Frederico Buenrostro Jr. was on top of the world in 2008. He had been CEO of the California Public Employees Retirement System (CalPERS) for six years, was in charge of more than 2,000 employees, made around $300,000 a year and controlled $237 billion in investments.
It wasn’t enough.
On Friday, the former CalPERS chief pleaded guilty to federal charges he accepted a series of bribes beginning no later than 2005 from his longtime friend and well-connected financial middleman, Alfred J.R. Villalobos, to influence who received investments from the giant public pension fund. Buenrostro admitted taking $250,000, expensive gifts, travel and entertainment perks, and a job from Villalobos after leaving CalPERS. Villalobos also paid for Buenrostro’s wedding in 2004.
CalPERS president Rob Feckner was optimistic about Buenrostro’s future when he left in 2008. “He’ll probably quadruple his salary overnight,” Fechner told National Real Estate Investor. Buenrostro went to work for Villalobos.
It didn’t go quite that smoothly. Governor Jerry Brown, who in early 2010 was attorney general, filed a civil suit against Buenrostro and Villalobos and requested a court order to freeze Vaillalobos’ assets. The U.S. Securities and Exchange Commission (SEC) began an investigation that is ongoing.
A consultant’s report (pdf) for CalPERS in March 2011 alleged Buenrostro “inserted himself in the investment process in a manner inconsistent with prior practice at CalPERS, pressing its investment staff to pursue particular investments without evident regard for their financial merit.” He also “intervened on behalf of favored private equity funds that staff called ‘friends of Fred,’ ” according to the report.
Villalobos was a placement agent, a middleman paid my money managers to help gain access to capital from institutional investors. They have become common in the private equity and real estate investment world over the past 15 years, but have been plagued by “pay-to-play” scandals in the public sector.
As part of his plea, Buenrostro admitted to creating fraudulent documents in one instance with Villalobos to secure fees for the agent’s company, ARVCO, from Apollo Global Management, a private equity firm. Apollo received $3 billion in investments and ARVCO received $14 million.
The CalPERS report said that Villalobos received $50 million for his work as a placement agent.
Buenrostro, who pleaded guilty to a single count of conspiracy, is scheduled to be sentenced next January by U.S. District Judge Charles Breyer. The maximum penalty is five years in jail and a $250,000 fine or twice the amount of gain or loss involved, according to the FBI. He promised to cooperate in the case against his old friend.
Villalobos, a former CalPERS board member and ex-deputy mayor of Los Angeles, has denied all charges and has a hearing date before the judge on August 8.