive damages and attorney fees from Moseley.

You can decide for yourself by reading Moseley’s first amended complaint and PCG’s counterclaim:

Moseley v. PCG

A Good Dose of Schadenfreude

September 22, 2010, by Seth Hettena. 0 Comments

Subject: PCG / CalPERS
From: A Reader
To: seth@sethhettena.com

Just wanted to say keep up the good work. Not sure how many people are picking up on the coverage but it is good for a dose of schadenfreude for those of us that have dealt with these people.

The anonymous email saying you are on to more than you realize was not exaggerating. This behavior has gone on for years at PERS before Leon as well as plenty of other pension plans and their consultants.

Pacific Corporate Group Disclosure Letter to CalPERS

September 15, 2010, by Seth Hettena. 0 Comments

PCG Disclosure Letter to CalPERS

Background 1 2 and 3.

Cleaning House, CalPERS Dumps Pacific Corporate Group as Advisor

September 12, 2010, by Seth Hettena. 1 Comment

Dale Kasler reports in Sunday’s Sacramento Bee that CalPERS is “rethinking” its ties to Pacific Corporate Group of La Jolla, which screened private equity deals for the pension fund for the past 20 years.

For 20 years, when CalPERS needed advice on a big investment, it often called on Christopher Bower, founder and chief executive of a firm called Pacific Corporate Group.

Now this confidant from La Jolla might get pulled into the bribery scandal at the nation’s largest public pension fund.

Alfred Villalobos, the man at the heart of the scandal, worked on deals for Bower. And when CalPERS was thinking of firing Bower’s firm in early 2007, Villalobos – a former CalPERS board member – stepped in and negotiated a delicate agreement that saved the relationship.

Months later, Pacific Corporate advised CalPERS on two investments that earned Villalobos fees totaling $17 million.

Bower never hid his relationship with Villalobos. He sent CalPERS a letter about it before the investments with Villalobos’ clients were made. CalPERS concluded the arrangement was fine.

As of June 30, the firm no longer screens deals for CalPERS, ending a role it filled since 1990.

“Their contract expired and it was allowed to lapse,” said CalPERS spokesman Brad Pacheco.

Bower’s firm still directly manages about $1 billion of CalPERS’ money. But that’s being examined, too, as part of a larger review of CalPERS’ investment partners, said Joseph Dear, chief investment officer at the California Public Employees’ Retirement System.

Leon Shahinian’s $63k Big Apple visit

September 8, 2010, by Seth Hettena. 0 Comments

“I believe you’re on to more than you realize.”

So reads an e-mail redirecting my attention to some of the CalPERS court documents I posted online last month.

My anonymous correspondent is a former advisor to the CalPERS board who points out some interesting details buried in the hotel bills from CalPERS senior investment official Leon Shahinian’s $63,000 trip to New York City in 2007.

California Attorney General Jerry Brown’s office has cited this trip as an example of the corrupt practices of Al Villalobos, a former CalPERS board member who went into business as a lobbyist for money managers seeking to do business with the giant California pension fund. One of Villalobos’ clients was Leon Black,  the billionaire founder and controlling shareholder of Apollo Global Management.

In 2007, while Villalobos was trying to persuade CalPERS to purchase a 10 percent equity interest in Apollo Global Management for $700 million, Shahinian accepted Villalobos’ invitation to travel by private jet to New York City to attend a fund-raising event hosted by none other than Leon Black.

Apollo covered the $63,000 cost for Shahinian’s New York trip. The following month, Shahinian, who oversaw the CalPERS private equity portfolio, urged the pension board to approve the investment in Apollo, which it did.

When their private jet touched down in New York, Villalobos and Shahinian were met by a limousine arranged for by Aurora Capital, a private equity fund headed by Villalobos’ client, Gerry Parsky, a GOP heavyweight and Bush’s California majordomo.

The limousine ferried Shahinian and Villalobos to a ridiculously overpriced $7,000-a-night two-bedroom suite at the Mandarin Oriental hotel in New York.

