PCG Disclosure Letter to CalPERS
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.
“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:
- 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.
- 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.
- 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.
The gigantic ego that is former Rep. Randy “Duke” Cunningham has written an angry letter to his sentencing judge, complaining that the IRS is “killing” him and his family by seizing his remaining savings. Cunningham insists that as a highly decorated veteran, he deserves far better.
Writing from his minimum security Arizona prison, Cunningham tells Judge Larry Burns that he never would have pleaded guilty to taking bribes from a defense contractor and evading taxes in 2005 had he known the IRS — which he refers to at one point as the “KGB IRS” — would “renig” (sic) on the agreement and “keep me in poverty for the rest of my life.”
The IRS has taken everything I have worked for during my nearly 70 years. They have taken over or we have paid over 2.75 million dollars in assets, cash homes, cars, earnings and retirement. After 40 years teaching, my wife is living hand to mouth & staying in her 2-bedroom grandmother’s home. You can only push a man so far your honor. As one of the most highly decorated veterans in the history see note of this nation and a lifetime of service yes I made mistakes but that does not include killing me and my family.
Judge Burns responded to Cunningham in a letter dated Aug. 4, explaining that the money confiscated from Cunningham’s retirement and congressional pension was seized by the IRS to collect back taxes owed on the bribes he received in 2003 and 2004.
Duke’s defense attorney, K. Lee Blalack, had no comment.
The IRS found that Cunningham owed more than $1.13 million in back taxes, penalties and interest. The IRS is collecting this in 686 installments of $1,647 seized from Cunningham’s congressional and navy retirement benefits, his Social Security check, and his savings account, which contained $84,423.64.
Cunningham must also pay an additional $1.8 million in restitution to the IRS.
In the letter, Duke also accuses prosecutors in San Diego of lying over the reasons why he was never called to testify at the 2007 trial of defense contractor Brent Wilkes, who was convicted regardless of bribing Cunningham with cash, luxury travel and prostitutes. Wilkes is out on bond and playing poker while he appeals his 12-year sentence.
Duke’s missive to the judge follows his unsuccessful effort earlier this year to have his 100 month sentenced reduced for the ”substantial assistance” he provided to the government. Defense lawyers say this assistance includes Duke’s willingness to phone to a co-conspirator, Thomas Kontogiannis, in calls that were recorded by the FBI and a willingness to testify at Wilkes’ trial.
In a July 28, 2008 letter to Blalack, U.S. Attorney Karen P. Hewitt acknowledged that Duke and his attorneys met repeatedly with federal authorities. Prosecutors say that they too did their best to extract substantial assistance from Cunningham. “Time and time again, however, he fell short of this goal,” prosecutors wrote.
Part of the problem was Cunningham’s inability to tell the truth without exaggerating, embellishing or minimizing his own conduct:
Moreover, Mr. Cunningham’s efforts were greatly tempered by the fact that many of our meetings with him were necessitated by his apparent retreat from the factual basis of his own plea agreement. See e.g., Letter to Wayne Winters, dated May 2, 2006, (“not all of what the press claimed was true or what I had to plead to — But [I] had to take the whole plea or nothing.”) At the opposite end of the spectrum, we were concerned that he would embellish facts if he thought doing so would improve his prospects for a sentencing reduction, as he did on at least one occasion…. In addition, his lack of candor before and after his plea (one example of which was the $50,000 in cash he left for his wife on the eve of his sentencing hearing) and the egregiousness of his crimes, presented the real risk that whichever side called him as a witness would be irreversibly tainted by such association. This may explain why Wilkes did not call him either, notwithstanding his counsel’s promise to do so.
Footnote:
Back to post This is yet another example of Cunningham’s well-known propensity to exaggerate his own accomplishments. He is NOT one of the most highly decorated veterans in U.S. history. He is not among the 3,446 recipients of the Medal of Honor, the highest award given for valor in combat. He received the Navy Cross, the second highest such honor.
