SAN FRANCISCO -- The first two payments were made in paper bags. The last installment came in a shoebox. The handoffs all came at a Sacramento hotel near the Capitol.
In a stunning admission covering years of corruption, the former chief executive of CalPERS said Friday he accepted $200,000 in cash, along with a series of other bribes, from a Lake Tahoe businessman who was attempting to influence billions of dollars in pension fund investment decisions.
Fred Buenrostro, who ran the nation's largest public pension fund from 2002 to 2008, pleaded guilty in U.S. District Court to a charge of conspiracy to commit bribery and fraud. He has agreed to cooperate with federal prosecutors as they pursue charges against his longtime friend, Nevada businessman Alfred Villalobos, a former CalPERS board member.
Buenrostro, 64, said that Villalobos plied him with casino chips and a trip around the world, plus a high-paying job with his investment firm after leaving CalPERS. He also admitted working with Villalobos to create phony documents to ensure that Villalobos earned his multimillion-dollar fees representing a Wall Street private equity firm seeking CalPERS investments.
Most of those allegations had been aired publicly already. What was new Friday was the blockbuster admission that Buenrostro took $200,000 in cash from Villalobos. In his written plea agreement, Buenrostro said Villalobos paid him in three installments in 2007, "all of which was delivered directly to me in the Hyatt hotel in downtown Sacramento across from the Capitol."
According to Buenrostro, Villalobos told him to be careful how he deposited the cash in order to avoid detection by banking authorities. "Villalobos told me to be sure to 'shuffle' the currency before making any deposit, as the bills were new and appeared to be in sequential order," Buenrostro wrote.
Later, after he'd left CalPERS and the investigation into their relationship gained momentum, Buenrostro said he accepted an additional $50,000 from Villalobos, paid by check.
The former CEO's guilty plea is the latest chapter in a corruption scandal that first surfaced in 2009 at the California Public Employees' Retirement System. Documents showed that Villalobos, a former deputy mayor of Los Angeles, had earned $50 million helping his Wall Street clients win investments from CalPERS over several years.
"We condemn the misconduct and ethical breaches admitted today by Mr. Buenrostro," CalPERS said in a prepared statement. "CalPERS looks forward to justice being served in this case and for the individuals involved to be held accountable for their actions."
After years of denying any wrongdoing, Buenrostro faces up to five years in prison and a $250,000 fine when he's sentenced Jan. 7. He remains free on bond.
"There is no question that the chickens have come home to roost for Mr. Buenrostro," said his lawyer, William Portanova of Sacramento, after a brief court hearing. "He is starting a new chapter in his life. He is a 64-year-old man who is ready to tell all." Buenrostro declined to comment as he left the courtroom.
His old friend Villalobos will continue to fight charges filed in the case, said Villalobos' defense attorney Bruce Funk.
"We don't think there's any truthful information (Buenrostro) could give that could affect Mr. Villalobos," Funk said after the court hearing.
The criminal trial was supposed to begin earlier this week with jury selection. Instead, it has been postponed, probably until the fall. Villalobos, 70, is in poor health and wasn't in court Friday. He listened to the proceedings by phone.
Buenrostro, in his plea agreement, admitted taking bribes large and small. He let Villalobos host and pay for his 2004 wedding at Lake Tahoe. Villalobos took Buenrostro and a CalPERS board member on a 2006 worldwide trip. (The member isn't identified in the plea agreement, but a state lawsuit filed in 2010 identified him as Charles Valdes, who has since left the board.)
Villalobos paid for his rooms at two Tahoe casinos, Harveys and Harrah's. And Villalobos delivered on a promise of a $25,000-a-month job for Buenrostro after the CEO left CalPERS in 2008. The job ended two years later, about the time Villalobos and his company filed for bankruptcy.
In 2005, Buenrostro said he watched Villalobos give casino chips to certain CalPERS board members and to Buenrostro's wife. At the time, CalPERS was considering awarding a pharmacy contract to a health care company.
Buenrostro didn't identify the company, and said the board members are no longer at CalPERS. In 2011, CalPERS fired a New Jersey drug-distributor, Medco Health Solutions, after it was revealed that Medco had paid Villalobos about $4 million to help win a contract to supply pharmaceuticals to CalPERS members. The firm, which was later sold, paid a $2.7 million fine to settle a state investigation but didn't admit any wrongdoing.
In addition, Buenrostro said he worked with Villalobos to "cover up the evidence of our corrupt relationship by concealing and destroying records." In 2010, after he invoked his Fifth Amendment right against self-incrimination during questioning by Securities and Exchange Commission investigators, Buenrostro said, he received a $50,000 check from Villalobos.
Buenrostro said the $50,000 was supposedly a loan, but Villalobos told him he probably wouldn't have to repay it.
If Buenrostro had gone to trial and been convicted on all charges, he was facing up to 40 years in prison. The conspiracy charge to which he admitted carries a five-year maximum penalty. So far the prosecutors haven't made any sentencing recommendation, but agreed to ask for a reduced sentence based on Buenrostro's "truthful cooperation," said his lawyer Portanova. U.S. District Judge Charles Breyer will sentence him.
The original indictment was fairly narrow. It focused mainly on a series of letters Buenrostro said he created on CalPERS stationery at Villalobos' behest.
Villalobos' most important client, Apollo Global Management, had demanded disclosure letters in which the pension fund said it realized that Villalobos would earn fees from Apollo if the firm got CalPERS investments. When he couldn't get a CalPERS investment officer to sign a disclosure letter, Villalobos turned to Buenrostro, who put together the letters on the pension fund's stationery, according to the plea agreement.
Buenrostro said no one at CalPERS saw the letters, which Villalobos then mailed to Apollo. The firm got $3 billion of CalPERS' money in 2007 and 2008, and Villalobos earned fees of $14 million. Apollo has said it wasn't aware of any wrongdoing.
An investigative report commissioned by CalPERS said it was unlikely that Villalobos and Buenrostro were able to steer investment dollars to Villalobos' clients. But the report, by Washington, D.C., securities attorney Philip Khinda, said Villalobos' clients probably charged CalPERS millions of dollars in extra investment-management fees to compensate for the money they paid Villalobos.
The guilty plea marked the latest chapter in the downfall of Buenrostro, a longtime state employee and former deputy director of the state Department of Personnel Administration who became CalPERS CEO in 2002.
Because of his guilty plea to a felony, Buenrostro could have to forfeit a portion of his CalPERS pension, said fund spokesman Brad Pacheco. The amount is to be determined, he said.
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Original headline: Ex-CalPERS chief admits receiving $200,000 in bribes in paper bag, shoebox
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