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Univ. of Toledo College of Law

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Monday, April 23, 2012

SEC Charges Former CalPERS CEO with Fraud

The SEC charged Federico R. Buenrostro, the former CEO of the California Public Employees' Retirement System (CalPERS), and his close personal friend, Alfred J.R. Villalobos, with scheming to defraud an investment firm into paying $20 million in fees to the friend's placement agent firms.

The SEC alleges that Buenrostro and Villalobos fabricated documents given to New York-based private equity firm Apollo Global Management. Those documents gave Apollo the false impression that CalPERS had reviewed and signed placement agent fee disclosure letters in accordance with its established procedures. In fact, Buenrostro and Villalobos intentionally bypassed those procedures to induce Apollo to pay placement agent fees to Villalobos's firms. The false letters bearing a fake CalPERS logo and Buenrostro's signature were provided to Apollo, which then went ahead with the payments.

According to the SEC's complaint, Apollo began requiring signed investor disclosure letters in 2007 from investors such as CalPERS before it would pay fees to a placement agent that assisted in raising funds. When ARVCO requested an investor disclosure letter from CalPERS's Investment Office to provide Apollo, it was informed that CalPERS's Legal Office had advised it not to sign a disclosure letter. ARVCO never again contacted CalPERS's Investment Office for an investor disclosure letter.  Instead, according to the SEC, in January 2008, Villalobos instead fabricated a letter using a phony CalPERS logo. At Villalobos's request, Buenrostro then signed what appeared to be a CalPERS disclosure letter. Upon receipt of the fake disclosure letter for Apollo Fund VII, Apollo paid ARVCO about $3.5 million in placement agent fees.  The SEC alleges that Villalobos and Buenrostro created false CalPERS disclosure letters for at least four more Apollo funds under similarly suspicious circumstances.

The SEC seeks an order requiring Buenrostro, Villalobos, and ARVCO to disgorge any ill-gotten gains, pay financial penalties, and be permanently enjoined from violating the antifraud provisions of the federal securities laws.

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