Free on bond, Brent “The Enigma” Wilkes is spending time at the poker table these days, but his scandalous past is featured in a new attack ad in Missouri’s Senate race.
Wilkes is referred to in the ad by Missouri Democrat Robin Carnahan he “defense contractor convicted of bribery” who provided private jet trips for her GOP opponent, Rep. Roy Blunt, the former House whip.
PoliticMo.com has the story here:
“One of the examples we touch on in the ad is the example of Brent Wilkes, the California defense contractor and lobbyist,” said Mindy Mazur, campaign manager for Robin Carnahan, in a conference call with journalists Wednesday. “Blunt – while he was there – helped whip the vote in favor of one of his companies.”
Mazur says, “Eight days later, Congressman Blunt received $14,000 from people associated with Brent Wilkes.”
While she says “he spent over 100,000 in legal fees related to the Wilkes case,” Mazur wasn’t sure if he had actually done anything illegal. “I would have to say the more we’ve learned about what congressman blunt’s been up to in washington, the more we’ve asked the same question [of legality].”
Wilkes was sentenced to 12 years in prison in 2008 following his conviction on charges of bribery, money laundering and fraud. He was freed while his case is being appealed to the 9th U.S. Circuit Court of Appeals.
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.
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.
Michael Attanasio
The Houston Chronicle is out with a profile of San Diego attorney Michael Attanasio who’s joining former pitcher Roger Clemens’ defense team.
Padres general manager Kevin Towers tells the Chronicle he “couldn’t be happier” for both Attanasio and Clemens, a seven-time Cy Young award winner who pleaded not guilty today to lying to Congress when he testified in 2008 that he never used performance-enhancing drugs. Attanasio helped the Padres GM through the Mitchell Commission’s investigation of performance-enhancing drugs in baseball.
The Chronicle reports:
Attanasio is well known in the Southern California community of baseball agents and executives because of friendships he built through his father, Tony, a trailblazing agent who represented Bobby Valentine, Dave Stewart, Davey Lopes and Ichiro Suzuki.
Moreover, he and his wife, former KPRC-TV reporter Susan Lennon, are close friends with Towers, baseball agent Barry Axelrod and their spouses.
In San Diego, federal prosecutors failed to convict for Attanasio’s client, Daniel Sulac, an Arthur Andersen accountant charged in the Peregrine Systems fraud when two trials in 2007 and 2008 both ended with deadlocked juries.
Attanasio served as a federal prosecutor in DC from 1991-1999.
Hat tip: WSJ law blog.
Dana Perino
My scoop was very short-lived. Two days later — and one day after The Washington Post’s SpyTalk picked up the item — Perino’s employer, Hamilton Place Strategies LLC filed notice that it was no longer taking up the cause of the mysterious Mina Corp./Red Star.
Congress wants to know whether the sole-source, classified contracts awarded to Mina Corp., Ltd., and Red Star Enterprises Ltd., were a vehicle for the U.S. government to deliver payoffs to the family of Kyrgyzstan leaders who were ousted amid charges of corruption linked to the Manas air base.
Senate lobbying disclosure forms show that on July 12 Mina Corp. hired public affairs firm Hamilton Place Strategies to lobby Congress and the Defense Department. Hamilton Place filed its notice of termination on July 28. The firm’s income from Mina was less than $5,000.
Mina also lost the services of Tony Fratto, another former Bush White House spokesman, and W. Taylor Griffin, a McCain/Palin adviser.
Seriously, WTF?
A $1.8 million yacht purchased in Chula Vista figures in a U.S. bribery investigation of a senior official at Mexico’s state-run national electric utility.
The Mexican official, Nestor Moreno, received the yacht sold by the now-defunct South Shore Yacht Sales in Chula Vista.
South Shore Yacht Sales was registered to a Robin Goodman. County records show the business racked up tax liens in 2006 and 2008. An absentee judgement was recorded against Goodman and South Shore last year.
