Former Board Member JJ Jelincic Sues CalPERS Over Illegal Secret Board Discussion After CIO Ben Meng’s Abrupt Departure and Hiding of Records Related to $583 Million Overstatement of Real Estate Assets

Former Board Member JJ Jelincic Sues CalPERS Over Illegal Secret Board Discussion After CIO Ben Meng’s Abrupt Departure and Hiding of Records Related to $583 Million Overstatement of Real Estate Assets 1

We seem to be returning to a semblance of the old normal, including CalPERS getting well-deserved public attention for its bad behavior, highlighted in a new lawsuit filed by former board member JJ Jelicic, which we’ve embedded at the end of this post. It’s short and very readable; slightly more than half the pages of the PDF are exhibits.

CalPERS under its general counsel Matt Jacobs has more and more openly been taking the position that it is above the law. A slapdown is long overdue.

Both of the matters the lawsuit targets are strong on legal and public interest grounds. We’ll get into a bit more detail below. The short overview is that they come out of sweeping and highly dubious denials of two different Public Records Act requests that Jelinicic submitted. One focuses on to impermissible secret board discussions shortly after then Chief Investment Officer Ben Meng’s sudden resignation last August. The second involves CalPERS’ continuing efforts to hide records showing how it came to overvalue real estate assets by $583 million. Yet CalPERS not only has said nary a peep about bogus valuations are larger than the total amount it was slotted to invest in a mothballed solo development project, 301 Capitol Mall, but it continues to publish balance sheets that include the inflated results.

We believe CalPERS will be even more inclined than usual to fight these Public Records Act requests because the filing seeks remedies beyond release of the records. First, it requests that CalPERS be found to have violated the Bagley-Keene Open Meeting Act. Second, to the extent that the judge rules that the board discussed items in closed session that should have been agendized for and deliberated in open session, the suit asks that board members be permitted to disclose the contents of those particular discussions in public. Third, the filing calls on the court to require that CalPERS make video and audio recordings of all closed sessions and keep them for five years.

The last two requirements are particularly deadly. If the CalPERS board is exposed to having all of its cozy, illegal private chats later made public by having board members freed to discuss them, they would have to expose more of their decision-making to public oversight and feedback. The more the media sees of what actually goes on, not only will more dirt be exposed, but so too will be the cronyistic, diseased relationship of the staff to the board. As we’ve chronicled over the years, the board is captured by staff and bizarrely views asking even basic questions as destructive to CalPERS image. If that’s actually correct, that staff and the board are so utterly incompetent that they can’t handle simple queries, it’s concrete evidence that CalPERS is horrifically badly run and needs a big shake-up.

In addition, the closed session taping requirement will seriously impede another long-standing, illegal board practice, that of relegating its “kickoff” meeting for every periodic set of board meetings to closed session and falsely depicting it as ““Chief Executive Officer’s Briefing on Performance, Employment, and Personnel Items.” Even in the 1990s, they were not transcribed and we have every reason to think that they are still not recorded or transcribed.

These meetings instead almost always cover a grab-bag of matters the CEO thinks the board ought to keep in mind before it rolls into the first public session, and those are rarely personnel-related. Even if the chats are largely low-information, like a mention of a breaking news story, it’s not kosher to operate in such a loosey-goosey manner. This casualness about closed session invites abuse. Recording these gabfests should curtail the misconduct.


As many of you likely know, California has stronger open government laws than many states, with the centerpieces being its Bagley-Keene Open Meeting Act (and a local government counterpart, the almost exactly parallel Brown Act), and its version of FOIA, the California Public Records Act.

California requires that all official business be conducted in public. Pre-meeting chats about pending business are a no-no, including various forms of daisy chains that put a quorum in communication with each other. The exemptions are few and include personnel matters and pending litigation, and the litigation has to be ripe, not general or potential exposure.

Similarly, the Public Records Act requires that government bodies provide records promptly and give specific reasons when they don’t, citing relevant statute. While agencies often invoke Section 6255, informally called the balancing test (the balance of the public good of keeping a matter secret versus the public good of disclosing it), no court has ever backed the denial of a records request on Section 6255 grounds.

