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Ex-pension chief rented from company seeking funds

CIM Group secured millions in investments from L.A.'s City Employees' Retirement System. Robert Aguallo's lawyer denies wrongdoing.

November 23, 2009|By David Zahniser

The former top executive of one of Los Angeles' public employee pension systems rented an apartment from a company that at the same time was securing millions of dollars in public funds from his agency.

Robert Aguallo, who served as general manager of the City Employees' Retirement System until last year, was a tenant in a CIM Group apartment building in 2007, when his agency's board voted to invest $15 million in CIM's Fund III.

Aguallo attorney Fred Woocher confirmed that his client lived at Gas Company Lofts in downtown Los Angeles for roughly three years, moving out in April 2009. But Woocher said the rental arrangement did not pose a conflict of interest. "He received the same deal as anybody else who walked in off the street into the rental office," Woocher said.

As general manager of the pension system, Aguallo did not serve on the board or have a vote. But he ran board meetings -- helping decide what issues to put before its members -- and the agency's investment staff reported to him.

The Times has reported on dealings between two other city pension officials and CIM Group, which has secured up to $115 million in commitments from city pension funds since 2005. CIM Group is an investor in a fund managed by former Fire and Police Pensions board member Elliott Broidy, who voted in 2007 to invest $30 million in a CIM Fund.

Another Fire and Police Pensions board member, Sean Harrigan, voted to invest $30 million in a CIM fund in 2005 while he was renting a 640-square-foot apartment at CIM's Gas Company Lofts.

Broidy's $800-million fund received only a tiny amount of its financing from CIM Group -- $500,000 in 2004. Nevertheless, the potential for conflict was considered by the city's lawyers to be serious enough that the Fire and Police Pensions board went behind closed doors last week and cast new votes to approve its CIM investments.

The rental arrangements create an appearance problem for the two retirement systems, said Edward Siedle, a former lawyer with the Securities and Exchange Commission. "What is it that's so uniquely appealing about this building to two public pension officials?" asked Siedle, who now works for Benchmark Financial Services, an investigative consulting firm. "It raises some red flags."

Two years ago, a rental agreement caused serious problems for former Hawthorne City Councilman Ludwig Velez, who pleaded guilty to one felony count of violating the state's conflict-of-interest law after voting to approve a deal with a developer that was also his landlord.

The prosecutor in that case, Deputy Dist. Atty. Max Huntsman, said the law required Velez to recuse himself on the matter. "He should have put on the record that he was a tenant of this developer and not participated in any way in the decision to award a contract to that developer," Huntsman said.

Revelations about the city's pension officials come roughly a year after the two retirement systems experienced major investment losses in the wake of a national recession. Those losses are expected to add at least $120 million to the city's budget shortfall next year.

Aguallo, a former executive with the California Public Employees Retirement System in Sacramento, took a job with the Los Angeles pension system in 2003. That agency's board voted in November 2005 to invest up to $40 million in CIM's Real Estate Investment Trust. Before the vote, board members received a marketing booklet from CIM promoting the fund and its investment in Gas Company Lofts.

Aguallo moved into the building at some point in 2006, paying somewhere between $1,300 and $1,400 per month for a fourth-floor apartment, Woocher said. The next year, Aguallo's agency voted to invest up to $15 million in CIM's Fund III.

In 2008, Aguallo left the agency for a job with Cardinal Americas, a firm that had appeared before his agency's board three months earlier.

In the wake of his departure, the City Ethics Commission opened an investigation to determine whether Aguallo violated the city's "revolving door" ban, which bars top officials from negotiating employment with a company that has pending city business. Ethics officials have not issued any public findings.

Harrigan also spent time at CalPERS, serving on the board until 2004. He was a resident of Corona when Mayor Antonio Villaraigosa took office on July 1, 2005. Harrigan signed a lease with CIM Group on July 18 and was nominated to the pension board three weeks later, according to city records.

Pension board members who are appointed by the mayor must live in Los Angeles.

Harrigan has repeatedly defended his handling of potential conflicts, saying he recused himself from voting when the law required him to do so. Meanwhile, CIM Group sent a letter to city officials saying that Harrigan paid market rate for his apartment.

In the letter, CIM Group executive Avi Shemesh said Harrigan had paid $1.94 per square foot for his eighth-floor apartment at a time when the average unit in the building was renting for $1.92. Shemesh also said Harrigan paid "at least fair market value" the next year, when he bought an $878,402 condominium at Sky Lofts, a CIM-financed project a block away.

A representative of CIM Group would not discuss Aguallo's leasing history. But Sally Choi, Aguallo's replacement at the pension system, said Shemesh met with her to discuss Aguallo's apartment.

"We've been assured that there was no special consideration given to him," she said.

david.zahniser@latimes.com

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