SACRAMENTO — State Controller and gubernatorial candidate Steve Westly steered California's giant pension system to invest in a fledgling venture capital fund whose politically connected partners helped him raise campaign cash.
Before Westly's involvement, the pension board's outside advisors had rejected the fund as ill-suited for its portfolio. After the investment was made, one of the partners became enmeshed in an unrelated pension-fund scandal in Illinois, pleading guilty to attempted extortion.
As New York-based Healthpoint Partners LP lobbied the California Public Employees Retirement System in 2003 and 2004 to invest in their fund, two managing directors, including the one in Illinois, raised money for Westly at events in New York and Chicago. One partner had run for governor of New York; the other had been a finance chairman for the Democratic National Committee.
Westly, whose job is to manage and audit state spending, is an influential member of the 13-person CalPERS board. He took up Healthpoint's cause in the spring of 2003 as the contributions began to flow.
Within a year, the Healthpoint partners had helped Westly's campaign coffers grow by more than $50,000 -- money that could be for a variety of political purposes. And the company had secured a $5-million investment from CalPERS.
Westly's intervention did not take place in public meetings, but rather in private, over restaurant lunches and in e-mails. It has been reconstructed through documents obtained by The Times and interviews with some participants.
Westly acknowledged that he had private discussions with CalPERS staff on Healthpoint's behalf.
"I want to make sure we do everything we can to maximize the returns to our pension funds," he told The Times at an event in Modesto last month. "I'm always looking out for firms I think can provide above-average returns, and I do that from time to time."
He declined to comment further. But his campaign spokesman, Nick Velasquez, told The Times on Tuesday that the controller would return $15,000 donated directly by Healthpoint employees and their relatives, "out of an abundance of caution."
He said Westly had been unaware of the Illinois indictment, although the CalPERS staff sent board members a memo outlining it eight months ago. "I can only assume the campaign didn't get the memo," Velasquez said.
