Pacific Corporate Group of La Jolla, the long-time adviser to CalPERS and other big U.S. pension funds, is accusing one of its former employees “racketeering, illegal kickbacks, betrayal and deceit” for his role in a corruption scandal at the New York State Common Retirement Fund.
PCG and its former officer, Stephen J. Moseley, have locked horns in San Diego County Superior Court, trading charges and counter-charges in an unusually public spat in the staid world of pension management. I’ve posted the documents here.
Moseley fired the first shot by suing his former employer for refusing to pay the amounts he claims he is owed as a former officer. In his complaint, Moseley and his attorneys at Gordon & Rees accuse PCG and its founder, Christopher Bower, of misleading clients:
Defendants, through Christopher Bower, have engaged in a systematic scheme of hiding and concealing material facts from clients regarding investment opportunities which were sponsored by PCG. Once discovered, Defendants’ conduct contributed to the subsequent resignations of all partners in PCG Asset Management, including Plaintiff. In addition, Defendants, through Bower, have made a practice of misleading key PCG clients regarding staff size and turnover of PCG personnel, all in an effort to influence investment decisions in favor of PCG. Moreover, Defendants, through Bower, have fraudulently concealed Bowers’ interactions and relationships with various placement agents and intermediaries; fraudulently concealed Bowers’ interactions and relationships with current and former CalPERS board members including Alfred J. Villalobos; and denied and/or concealed the existence of material conflicts of interest. Defendants, through Bower, have used such acts to influence investment valuations and investment decisions, in order to advance the personal interests of Bower and certain unregistered placement agents in contravention of PCG’s fiduciary obligations.
PCG responded a few months later with guns blazing. It was Moseley, PCG says, who misled his employer by secretly paying kickbacks to officials at the New York state pension fund as a reward for in exchange for participating in a joint venture seeded in 2006 with $750 million from the New York State Common Retirement Fund. Moseley resigned shortly before the money was committed.
PCG last year settled with New York Attorney General Andrew Cuomo by forfeiting $2 million in fees that it earned from the New York state pension fund. The La Jolla money management firm says it settled because it can be held liable for an employee’s actions even if it was unaware of them.
Moseley’s allegations, PCG says, are the most recent example of a competitor seeking to do it harm by making false and defamatory allegations. According to PCG’s lawsuit, Moseley’s greed was the real reason he left the firm and if anything, he has been overpaid. Moseley threatened his former employer with “adverse publicity and injury to its reputation” if he wasn’t paid what he says he was owed.
PCG and its law firm, Sullivan, Hill, Lewin, Rez & Engel, filed its counter-claim under the Racketeering and Corrupt Organizations statute. The RICO statute carries the threat of treble damages, punitive damages and the right to recover attorney fees and litigation costs. Very few of these cases ever make it to trial because of the tremendous sums that are at stake for both sides.
Moseley’s conduct resulted in “tens of millions of dollars in damages,” and those damages would potentially be trebled under the RICO statute. In addition, PCG says it will seek punitive damages and attorney fees from Moseley.
You can decide for yourself by reading Moseley’s first amended complaint and PCG’s counterclaim:
Subject: PCG / CalPERS
From: A Reader
Just wanted to say keep up the good work. Not sure how many people are picking up on the coverage but it is good for a dose of schadenfreude for those of us that have dealt with these people.
The anonymous email saying you are on to more than you realize was not exaggerating. This behavior has gone on for years at PERS before Leon as well as plenty of other pension plans and their consultants.
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.