Here’s what my sharp-eyed reader has called my attention to:

  1. The hotel bill shows that calls were placed from the $7000-a-night suite to the Dallas offices Unity Hunt Inc., the private investment firm of billionaire Lamar Hunt.  These also were the offices of Barrett Wissman, a hedge fund manager, “classical music impresario” and friend of the Hunts and their fortune who pleaded guilty last year in a kickback scheme involving the New York state retirement fund.
  2. The Mandarin Oriental bill also shows that several calls were placed to the phone of another Villalobos client, Chris Bower at Pacific Corporate Group as well as a call to Bower’s staff.  What’s troubling about this is that in 2007, CalPERS was relying on PCG to independently vet investments in Apollo and Aurora. Bower would go on to urge the CalPERS board to invest in Apollo the next month. Also in mid-2007, Bower and Villalobos were trying to get CalPERS to buy into Pacific Corporate Group.
  3. The day after meeting Black at the MOMA, a limousine (courtesy of Parsky) ferried Shahinian and Villalobos for lunch the next day to Dock’s Oyster Bar & Seafood Grill at 633 Third Ave. The location of this restaurant is worth noting, my source points out: It also happens to be in the lobby of the building housing the executive offices of New York State Comptroller who single-handedly oversaw the New York state retirement fund. The NY CRF has been a target of an ongoing pay-to-play investigation of former Comptroller Alan Hevesi.

In other words, the records of the Shahinian/Villalobos trip shows how the pension world truly operates:

  • a) CalPERS staff were bribed with lavish, travel and perks paid for by the money managers seeking the pension’s money;
  • b) CalPERS’ supposedly independent consultant, Pacific Corporate Group may have been pursuing its own self-interest instead of the pension’s; and
  • c) if the links to Wissman/the Hunts and the New York pension fund are more than just coincidence, it places Shahinian or Villalobos in a corrupt nexus that extended from coast to coast.

Inside the CalPERS Sausage Factory

August 31, 2010, by Seth Hettena. 0 Comments

I’ve posted some court documents relating to a bribery investigation that involves some big names in the private equity world:

  • CalPERS, the giant California pension;
  • Leon Black’s Apollo Group
  • Christopher Bower’s Pacific Corporate Group in La Jolla
  • Gerry Parsky’s Aurora Capital Group.

See the CalPERS documents  Btn_blue_77x28

Some background: California Attorney General Jerry Brown’s office in May sued former CalPERS CEO Federico Buenrostro Jr and placement agent and former Calpers board member Alfred Villalobos with fraudulent broker-dealer activities involving $4.8 billion in investments at the fund. (Read the lawsuit here.)

According to the lawsuit, Villalobos earned $47 million in commissions from clients including Black’s Apollo Management and Parsky’s Aurora Capital through corrupt relationships with individuals including CalPERS senior investment official Leon Shahinian, who recently left the pension:

When Villalobos was trying to persuade CalPERS to purchase a 10 percent equity interest in Apollo Global Management for $700 million in 2007 (as alleged in paragraphs 36-37 above), Shahinian accepted Villalobos’ invitation to travel by private jet to New York City to attend a fund-raising event on the evening of May 14, 2007 hosted by the Museum of Modern Art in honor of Leon Black (the “MOMA Event”), the founder and controlling shareholder of Apollo Global Management.

The trip include a private jet trip flight, a stay at the Mandarin Oriental Hotel and limousine service. Total cost: more than $63,000.

Villalobos’ firm ARVCO billed Apollo for the trip. I’ve posted the bill here.

One month later, at a closed door hearing of the CalPERS investment board, Shahanian recommended the board invest in Black’s fund.

Also at the meeting, Pacific Corporate Group’s Chris Bower admits at the meeting that he had a business relationship with Villalobos, but CalPERS general counsel Peter Mixon said the relationship didn’t pose a conflict of interest because PCG didn’t stand to benefit from the pension’s investment in Apollo.

