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It’s no surprise that eight of the nine investments worth $4.8 billion cited in a state lawsuit this month were in Leon Black’s Apollo funds, previously known to have paid a former CalPERS board member more than $40 million in “placement agent” fees.

But the chairman of the other fund mentioned in the lawsuit is Gerald Parsky, a good government figure who has chaired commissions on pensions and tax reform for Gov. Arnold Schwarzenegger.

The lawsuit filed by the office of state Attorney General Jerry Brown also mentions an irregularity.

A placement agent agreement with the firm of former California Public Employees Retirement System board member Al Villalobos was not signed until seven months after CalPERS invested $400 million in Parsky’s Aurora Resurgence Fund.

The lawsuit said CalPERS invested $400 million in Aurora Resurgence on or about Sept. 10, 2007. Aurora paid Villalobos $1 million on Jan. 1, 2008, the first of four $1 million payments due in January over a four-year period, totaling $4 million.

The lawsuit said the placement agent agreement between Aurora and Villalobos “was dated April 25, 2008, seven months after CalPERS made the solicited investment.”

Voluntary disclosure forms collected by CalPERS from private equity firms and released last January show that Parsky signed a 10-page letter from the Villalobos firm, Arvco, to Aurora to “confirm the agreement” between the two.

Parsky’s signature as chairman of Aurora Resurgence Capital Partners LLC appears at the end of the lengthy contract under the notation “endorsed and accepted as of the date first written above,” which is April 25, 2008, on the letter heading.

In September 2007 when CalPERS made the investment in the Aurora fund, the governor’s Public Employee Post-Employment Benefits Commission chaired by Parsky was still working on a final report issued on Jan. 7, 2008.

Some might say that Parsky had a conflict, the commission report was overly optimistic about the financial condition of public pensions, and there was no hard look at the trend of investing in private equity, historically high yield but also riskier.

But it also could be argued that the commission, given the broad participation and public hearings throughout the state, probably would have reached similar conclusions under a different chairman.

One of the themes of the civil lawsuit filed against Villalobos and Fred Buenrostro, a former CalPERS chief executive officer, is the failure to disclose the big fees paid placement agents for helping private equity firms get pension fund money.

The Apollo funds of Leon Black, a controversial figure to some, had placement agent contracts with Villalobos requiring that the fee arrangement be disclosed to pension funds.

The lawsuit accuses Buenrostro of signing “bogus” forms given to Apollo, most after investments were made, falsely acknowledging that CalPERS received the disclosure forms and knew that Villalobos was getting big fees.

Unlike the California State Teachers Retirement System, CalPERS did not require placement agent disclosure. After a scandal in New York last year, CalPERS began requiring disclosure and asked firms to voluntarily report past placement agent fees.

“CalPERS was shocked when it learned of the magnitude of those fees after they came to light,” said the lawsuit.

Last October, CalPERS announced that the Villalobos firm had received more than $50 million in placement fees during a five-year period. More than $40 million of the fees were paid by Apollo funds.

CalPERS hired a law firm, Steptoe and Johnson, to conduct a “special review” of placement agent fees. And it backed legislation, AB 1743, requiring placement agents to register as lobbyists and banning “contingency fees” based on investment amounts.

Private equity has its critics, particularly the “leveraged buyouts” in which pension funds and other investors put up about a third of the money and the rest is borrowed on the assets of the company being purchased.

Josh Kosman argued in a book last fall, “The Buyout of America,” that, among other things, many companies are bankrupted and thousands of jobs are eliminated. CalPERS has a policy against investments resulting in the loss of public employee jobs.

The critics of private equity include labor unions, the AFL-CIO and SEIU. But a trade group, the Private Equity Council, said in a recent report that an estimated 1.2 million Californians have jobs backed by private equity firms.

Private equity, despite recent setbacks, has provided above-average returns in the long run. Last year, CalPERS increased its private equity target from 10 to 14 percent of total investments, while CalSTRS went from 9 to 12 percent.

The relationship of CalPERS to private equity funds is changing. Four years ago CalPERS made only a limited response to a newspaper’s public records act request for information about its dealings with Villalobos.

“CalPERS has been advised by a number of general partners that CalPERS’ current status as an ‘investor of choice’ will be damaged if we provide confidential information of the type requested,” a CalPERS attorney said in a letter on July 12, 2006.

Last month CalPERS announced an agreement with Apollo for a $125 million reduction in fund management fees over the next five years, a move they said may set a “new standard” for pensions funds and their investment partners.

The lawsuit filed by the attorney general provides a glimpse of Villalobos’ lifestyle at Lake Tahoe: 14 pieces of real estate, art valued at $2.7 million, and a Hummer, two BMWs and two Bentleys (some models start at $200,000 and can hit 200 mph).

Brown obtained a court order freezing Villalobos’ assets because he “has transferred real estate suspiciously, has lost tens millions of dollars in high-stakes gambling, and maintains over 20 bank accounts.”

The lawsuit said Villalobos gave Buenrostro gifts, a standing job offer and allowed his Tahoe home to be used for Buenrostro’s wedding. The day after he left CalPERS, the suit said, Buenrostro went to work for Villalobos at $300,000 a year.

Villalobos is said to have taken Buenrostro and former CalPERS board member Charles Valdes on a round-the-world trip. He spent $53,000 on a private jet to take a CalPERS investment officer, Leon Shahinian, to a Leon Black event in New York.

Valdes and Shahinian were not charged. Valdes told the Sacramento Bee last fall that he repaid Villalobos $23,000 for the trip, which the lawsuit questioned. CalPERS placed Shahinian on paid leave.

As Buenrostro prepared to leave CalPERS two years ago, the CalPERS board president joined him in refuting “erroneous” media speculation, an apparent reference to a Bloomberg report that Buenrostro was leaving “amid tensions” with the board.

“I speak for the entire Board when I say that Mr. Buenrostro has served with distinction and has worked effectively over the last six years as our CEO,” the CalPERS board president, Rob Feckner, said in a statement issued in April 2008.

The lawsuit said that when Feckner asked Buenrostro in March 2008 to respond to “written allegations regarding his job performance,” Buenrostro e-mailed the allegations and a draft of his response to Villalobos for advice and comment.

The charges in the lawsuit are that Villalobos did not have a required securities license, gifts were not disclosed, and “bogus” fee disclosures were submitted. The suit seeks to recover more than $40 million in fees.

The Wall Street Journal reported last October that several people said CalPERS staff sometimes felt pressured by Buenrostro to look favorably on Villallobos-backed deals. Buenrostro told the Journal he only made introductions to staff.

The lawsuit said: “Since Shahinian’s cooperation and/or complicity was needed in order to further Arvco’s (the Villalobos firm) fraudulent scheme, Buenrostro instructed Shahinian to build a closer relationship with Villalobos.”

Brown said the U.S. Securities and Exchange Commission has interviewed some of the people questioned by his staff. His news release acknowledged the assistance of CalPERS and the head of its special review, Philip Khinda of Steptoe and Johnson.

“This is not the end of this case or the end of this investigation,” Brown told reporters. “Things could follow.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at