Alfred Villalobos, head of Nevada-based placement agency ARVCO, has been through a lot in the past few years, and his problems just got bigger.
The US Department of Justice on Monday announced it had indicted him on three charges of fraud, mail and wire fraud and making false statements, and indicted former CalPERS chief executive officer Federico Buenrostro on the same charges, as well as obstruction of justice. The charges relate to an alleged scheme in which the two are said to have forged investor disclosure letters required by Apollo Global Management before the firm approved paying a placement agent fee to Villalobos’ firm, ARVCO.
The criminal charges are similar to a lawsuit brought last year by the US Securities and Exchange Commission
against Villalobos, 69, a former CalPERS board member, and Buenrostro, 64, that also focused on the alleged forged investor disclosure letters. Villalobos and Buenrostro also were sued by the California attorney general’s office in 2010 for allegedly bribing CalPERS officials to try and win business with the system. Villalobos declared bankruptcy shortly after and that case has moved through the courts for the last two years.
This … long-awaited indictment of two former officials is another step on the road toward justice for California's taxpayers, public employees and for all of CalPERS staff and stakeholders
Donald Etra, attorney representing Villalobos, said his client will plead not guilty, “and that will tell the whole story”. William Kimball, attorney representing Buenrostro, did not return a call for comment Tuesday.
“This … long-awaited indictment of two former officials is another step on the road toward justice for California’s taxpayers, public employees and for all of CalPERS staff and stakeholders,” Rob Feckner, president of the CalPERS board, said in a statement Monday. Apollo did not return a request for comment.
In 2007, Apollo registered with the SEC and began requiring placement agents with whom it worked to obtain investor disclosure letters from any investor they successfully placed in an Apollo fund, according to the indictment. One of the purposes of the letters was to ensure investors were aware Apollo was working with a placement agent, the indictment said.
Apollo informed the agents with whom it worked that it would not pay any placement fee until it received the disclosure letters, according to the documents.
Shortly after Apollo instituted the disclosure requirement, ARVCO requested CalPERS sign off on a disclosure letter related to its mandate to help raise Apollo Fund VII, the indictment said. However, a CalPERS senior portfolio manager in charge of private equity investments declined to sign off on the letter in August 2007, the indictment said.
From August 2007 through April 2008, CalPERS invested about $3 billion in Apollo funds, including Fund VII, Apollo
Investment Europe, Special Opportunities Managed Account, European Principal Loan Fund and Credit Opportunity Fund, the indictment said. From early 2008 to about October 2009, Apollo paid ARVCO about $14 million for its work in securing commitments for the funds from CalPERS, the indictment said. (Overall, Apollo paid ARVCO about $50 million for its placement agent work securing commitments from CalPERS.)
Those investments were allegedly made possible because Villalobos and Buenrostro created a series of fraudulent investor disclosure letters to satisfy Apollo’s record-keeping obligations under securities law as a registered advisor, according to the indictment. To further the scheme, Villalobos and Buenrostro allegedly covered up and lied to the SEC, the US Postal Service and the Federal Bureau of Investigation about the authenticity of the investor disclosure letters during subsequent investigations, the indictment said.
CalPERS commissioned its own probe of placement agent activity in 2009, run by law firm Steptoe & Johnson and Navigant Consulting. Steptoe attorney Philip Khinda said Monday: “It's a great day for justice, and the beginning of the end for those who harmed the pension fund. Given its many reforms, CalPERS is a better, stronger and more transparent pension system than ever.”