SEC Charges Former CalPERS CEO and Friend With Falsifying Letters in $20 Million Placement Agent Fee Scheme

April 23, 2012

The SEC charged the former CEO of the California Public Employees' Retirement System (CalPERS) and his close personal friend with scheming to defraud an investment firm into paying $20 million in fees to the friend's placement agent firms.
The SEC alleges that former CalPERS CEO Federico R. Buenrostro and his friend Alfred J.R. 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.
Apollo instituted a policy to require signed investor disclosure letters in 2007 before it would pay fees to a placement agent that assisted in raising funds. Villalobos's firm, ARVCO Capital Research LLC, agreed to this policy when through a placement agent agreement with Apollo.  However, when ARVCO requested an investor disclosure letter from CalPERS in connection with a proposed investment by CalPERS in a fund managed by 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, the SEC alleges that in January 2008, Villalobos 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 one of the Apollo funds, Apollo paid ARVCO about $3.5 million in placement agent fees.
The SEC further alleges that less than two weeks later, Villalobos and Buenrostro created false CalPERS disclosure letters for at least four more Apollo funds under similarly suspicious circumstances. As part of the scheme, Buenrostro signed blank sheets of fake CalPERS letterhead that Villalobos and ARVCO then used to generate additional investor disclosure letters as needed. Based on these false documents, Apollo was induced to pay ARVCO more than $20 million in placement agent fees it would not have paid without the disclosure letters.
Click here to access the administrative action.


Enforcement Actions, Investment Advisers, Investment Companies