PAY-TO-PLAY SCANDAL A case to answer?

The former chief executive of California Public Employees' Retirement System, Fred Buenrostro, last summer joined a placement agent that has been paid at least $50 million for securing capital from the pension.

The firm, called ARVCO Financial Ventures, is run by a former CalPERS board member, Alfred Villalobos. With Villalobos's help, several private equity firms, including Apollo Global Management, have secured billions of dollars from the $200 billion pension, the largest in the US.

CalPERS has now initiated a “special review” of fees paid by investment firms to placement agents, including ARVCO.

Villalobos said publicly he is cooperating with CalPERS in the fee review, and he expects that CalPERS' staff, consultants and board members will be found to have followed “standard operating procedure”. He declined to answer questions about whether he is being questioned by the US Securities and Exchange Commission or the California attorney general.

The situation at CalPERS came to light following a burgeoning investigation by New York Attorney General Andrew Cuomo into an alleged pay-to-play scheme involving the New York State Common Retirement Fund. Cuomo has indicted six people in the investigation, which has stretched into New Mexico and California.

California is conducting its own investigation into pension pay-to-play practices. Two board members of the Los Angeles Fire and Police Pensions system stepped down in May after receiving inquiries from the SEC.

Meanwhile, a current member of the CalPERS board, Charles Valdes, is under investigation by a California ethics commission, the Fair Political Practices Commission, relating to a campaign contribution account from his re-election campaign in 2005.

The commission declined to disclose details of the investigation. More than $20,000 in the $30,600 account came from associates and relations of Villalobos.