A former CalPERS chief executive officer, Fred Buenrostro, was sentenced to 4½ years in prison last week for taking bribes, including $200,000 in cash, from a former CalPERS board member, Alfred Villalobos, who collected about $50 million in fees from private equity firms for helping them get investments from the big pension fund.

Villalobos died from a pistol shot to the head at a Reno gun range in January last year, an apparent suicide on the day before a scheduled court appearance. His inside man at CalPERS, Buenrostro, pleaded guilty on the eve of his trial in July 2014 and has been cooperating since then with state and federal prosecutors.

Assistant U.S. Attorney Timothy Lucey told a federal court in San Francisco last week that Buenrostro, after his guilty plea, went on “to assist the government in a number of ongoing investigations the court is aware of through the filings that have been made to the court, both the public filings and the sealed filings.”

Buenrostro’s attorney, William Portanova, told the court that his client “took the investigation to a level far beyond that which his own case involved” and that information in the sentencing memorandum and sealed documents “touches on some of these larger investigations.”

U.S. District Judge Charles Breyer noted that Buenrostro’s cooperation resulted in refiled charges before his guilty plea that reduced the maximum sentence from ten years to five years. He disagreed with Lucey and Portanova that cooperation since then merited an additional one-year reduction, instead cutting six months for a total of 4½ years.

Breyer, quoting Lucey, said Buenrostro committed “a spectacular breach of trust for the most venal of purposes, which is self enrichment.” Buenrostro had years to turn back but chose to “double down,” said the judge, calling it “a dagger in the heart of public trust, and without public trust our government institutions cannot function.”

Buenrostro, 66, balding head slightly bowed, shuffled into court in faded blue pajama-style prison garb, with day-glow orange footwear and his legs apparently shackled together by a short chain not visible from the back of the court room.

“Your honor, I take full responsibility and accept the consequences of the actions I took,” Buenrostro said in a firm and clear voice. “I’m humiliated, embarrassed, and deeply ashamed of my actions.”

Asking mercy, Buenrostro said he “let down” family and friends and apologized to CalPERS, the court, prosecutors, and his fellow Californians. He said he assisted the U.S. Attorney, the Securities and Exchange Commission, and the state Attorney General “in their investigation and litigation and will continue to render assistance.”

So, what’s still being investigated? There were few public clues last week.

A sentencing memorandum filed by Lucey outlined the case against Buenrostro, adding some new detail but no major surprises to anextensive report in 2011 done for CalPERS at a cost of $11 million by Philip Khinda of a Washington, D.C., law firm.

Buenrostro, a former CalPERS board member, served as chief executive officer from December 2002 to May 2008. His earliest connection with a Villalobos deal mentioned in the Lucey and Khinda reports began with meetings in 2004 at the Villalobos home at Lake Tahoe.

Notably, three active CalPERS board members (Robert Carlson, Charles Valdes, and Kurato Shimada) met with Villalobos and Buenrostro (who had served on the board with the other three a decade earlier) and an executive of a firm, Medco, that was seeking a large CalPERS pharmacy contract, said the Khinda report.

Carlson and Valdes, now both deceased, voted in 2005 to give Medco the pharmacy contract. Shimada, though not a committee member, sat in and asked that his questions be reflected in the record. Villalobos reportedly got the final $1 million of a $4 million fee immediately after the vote.

“Early in the conspiracy,” said the Lucey report, “Villalobos used Buenrostro’s mere presence to add luster and gravitas to important meetings with his clients, knowing that Buenrostro would place his interests over his duty to CalPERS.”

Outside CalPERS, Villalobos was beginning to attract attention. In 2006 Los Angeles Times reporters asked the California Public Employees Retirement System for letters, e-mails or memos from Villalobos and former state Sen. Richard Polanco about investment opportunities.

A letter to the Times from a CalPERS attorney rejecting the Public Records Act request said “the release of the (sic) some of the requested information may harm CalPERS’ ability to continue to invest with top-tier private equity funds.”

