US regulators have sued a former chief executive and a former director of the California Public Employees' Retirement System (CalPERS), accusing them of defrauding an investment firm for the sum of $20m.

The Securities and Exchange Commission (SEC) alleged that Federico Buenrostro, the scheme's former CEO, and former director Alfred Villalobos fabricated documents which were requested by Apollo Global Management, a New York-based private equity firm.

According to reports, Apollo hired Villalobos as a placement agent to secure investments worth billions of dollars from the country's largest public pension fund.

The documents, which allegedly have been used to defraud the asset manager, were used by Villalobos and his companies (Arvco Capital Research and Arvco Financial Ventures) to charge Apollo for services that helped win contracts.

Apollo Global Management is said to have paid the former director more than $48m over a period of four years. Villalobos also received a figure of around $12m in fees from other investment funds that managed the pension scheme's funds.

Both Buenrostro and Villalobos have denied any wrongdoing. Buenrostro was not involved "in any type of fraud or illegal conduct," his attorney, Bill Kimball, told the LA Times.

According to the SEC, Villalobos, who is also a former deputy mayor of Los Angeles, provided fake papers which were made to look as if the fees had been approved by CalPERS investment staff.

"Buenrostro and Villalobos not only tricked Apollo into paying more than $20m in placement agent fees it would not otherwise have paid, but also undermined procedures designed to ensure that investors like CalPERS have full disclosure of such fees," said John M. McCoy, associate regional director of the SEC, in a statement.

The SEC says the two men gave Apollo the impression that CalPERS, which, according to data held by Pension Funds Online has $235bn in assets, had reviewed and signed placement agent fee disclosure letters in accordance with its procedures.

"In fact, Buenrostro and Villalobos intentionally bypassed those procedures to induce Apollo to pay placement agent fees to Villalobos's firms," the SEC said in a statement. "The false letters bearing a fake CalPERS logo and Buenrostro's signature were provided to Apollo, which then went ahead with the payments."

Current CalPERS CEO Anne Stausboll and CalPERS board president Rob Feckner yesterday condemned the alleged misconduct outlined in the SEC complaint and praised the SEC for recognising the severity of the wrongdoing.

The pension scheme also confirmed that a federal criminal investigation into the actions of the two men is pending.

First published 25.04.2012

azeevalkink@wilmington.co.uk