Here is a transcript of the hearing:

CalPERS Closed Investment Hearing June 18, 2007

Finally, Leon Shahinian’s deposition, in which he denies being bribed, is here.

Shahinian said that sometime in 2006 he told Leon Black that he would like to have a “more direct” relationship with Apollo, meaning that if Apollo had investment opportunities they should show them to CalPERS directly.

Q. After you had this conversation with Leon Black, were you discussing with him a potential opportunity for CalPERS to invest in Apollo regarding a distressed market debt opportunity?

A. Yes

Q. And did you — were you hoping during that conversation, in exploring that investment opportunity, to deal directly with Apollo without need for a placement agent?

A. I had approached Apollo on the idea of CalPERS investing a substantial amount of money in a distressed debt type fund. And after I had that initial conversation with Leon Black expressing CalPERS’ interest to invest in a fund like that, I learned Apollo hired Arvco to be the placement agent.

Q. Did that surprise you?

A. It did.

Q. Why?

A: I guess I didn’t understand why Apollo felt like they needed to hire a placement agent on something where CalPERS had explicitly indicated an interest in investing in.

Is Relational Investors’ Ralph Whitworth Worth His Big Paycheck?

August 6, 2010, by Seth Hettena. 2 Comments

Do as I say, not as I do.

Ralph Whitworth of San Diego’s Relational Investors LLC is back in the news because he thinks Occidental Petroleum’s chief executive makes too much money.

Whitworth is teaming up with CalSTRS, the massive California State Teachers Retirement System, to boot out board members who approved paying CEO Ray Irani $857 million over the past 10 years.

Executive pay is an important issue. Irani sure does make a lot of money; but then again, he has made a lot of money for shareholders.

No one seems to be asking a fundamental question: Who is Ralph V. Whitworth. What qualifies him as an expert on excessive pay? How much does he make? What socially useful service does he perform? How does his business compare with the executives he criticizes?

Unlike publicly-traded Occidental Petroleum, Relational Investors is a private limited liability company organized in Delaware. It isn’t required to disclose salaries.

Judging by his assets and his lavish lifestyle, there’s an irony in Whitworth complaining about excessive pay: It’s the proverbial pot calling the kettle black.

Outside of the boardroom, Whitworth is perhaps best known for paying Paul McCartney $1 million to play at a 50th birthday bash in Rancho Santa Fe for his wife, Wendy, Larry King’s CNN producer.

Wendy filed for divorce less than a year later. In divorce papers, she described her and Ralph’s exceptional lifestyle:

“For the last four years of our marriage, we have enjoyed a very lavish lifestyle, including multiple luxurious residences, traveling exclusively on private planes, taking luxurious vacations, buying designer clothing, and essentially partaking of, and enjoying, the best of everything that life has to offer. We have had the good fortune of not having to consider the cost of goods and/or services as money has truly been no object in our daily lives.”

Relational Air

The Federal Aviation Administration’s database shows Relational Investors LLC has registered a pair of Falcon 2000 business jets. One of them flew Thursday from San Francisco to Sacramento, and recently flew from San Diego to Montana and back in a day, according to the flight tracking service, FlightAware.

San Diego County real estate records show Whitworth has indeed been keeping up with his superrich neighbors. His two homes in the San Diego area — one in posh Rancho Santa Fe and another along the La Jolla coast — have a combined assessed value of more than $16 million.

Then there’s Whitworth’s massive collection of dragsters, hot rods and funny cars. He had planned to open an automotive museum in his home state of Nevada, but changed his mind and auctioned some of them off for nearly $7 million last year. See if you can guess which one of the cars below sold for $550,000:

Finally, whatever Whitworth’s salary is, you can bet he pays a lower tax rate than Irani and most Americans do. Relational Investors, unlike Occidental Petroleum, is a partnership. Under a tax loophole, a managing partner like Whitworth is taxed at low 15% capital gains rates. Whitworth’s eight-figure income is considered a return on investment, not compensation for services, even though it is CalPERS and CalSTRS who have put up most of the money for Relational Investors.