The Public Records also stipulates that a requestor who has to litigate to obtain records and succeeds in court is entitled to recover attorneys’ fees.

Yet despite savvy plaintiffs having good reason to think their legal costs will come out of the misbehaving government body’s checkbook, CalPERS regularly flouts Public Records Acts, even when there is case law contradicting their position closely parallel cases.

One example was when we requested the resignation letter of Elisabeth Bourqui, a highly credentialed Chief Operating Investment Officer who left abruptly and was clearly pushed. She took the remarkable step of appearing in person at the next CalPERS board meeting with a high-powered employment lawyer in tow. Yet even though courts have ruled that resignation letters are to be made public, with only truly personal information redacted, like a Social Security number, home address, or medical information, CalPERS has refused to release Bourqui’s letter, improperly asserting a personnel exemption.

So why don’t more people challenge CalPERS, given that if they go after a clear-cut abuse, they can expect to recover their legal expenses? First, the plaintiff will still have to fund expenses, and they can easily run to $5000 just to get to a first hearing. Second, firms that specialize in Public Record Act matters have to eat. They can’t afford to take many, if any, suits on spec, since it can take years for a case to be adjudicated, particularly in dealing with an agency like CalPERS, which has the resources and cussedness to appeal. So even if a Public Records Act specialist is willing to pursue a promising suit on a reduced-fee basis, the plaintiff is still faced with laying out tens of thousands of dollars before the matter is finally settled in court.

Jelincic Targets Illegal Secret Huddle After Meng’s Sudden Departure and Refusal to ‘Splain Big Writedowns

The filing below describes, with additional support in the Exhibits, how State Controller Betty Yee demanded a special board meeting after Meng resigned with immediate effect on August 5:

…regarding potential violation of laws, adequacy of existing policies, safeguards that could prevent a recurrence of the situation, and the Chief Executive Officer’s oversight and implementation of policies and safeguards.

Bear in mind that “potential violation of laws” isn’t even close to what California deems necessary to invoke the “pending litigation” secrecy cloak. General policy discussions are clearly open session matters. On top of that, any personnel exemption for Meng is extremely narrow and not applicable. CalPERS cited Section 11126(a)(1), which is a general personnel carveout, but it is superseded by later section which CalPERS also invoked but ignored. From the filing:

Government Code § 11126(a)(1) allows public bodies to hold closed sessions to discuss a range of topics relating to personnel matters. However, this provision does not apply to discussions relating to the CalPERS CIO, which are expressly governed by a more-specific subdivision, § 11126(g)(1). This subdivision applies only to the CEOs and CIOs of CalPERS and of the Teacher’s Retirement Board. As relevant here, this statute allows the Board to meeting in closed session only “when considering matters pertaining to the recruitment or removal of the Chief Investment Officer of … the Public Employees’ Retirement System.”….

The agenda for the Board’s August 17 meeting listed as its sole substantive item the “Chief Executive Officer’s Briefing on Performance, Employment, and Personnel Items,” which was to be closed to the public under Government Code §§ 11126(a)(1), (e), and (g)(1). Subdivision (a) (1) allows the Board to discuss certain topics relating to employee performance in closed session. Subdivision (e) allows it to discuss certain matters relating to litigation in closed session, and also requires that a litigation memorandum be prepared if this occurs. The reference to subdivision (g)(1) indicates that the Board was to consider matters relating to the CIO or CEO.

Since Meng had already quit, there could be no discussion of his removal.

The one item that here that could justify a closed session is State Controller Yee, in code, demanding a frank discussion of Frost’s screw up. But not only did the closed session agenda on its face indicate that Frost was not being examined (you can’t be the party conducting a briefing if you are in the hot seat) but CalPERS spokescritters also said Frost’s conduct was not under review.

Instead, this is what the board chewed over:

CalPERS legal counsel did not prepare a memorandum under Government Code
§ 11126(e)(2)(ii) stating reasons and legal authority for closing the August 17 session.

The Board did not discuss any personnel matters relating to any person other than Mr. Meng at
the closed session.

he Board did not discuss any personnel matters relating to any person other that those listed in
Government Code § 11126(g) in that closed session.

