SAN FRANCISCO – Fred Buenrostro pleaded guilty today to conspiracy to commit corruption and fraud charges stemming from a conspiracy to trade official acts for cash and benefits, announced U.S. Attorney Melinda Haag, U.S. Postal Inspection Service, Inspector in Charge Rafael E. Nunez, FBI Special Agent in Charge David J. Johnson, and U.S. Secret Service Special Agent in Charge Andrew Adelmann.
Buenrostro is the former Chief Executive Officer (CEO) of the California Public Employee Retirement System (CalPERS). In pleading guilty, Buenrostro admitted to conspiring with Alfred J. Villalobos, founder and operator of ARVCO Capital Research LLC (ARVCO). Buenrostro acknowledged in court today that he understood that Villalobos operated ARVCO as a placement agent that solicited investments by public pension funds into private equity funds. Buenrostro also admitted that he understood that ARVCO was typically paid an agreed-upon fee based on the percentage of the total dollar amount invested by the public pension fund.
In pleading guilty, Buenrostro admitted that he began receiving secret benefits from Villalobos no later than 2005 for the purpose of influencing him in the exercise of his powers and duties as CalPERS CEO. Buenrostro admitted Villalobos provided him approximately $250,000, as well as gifts, domestic and international travel, meals, entertainment, payment for Buenrostro’s wedding, and his subsequent employment at ARVCO after he left CalPERS in May of 2008. In exchange, Buenrostro admitted that he attempted to influence the CalPERS investment staff and Board to the benefit of Villalobos and his current and prospective clients, and provided Villalobos with access to CalPERS’ confidential information relating to investments, internal deliberations, and other proprietary matters.
As part of the conspiracy, Buenrostro admitted that he and Villalobos created fraudulent documents in order to secure fees for ARVCO from Apollo Global Management (Apollo), a private equity firm based in New York City. Villalobos, through ARVCO, was the placement agent through which Apollo secured $3 billion in investments by CalPERS. In 2007, Apollo informed ARVCO that it required signed Investor Disclosure letters from CalPERS prior to paying ARVCO any fees for its efforts in securing CalPERS' investments into Apollo-managed funds, citing, among other reasons, Apollo's obligations under the securities laws.
Buenrostro admitted that after CalPERS' legal and investment offices declined to sign the first Investor Disclosure letter documenting ARVCO's relationship with Apollo, Villalobos and Buenrostro conspired to create a series of fraudulent Investor Disclosure letters that were transmitted to Apollo. Apollo paid ARVCO a total of approximately $14 million dollars in fees after receiving the fraudulent letters.
When civil and later criminal investigations were opened into the operations of ARVCO and its role as a placement agent in connection with CalPERS' investments in Apollo-managed funds, Buenrostro admitted that he and Villalobos agreed on a false version of facts and subsequently made misrepresentations to, and concealed information from, the SEC, the USPIS, and the FBI, about their financial relationship and the authenticity of the Investor Disclosure letters in order to defeat and obstruct the lawful functions of those federal agencies.
Buenrostro was charged by superseding information with a single count of conspiracy, in violation of Title 18, United States Code, Section 371, and pleaded guilty before the Honorable Charles Breyer, United States District Court Judge, to that charge in an agreement with the government that included his promise to cooperate in future investigations. Villalobos is charged in a related Indictment, also before Judge Breyer, and previously entered a plea of not guilty to all charges. Both defendants are currently released on bond.
Buenrostro is scheduled for sentencing on Jan. 7, 2015, at 10:00 a.m., before Judge Breyer. The maximum statutory penalty for conspiracy to commit offenses against the United States is five years of imprisonment, $250,000 fine or twice the amount of gain or loss, whichever is greater, three years of supervised release, and a $100 special assessment. Restitution may also be ordered. However, any sentence following conviction will be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
The court set a status hearing for Villalobos to take place on Friday, Aug. 8, 2014 at 9:00 a.m., before Judge Breyer in San Francisco.
Timothy J. Lucey and Philip A. Guentert are the Assistant United States Attorneys who are prosecuting the case with the assistance of Laurie Worthen and Beth Margen. The prosecution is the result of an investigation by the USPIS and the FBI, with substantial assistance from the Los Angeles Regional Office of the SEC as well as the U.S. Secret Service.
Please note, an Indictment contains only allegations and, as with all defendants, Alfred J. Villalobos must be presumed innocent unless and until proven guilty.
(Buenrostro superseding indictment )
(Buenrostro plea agreement )