In addition to the yacht, Moreno allegedly received a $300,000 Ferrari Spider, and perhaps millions of dollars in cash in exchange for awarding a large contracts to firms in California and Texas, according to U.S. prosecutors.
Moreno’s name surfaced last week in U.S. District Court in Houston following the arrest of Angela Gomez Aguilar, a Mexican citizen.
Prosecutors say Gomez and her husband set up a company in Mexico that acted as an intermediary between Moreno and ABB Inc., the Swiss electrical engineering giant. Gomez also represented Lindsey Manufacturing of Azusa, California.
Moreno went on unpaid leave last week from Mexico’s national electricity monopoly, the Federal Electricity Commission, known as the CFE, after the allegations were published in the Houston Chronicle.
What's the pretext?
Did former chairman and chief executive Carly Fiorina play a role in the spying scandal that tarnished the once sterling reputation of Hewlett-Packard Corporation?
Revelations in 2006 that company investigators, using private and confidential information provided by HP, had posed as board members and journalists to obtain private phone records and e-mails created a public uproar. HP officials were hauled before Congress and California filed criminal charges against several company officials, including former Chairman Patricia Dunn.
There’s no evidence to suggest that Fiorina knew or condoned this practice, known as “pretexting” (aka lying). The HP board fired Fiorina more than a year before the scandal broke. Fiorina’s own phone records were obtained by HP investigators after she had left the company.
But that’s not the complete story. A look at the record shows that HP’s leak investigations began under Fiorina, who is now running as a Republican to unseat U.S. Senator Barbara Boxer, and employed the same security firm who worked for HP during Fiorina’s entire tenure as chairman. Furthermore, the board member Fiorina suspected as the source of the leak became the focus of the investigation.
In January 2005, Fiorina approached attorney Larry Sonsini, the board’s outside lawyer, for advice. Fiorina was extremely upset by a Wall Street Journal story that detailed sensitive internal board discussions about Fiorina’s performance.
Patricia Dunn, who succeeded Fiorina as chairman, testified under oath to Congress:
MS. DUNN: The first inquiry into leaks actually began under the administration of Carly Fiorina, who was Chairman and CEO until February of 2005. She asked Mr. Sonsini to talk with every director one-on-one about the functioning of the Board, and to seek the confession of whoever the person or persons were that were leaking this confidential information, as well as to reassert their commitment to confidentiality going forward. The reason why the Board, by the time I got involved, was so deeply concerned was because they knew that no one had come forward to admit their culpability.
After Fiorina’s ouster, seven of nine HP board members saw the case of the boardroom leak as “unfinished business” by a majority of board members, Patricia Dunn, who succeeded Fiorina as chairman testified to Congress.
Dunn enlisted the services of Security Outsourcing Solutions, a little-known private detective firm in Needham, Mass. SOS had done work for HP during Fiorina’s entire tenure as chairman. About half the company’s work came from HP.
The initial work done by SOS in the pretexting scandal, Dunn testified, “was authorized — by whom I do not know specifically — as an extension to a pre-existing work order under which he was performing various investigative assignments for Hewlett-Packard.” (emphasis added)
Did any of these assignments involved pretexting?
Fred Adler, head of IT security investigations at HP, testified that one of the company’s investigators involved in the pretexting scandal had complained to his manager on previous occasions about the practice.
In her 2006 book, Tough Choices, Fiorina doesn’t mention pretexting or whether she ordered spying on journalists and board members. She did write in Tough Choices that she remained deeply suspicious of another board member, George Keyworth, who was not the source for the Journal article.
A 20-year HP board veteran, Keyworth was a driving force behind the board’s divisive efforts to remove Fiorina, who had aggressively championed a bitterly contested $19 billion merger with Compaq in 2002 that led to a proxy fight, court battle, wrenching layoffs, some cost savings but little in the way of profits.
Keyworth subsequently became a target of the pretexting investigation in a move that likely reflected the lingering bitterness over Fiorina’s ouster.
Recent Comments