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CalPERS scrutinizes a mansion

November 12, 2009|Marc Lifsher

SACRAMENTO — With the fortune he has made using his connections with public pension funds, it's hardly a surprise that Alfred J.R. Villalobos owns a sprawling, 9,100-square-foot home overlooking the emerald-blue waters of Lake Tahoe.

But the way in which Villalobos financed construction of the $2.7-million mansion is fueling new questions in an investigation by the California Public Employees' Retirement system into the activities of so-called placement agents such as Villalobos.

Documents show that the Villalobos home was built with the help of a $1.1-million loan from a partnership set up by CIM Group, a Hollywood-based real estate development firm. The company has received $466 million in investment capital from CalPERS over the last nine years with the help of Villalobos, a former CalPERS board member.

Along with the loan, CIM said it assigned two of its corporate construction supervisors to monitor the building of the home by a Lake Tahoe-area contractor.

A CIM spokesman said there was nothing unusual or questionable about the transaction, but Pat Macht, a spokeswoman for CalPERS, said the fund was looking closely at the arrangement as part of its larger review into the role placement agents play in securing CalPERS investments in companies such as CIM.

"This is one more issue that's part of our special review," Macht said.

Government, corporate governance and investment experts consulted by The Times agreed that the loan raised questions the pension fund needed to pursue.

"Whenever you channel compensation through third parties, it lessens the transparency of who is benefiting and by how much," said Robert Fellmeth, executive director of the Center for Public Interest Law at the University of San Diego.

Mercer Bullard, a securities law professor at the University of Mississippi and a former Securities and Exchange Commission attorney, suggested that there might have been a tax advantage to structuring the payment as a loan, a view shared by San Jose State finance professor Marco Pagani.

Villalobos, 65, did not return calls seeking comment.

Documents released by CalPERS show that Villalobos and his Stateline, Nev., company, Arvco Capital Research, earned about $9.6 million from CIM for his efforts in getting CalPERS to invest with the company.

On top of that, CIM paid Villalobos $5.9 million in fees for securing an investment from the California State Teachers' Retirement System.

The loan was made to Villalobos in August 2002 from a Delaware-based partnership called Hollylane Holdings. It was used to finance part of the construction of the mansion at 1000 Holly Lane in Zephyr Cove, Nev., according to CIM.

The house, built from 2001 to 2002, has an indoor swimming pool and spa and features a panoramic view of the nation's largest alpine lake.

CIM spokesman Bill Mendel said that Villalobos requested the loan at a time when he was not due to receive an installment payment for his past placement agent activity on CIM's behalf. Mendel said the loan was paid off 11 months later when a fee to Villalobos became payable.

Villalobos paid interest on the loan, Mendel said, but he would not disclose the rate.

"Hollylane Holdings was an entity funded by CIM, which provided a loan in anticipation of future fees payable by CIM to Arvco," Mendel said in a statement.

In its statement to The Times, CIM characterized the creation of the Delaware partnership to fund the loan as a "standard business practice." It also said the deal had no "out-of-the-ordinary tax or legal liability considerations" and was not structured to reduce any taxes owed by Villalobos or CIM.

The Villalobos house deal surfaced as part of the pension fund's probe into placement agents, who help private equity and real estate funds gain access to the capital of institutional investors, including the $200 billion held by CalPERS, the nation's largest public pension fund.

Previous disclosures have shown that Villalobos and his companies have earned at least $70 million in fees for his work as a placement agent with CalPERS alone.

No one was at the Holly Lane mansion when a reporter visited it recently, and a construction worker at a house nearby said it was unoccupied.

Court records show that Villalobos is suing his Holly Lane contractor, Gardner Enterprises, for alleged construction defects that caused mold problems. The contractor declined to comment on the litigation, which was filed in Douglas County District Court in Nevada.

An operator at Harrah's Lake Tahoe casino said Villalobos was a registered guest there, but calls to that suite and to a Harrah's spokesman were not returned. In 1991, Villalobos was sued by a different Lake Tahoe casino, accused of failing to pay $30,000 in bad checks he wrote to cover a weekend's worth of gambling debts; the suit was dismissed in 1992 after Villalobos made good on the debt.

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