Inside CalPERS, a staff proposal in 2007 requiring investment managers to disclose the use of “placement agents” such as Villalobos stalled in a committee chaired by Shimada, who had worked for Villalobos during a three-year absence from the CalPERS board beginning in 1999.

The California State Teachers Retirement System was adopting placement agent rules at the time. And crucially, as it turned out, in March 2007 a large private equity firm, Apollo, began requiring a written acknowledgement from investors like CalPERS before paying fees to placement agents like Villalobos.

When CalPERS investment and legal staff refused to give Villalobos an acknowledgement, he had Buenrostro sign a series of acknowledgements on phony CalPERS letterhead that became a key part of the charges against the two men.

Villalobos hosted Buenrostro’s wedding at Tahoe in 2004, promised (and later delivered) lucrative post-CalPERS employment, and betstowed other gifts. The notorious cash payments came as Buenrostro needed money for a divorce and Villalobos pursued the Apollo deal, said the Lucey report.

By December 2007, Villalobos had made cash payments to Buenrostro at the Hyatt hotel near the Capitol in Sacramento on three separate occasions: “The first two payments of $50,000 were each delivered in a paper bag, while the last installment of $100,000 was delivered in a shoebox.”

After receiving the last of the phony disclosure letters in June 2008, said the Lucey report, Apollo began payments to the Villalobos firm, ARVCO, that totaled more than $14 million before they were stopped on their way to as much as $35 million over the life of the contracts.

Excerpt from U.S. Attorneys' sentencing memorandum

Excerpt from U.S. Attorneys’ sentencing memorandum

Buenrostro retired June 30, 2008, after his official duties ended on May 12 of that year amid staff complaints of “unprecedented levels of meddling in investment decisions.” Shimada resigned from the CalPERS board in April 2010.

The Khinda report concluded that the CalPERS investment staff “did withstand” the pressure from Buenrostro and did not make inappropriate investments. A CalPERS new release last week listed the reforms resulting from the scandal, including the disclosure of placement agents.

A mark of the passage of time, and CalPERS hopes the healing of wounds, since its survey of private equity firms in 2009 revealed the huge Villalobos fees: Buenrostro’s successor, the current CalPERS chief executive officer, Anne Stausboll, is retiring at the end of the month.

Buenrostro settled a state lawsuit by agreeing to pay a $250,000 fine, which if not paid will be reapplied by the federal ruling. He also agreed to a judgment in an SEC case and to accept a penalty, if one is imposed after the federal ruling.

His annual CalPERS pension, $201,600 based on a final salary of $238,992 and about three decades of service, was reduced to $141,278 under a “felony forfeiture” provision and a $360,000 overpayment will be deducted, the Sacramento Bee reported.

Nineteen letters in support of leniency for Buenrostro were sent to the judge by several of his Pepperdine classmates, ski instructor colleagues, family, two persons well-known at the Capitol, and the nonprofit Shores of Hope, which praised his post-guilty plea work on transportation management for the elderly and disabled.

One leniency letter dated in March was from a woman who said she had recently lived with Buenrostro for nearly three years. Buenrostro came to court in custody last week after being jailed in late April for misdemeanor battery on a former girlfriend, his second arrest.

Leniency was not urged in a letter to the judge from the CalPERS general counsel, Matthew Jacobs, that said Buenrostro “must be fittingly punished for this tremendous breach of the public trust” that led to an 18-month internal investigation and the Khinda report.

“CalPERS condemns Mr. Buenrostro’s misconduct in the strongest possible terms, and urges the court to hold him accountable for his actions,” Jacobs said. “Those actions eroded the trust that had been built up over 80 years between CalPERS and its members, employers, and stakeholders. It also had a tremendous impact on staff morale, and on CalPERS’s previously-strong reputation in the financial community.”

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Originally posted at Cal Pensions.