Whitworth’s wealth derives from the $6 billion he manages for pensions in California, North Carolina and Alaska, among others — or more precisely the 20% “incentive fees” he is paid for beating the S&P 500, which he has done with some consistency, to his credit.

Relational’s strategy is to buy up a large position of underperforming companies and then force changes with the goal of unlocking unrealized value. In 2006, Relational locked horns with The Home Depot, leading the home improvement chain to dump its chief executive, who left with a $210 million “severance” package.

Relational Investors is headed by Whitworth and David Batchelder, who met while working in the 1980s for Texas oilman and corporate raider T. Boone Pickens.

CalPERS became Relational’s first big investor in March 1996 and remains its biggest backer today, with about $1.5 billion invested. Relational’s “activist” investing strategy has yielded annual returns of 10.77%, according to a March 31, 2001 study conducted by Wilshire Consulting on behalf of CalPERS. That means $100 invested in Relational in 1996 would be worth $415.02 today.

(By comparison, you could have doubled your money investing the same $100 in Occidental Petroleum over the past decade decade later).

Relational charges a 1.5 percent fee and receives an incentive fee of 20 percent for beating the S&P 500 Index.

The biggest problem with Relational, however, isn’t Whitworth’s personal spending or his fund’s fees or performance, but a deeper, more troubling conflict-of-interest:

Whitworth warns public corporations to avoid even the appearance of conflicts, but his investment firm doesn’t practice what it preaches.

Officials from CalPERS and other funds that invested in Relational wound up with jobs, consulting contracts and corporate directorships, courtesy of the San Diego fund. These ties give the appearance that Relational Investors offers rich rewards for those who help it secure investments.

Relational’s origins came under scrutiny earlier this year when documents posted by CalPERS revealed Relational paid nearly $17 million to a little-known New York firm called Tullig Inc. (formerly Donal J. Murphy Associates) to help secure an investment from CalPERS. The pension fund launched an investigation.

A review of public documents and interviews shows that Tullig Inc. isn’t the only one who has profited from Relational.

The San Diego money management firm has put several pension officials on its payroll and on corporate boards under sometimes questionable circumstances:

  • Former treasurer of North Carolina Richard Moore steered $500 million in state retirement funds to Relational Investors in August 2008 and then joined the San Diego firm in April 2009 as a managing director. Whitworth has said that Moore’s hiring was unrelated to the pension’s investment. North Carolina paid Relational $6.6 million in fees last year under a generous fee agreement.
  • In 2004, Relational hired James Hearty, the former executive director of the Massachusetts pension system who left after a high-profile battle with Treasurer Timothy Cahill. At the time, the $32 billion Massachusetts Pension Reserves Investment Management system (MassPRIM) was considering an investment in Relational. (The deal later fell through.)
  • Beverly Benedict Thomas, a Los Angeles-area political consultant who also serves as a placement agent, received a fee of nearly $1 million for helping Relational land a $300 million investment in 2008 from CalSTRS, the California teachers’ retirement system. Thomas, a former assistant treasurer under California Treasurer Kathleen Brown served as a member of the board of CalPERS and CalSTRS from 1993 to 1995, according to regulatory filings with the SEC.
  • Relational has also doled out board seats to former CalPERS officials. The firm tapped Thomas and Richard H. Koppes, former CalPERS general counsel, for board seats on Apria Healthcare Group. and installed Sheryl Pressler, another former CalPERS official, on the board of Nuevo Energy, another company in which Relational had a big stake.

None of these moves was illegal, but Relational’s questionable relations have been largely ignored here in California.

They deserve careful scrutiny. The pension world has been rocked by a “pay for play” bribery and kickback scandal that started in New York and prompted reforms at CalPERS, which has issued new rules and hired a law firm to review the activities of placement agents.

Change is coming to the pension world, but it doesn’t seem that Relational has gotten the message.