Fred Buenrostro, the former Chief Executive Officer of the California Public Employees’ Retirement System (CalPERS) was sentenced to 4.5 years in federal prison this week for what a U.S. District termed “a spectacular breach of trust.”
Federal Judge Charles Breyer found that Buenrostro had accepted bribes and gifts from his friend and former CalPERS board member, Alfred Villalobos, who owned a Nevada investment firm. Villalobos committed suicide at a Reno gun range last year.
As the CEO of the largest public pension fund in the United States, Buenrostro was entrusted with financial stewardship of over a quarter trillion dollars in assets contributed by California taxpayers to fund 1.8 million state and municipal employee pensions.
Buenrostro became involved from 2002 to 2008 in schemes to help Villalobos steer trillions of dollars of CalPERS pension fund investments to private equity firms that charged enormous fees.
In return, Villalobos gave him shoe boxes and bags full of cash, totaling about $200,000 to help pay for his 2006 divorce. Then, a year later, Villalobos paid for Buenrostro’s lavish Lake Tahoe wedding.
Besides providing variety of first-class airline tickets and other luxury travel perks to Buenrostro, Villalobos also provided gambling casino chips to Buenrostro’s wife and a number of still unidentified ex-CalPERS board members.
After he left CalPERS in 2008, Buenrostro was hired by Villalobos’ firm in a job in which he “did little work,” according to his pre-sentencing report, but was paid $25,000 a month.
Buenrostro begged the Judge Breyer for mercy at his sentencing hearing, claiming he was “humiliated, embarrassed and deeply ashamed of my actions.”
An investigation of CalPERS investments began after the disastrous performance of highly leveraged private equity firms following the collapse of Lehman Brothers in late 2008. Forensic examiners found that Buenrostro had shaken down Villalobos to pay him $50,000 in cash to refuse to testify in an SEC investigation regarding widespread bribery associated with CalPERS’ investments.
Villalobos was reported to have seen bribes as a cost of doing business, allegedly collecting $50 million in bribes, salary and commissions while serving as a “placement agent” for CalPERS investment deals.
According to the PensionTracker.org website developed by the Stanford University Institute for Public Research, the total CalPERS unfunded pension liabilities for California’s 1.8 million state and local government workers and retirees hit $281 billion at the end of the 2013 fiscal year (6/30/2013), the last year for which data is available.
Buenrostro has been held in the Sacramento County Jail since April on misdemeanor battery charges against a former girlfriend, his second arrest this year.