A Board member’s record of the meeting lists 55 numbered topics discussed at this meeting; the
majority of those topics had nothing to do with personnel matters or other matters properly
discussed in closed session.

These topics included general policy matters relating to compliance, employee education, CIO
onboarding, the need for additional staffing, when the Board should be informed of “serious
issues,” transparency, and the need to establish policy to govern investigations.

Approximately seven of these topics involved policy discussions relating to California Fair
Political Practices Commission Form 700, Statement of Economic Interests, which some
CalPERS employees — including the CIO and CEO and members of the Board — must file
annually and which are posted on the CalPERS website.

One of these topics indicates that the Board discussed “gotcha articles.”

Glad to know we weren’t forgotten, but CalPERS keeps confirming that it can’t stand having a mirror held up to its actions.

The second abuse in this August 17 meeting was the refusal to allow public comments. Public comments are always and ever required at board meetings under Bagley-Keene, even on a purely closed session agenda. Public comments are normally opened up on request before any item on the agenda being deliberated, and there is also a place on the agenda at the end of a board meeting for public comments. Yet here, abusively, CalPERS refused to allow the public to weigh in. The giant pension fund is apparently so chickenshit about hearing the nature and severity of public upset about Meng’s misconduct that it restored to its established practice of cutting the mike.

Recall that California state and local government employees are very familiar with financial disclosure requirements. Many would be certain to be up in arms for CalPERS trying to allow its highest paid employee to flout rules that they have to follow meticulously. I am told many people were prepared to speak up.

CalPERS could easily have complied with the law and lowered the amount of flack by having agendized public comments for after the closed session, which could easily be expected to and did go on for hours. Quite a few would lack the patience and/or schedule flexibility to be near their computer when the closed session ended. So a significant percentage of those who’d sent in their names to be called to speak at the proper time would wind up being no shows.

But instead, when board member Margaret Brown pressed Chairman Henry Jones on allowing members of the public to speak, Matt Jacobs intervened and gave one of his typical “black is white” legal arguments.

In the second major section of this filing, on the real estate misvaluation, CalPERS is again on thin ice. Jelincic danced on CalPERS’ head over the “never stands on its own” balancing test, Section 6255. He pointed out that the test is the public interest, not CalPERS interest. From Jelincic’s January 24 letter to Board President Henry Jones:2

You assert, but do not justify, that the public interest served by not disclosing the records clearly outweighs the public interest served by disclosure of the records. The guidance from the Attorney General points out that:

ln order to withhold a record under section 6255, an agency must demonsrate that the public’s interest in nondisclosure clearly outweighs the public’s interest in disclosure. A particular agency’s interest in nondisclosure is of little consequence in performing this balancing test; it is the public’s interest, not the agency’s that is weighed. (Emphasis in the original.)

I have a great deal of difficulty understanding how the public interest is better served by disclosing inaccurate financial information than it is served by disclosing the truth. I would point out that the value of non-disclosure must CLEARLY outweigh the value of disclosure. Saving the System from embarrassment may be in the System’s interests but that is NOT the test.

CalPERS also invoked Section 6254.26, which is the exemption for private equity funds, venture funds, hedge funds, or absolute return funds from most disclosure. It also defines them as “alternative investments” or “alternative investment vehicles.” CalPERS and other California public pension funds have stretched this section to attempt to include any investment via a limited partnership.

CalPERS lost that argument in a Public Records suit over a $100 million lost in a forestland deal called Page Mill. As we wrote in 2014:

Several years ago, the California First Amendment Coalition sued for the release of the LPA [limited partnership agreement] governing CalPERS’ investment in a troubled fund called Page Mill Properties II, L.P. In 2010, the San Francisco superior court ruled in favor of the document’s release. The judge rejected various claims made by CalPERS, including the argument that a real estate fund is actually a form of private equity, which would have made the LPA statutorily exempt from release. This leg of the ruling is important: the judge explicitly found that a real estate fund is not an “alternative investment” for purposes of the law because it is not a private equity fund, venture fund, hedge fund, or absolute return fund.

