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Medco subpoenaed by SEC over CalPERS contract

Drug benefits firm Medco says securities regulators seek information on its payments of $4 million to consultant Alfred Villalobos. A CalPERS report says the payments were made as Medco sought a contract with the pension fund.

March 19, 2011|By Marc Lifsher, Los Angeles Times

Reporting from Sacramento — Drug benefits manager Medco Health Solutions Inc. said U.S. securities regulators have issued a subpoena to the company for information about its payments of $4 million to a consultant as it sought to win a multimillion-dollar contract with the California Public Employees' Retirement System.

The Securities and Exchange Commission also asked Medco, which manages pharmaceutical benefits for CalPERS members, for information about other "certain current and former affiliates of both the consultant and CalPERS," the company said Friday in a filing with the agency.

A report this week from a CalPERS-funded investigation alleged that in 2006, Alfred J.R. Villalobos, a former board member, and top CalPERS executives at the time sought and received $4 million for Villalobos from Medco before approval of a three-year contract for $26 million.

The deal was struck at a series of meetings that included then-CalPERS Chief Executive Federico Buenrostro Jr. and three pension fund board members, the report said.

Villalobos and Buenrostro, who are defendants in a fraud lawsuit brought by the California attorney general's office, have denied any wrongdoing. Similar allegations are being investigated by the U.S. Justice Department, CalPERS said.

Reacting to the allegations of improprieties, the CalPERS board on Wednesday voted to cancel negotiations aimed at signing a new three-year contract with Medco.

In its latest SEC filing, Medco, of Franklin Lakes, N.J., said it hired Villalobos in 2004 in advance of bidding for the 2006 business.

Medco said Villalobos was paid "to primarily provide advice and assistance in connection with what the company anticipated would be and, in fact, became a lengthy, contentious and highly detailed audit."

The audit was aimed at determining whether Medco passed savings from drug manufacturer rebates to CalPERS, CalPERS said.

Separately, a lawsuit on behalf of CalPERS members was filed Friday in Sacramento County Superior Court asking that CalPERS stop doing business with Medco and that Medco pay restitution for any losses the pension fund may have incurred because of Medco's payments to Villalobos.

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