Subject: PCG / CalPERS
From: A Reader
To: seth@sethhettena.com

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.

PCG Disclosure Letter to CalPERS

Background 1 2 and 3.

“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:

1. 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.
2. 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.
3. 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.

The gigantic ego that is former Rep. Randy “Duke” Cunningham has written an angry letter to his sentencing judge, complaining that the IRS is “killing” him and his family by seizing his remaining savings. Cunningham insists that as a highly decorated veteran, he deserves far better.

Read Duke’s Letter (.pdf)

Writing from his minimum security Arizona prison, Cunningham tells Judge Larry Burns that he never would have pleaded guilty to taking bribes from a defense contractor and evading taxes in 2005 had he known the IRS — which he refers to at one point as the “KGB IRS” — would “renig” (sic) on the agreement and “keep me in poverty for the rest of my life.”

The IRS has taken everything I have worked for during my nearly 70 years. They have taken over or we have paid over 2.75 million dollars in assets, cash homes, cars, earnings and retirement. After 40 years teaching, my wife is living hand to mouth & staying in her 2-bedroom grandmother’s home. You can only push a man so far your honor. As one of the most highly decorated veterans in the history ^{see note} of this nation and a lifetime of service yes I made mistakes but that does not include killing me and my family.

Judge Burns responded to Cunningham in a letter dated Aug. 4, explaining that the money confiscated from Cunningham’s retirement and congressional pension was seized by the IRS to collect back taxes owed on the bribes he received in 2003 and 2004.

Duke’s defense attorney, K. Lee Blalack, had no comment.

The IRS found that Cunningham owed more than $1.13 million in back taxes, penalties and interest. The IRS is collecting this in 686 installments of $1,647 seized from Cunningham’s congressional and navy retirement benefits, his Social Security check, and his savings account, which contained $84,423.64.

Cunningham must also pay an additional $1.8 million in restitution to the IRS.

In the letter, Duke also accuses prosecutors in San Diego of lying over the reasons why he was never called to testify at the 2007 trial of defense contractor Brent Wilkes, who was convicted regardless of bribing Cunningham with cash, luxury travel and prostitutes. Wilkes is out on bond and playing poker while he appeals his 12-year sentence.

Duke’s missive to the judge follows his unsuccessful effort earlier this year to have his 100 month sentenced reduced for the “substantial assistance” he provided to the government. Defense lawyers say this assistance includes Duke’s willingness to phone to a co-conspirator, Thomas Kontogiannis, in calls that were recorded by the FBI and a willingness to testify at Wilkes’ trial.

In a July 28, 2008 letter to Blalack, U.S. Attorney Karen P. Hewitt acknowledged that Duke and his attorneys met repeatedly with federal authorities. Prosecutors say that they too did their best to extract substantial assistance from Cunningham. “Time and time again, however, he fell short of this goal,” prosecutors wrote.

Part of the problem was Cunningham’s inability to tell the truth without exaggerating, embellishing or minimizing his own conduct:

Moreover, Mr. Cunningham’s efforts were greatly tempered by the fact that many of our meetings with him were necessitated by his apparent retreat from the factual basis of his own plea agreement. See e.g., Letter to Wayne Winters, dated May 2, 2006, (“not all of what the press claimed was true or what I had to plead to — But [I] had to take the whole plea or nothing.”) At the opposite end of the spectrum, we were concerned that he would embellish facts if he thought doing so would improve his prospects for a sentencing reduction, as he did on at least one occasion…. In addition, his lack of candor before and after his plea (one example of which was the $50,000 in cash he left for his wife on the eve of his sentencing hearing) and the egregiousness of his crimes, presented the real risk that whichever side called him as a witness would be irreversibly tainted by such association. This may explain why Wilkes did not call him either, notwithstanding his counsel’s promise to do so.

Footnote:

Back to post This is yet another example of Cunningham’s well-known propensity to exaggerate his own accomplishments. He is NOT one of the most highly decorated veterans in U.S. history. He is not among the 3,446 recipients of the Medal of Honor, the highest award given for valor in combat. He received the Navy Cross, the second highest such honor.