Where is Calpers's governance when you need it?

  @FortuneMagazine May 6, 2013: 8:38 AM ET
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In early 2008 I received an anonymous e-mail asking me to meet the sender in a hotel bar. All I was told was that it had to do with private equity investments made by Calpers, the nation's largest public pension system. As I arrived, a man walked up to me, offered a business card establishing his bona fides, and asked whether I'd ever heard of a man named Alfred Villalobos. I hadn't. "You will," he told me. "And it's going to get very, very ugly." Since then, Villalobos has been a regular in court documents and newspaper headlines, accused by both state and federal authorities of defrauding private equity funds that had hired him to raise money from big state pension funds like Calpers. Most of the alleged misdeeds were done in cahoots with former Calpers CEO Fred Buenrostro, who actually got married at Villalobos's home and is also facing legal charges. Both men deny the allegations.

Through it all, Calpers has portrayed itself as an unwitting victim -- a portrayal I'm not buying. The pension system, which often holds itself up as a paragon of good governance, commissioned a third-party report that found that Buenrostro "pressured" investment staff to recommend commitments to Villalobos clients. The report also alleged that Buenrostro and Villalobos had forged disclosure documents that Villalobos needed in order to be paid by certain private equity firms for services rendered.

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