And there are sound reasons for that conclusion. The term “alternative investments” was coined to apply to investments in asset classes that were not ones that institutions had invested in traditionally. By contrast, real estate funds have a long history. Thus, there is good reason to believe that the legislature didn’t think they need the “nurturing” of private equity, venture capital, or “absolute return” funds.

On top of that, the records Jelincic is seeking are far less closely held than limited partnership agreements. We and others have ridiculed the idea that the limited partnership agreement, a negotiated document, could ever be a trade secret.2 As we wrote in 2014:

Now that we can look at the actual language in limited partnership agreements, we can see what any sophisticated user of legal instruments would guess: the PE firm lawyers describe the strategy in the broadest, most general terms to give the private equity fund as much latitude as possible. For example, here is the investment strategy language from the KKR 2006 Fund:

2.1 Objectives The objective and policy of the Partnership are to invest in (i) Securities of Persons formed to effect or which are the subject of management buyouts or build-ups sponsored by the General Partner or any Affiliate thereof and (ii) Securities of Persons the investment in which the General Partner reasonably expects to generate a return on investment commensurate with the returns typically achieved in previous KKR-sponsored buyouts, build-ups and growth equity investments.

Claiming this statement is a trade secret is analogous to the U.S. Navy claiming classified status for the fact that it operates ships on oceans.

By contrast, what exactly is Jelincic after? From his Public Records Act request:

Any records, including but not limited to, documents, analysis, appraisals, notes, minutes and/or recordings, which document, support, suggest, hint, or warn of market value lower than reported value for any private asset.

In fairness, CalPERS could argue that this request was so broad that conducting a search would be a like boiling the ocean; could he narrow it? But since CalPERS had made admitted that it had take a big writedown bath in real estate, which means it must have reviewed those portfolios to a significant degree if not in toto, Jelincic could have reframed this records request or formulated a new one more specifically on that matter.

It’s ludicrous to assert that anything related to valuations could ever amount to a trade secret. Any valuations from advisors would provide conclusions, and not expose any super secret methodology (even charitably assuming such a thing could possibly exist). In his January 20 letter to Henry Jones, Jelincic challenged the CalPERS pretext:

It is unclear how inaccurate asset values would fall within this definition unless the
false information would cause the holder of the trade secret to gain higher fees and/or lower refunds. I would further point out that Evidence Code $ 1060 states:

If he or his agent or employee claims the privilege, the owner of a trade secret has a privilege to refuse to disclose the secret and to prevent another from disclosing it, if the allowance of the privilege will not tend to conceal fraud or otherwise work injustice. (Emphasis added.)

In other words, Jelnicic is insinuating that the reason for going into a defensive secrecy crouch over the exaggerated valuations is that if CalPERS exposed which assets were involved, CalPERS as a fiduciary ought to claw back fees that were also overstated and hence overpaid as a result.

There is a further question as to whether any supposedly independently valuation firms were in cahoots with the real estate managers who benefitted from the juiced-up valuations. So it’s not hard to imagine that staff isn’t just trying to tamp down a possible scandal, but that’s it’s also trying to protect outside parties. Remember that public pension funds have also been indoctrinated to believe that friction-free relationships with the parties that invest their money lead to them getting better deals. I can assure you Sam Zell did not get ahead by being a nice guy, let alone a patsy.

CalPERS will do everything in its power to delay this suit moving forward, not just as a standard reflex but also because the facts and law don’t look to be at all on its side. A war of attrition is likely its only decent play. But when this case finally gets out of first gear, it ought to be great fun.


1 Jelincic’s reason for petitioning Jones:

I am writing you because, as you are very aware, the California Attorney General has opined that an action by staff is legally an action by the Board of Administration. Assuming that Mr. [David] Teykaerts [who denied the valuation-related Public Records Act request) is not a rogue employee but is acting in accordance with his instructions I thought I should write to the principal.

2 In addition to the argument about the lack of any secret sauce, for a contract to amount to any sort of intellectual property, the language provided by counterparties would have to be carved out so as not subject to trade secret treatment.

00 2021.03.08 filed JJJ v. CalPERS complaint and exhibs

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