Pay to play schemes have been the subject of a number of suits by the SEC and state regulators. The latest however, names an unlikely defendant — the former CEO of giant CalPERS or the California Public Employees’ Retirement System pension funds, Federico R. Buenrostro. Also named as defendant are his long time close friend Alfred JR. Villalobos and his two companies, ARVCO Capital Research LLC and ARVCO Financial Ventures, LLC. SEC v. ARVCO Capital Research, LLC, Civil Action No. 3:12-cv-00221 (D. Nev. Filed April 23, 2012).

Mr. Villalobos and his two AVRCO entities are placement agents. He is a long time friend of Mr. Buenrostros who served as the CEO of CalPERS from late 2002 through mid-2008. Over a ten year period Mr. Villalobos and his companies made over $70 million in placement fees. About $58 million of those fees were related to CalPERS’ investments.

Mr. Villalobos also had a long standing and lucrative relationship with an investment manager at Apollo Global Management, a hedge fund. Beginning in 2007 Apollo required an “Investor Disclosure” letter. That letter had to be secured from an investor such as CalPERS where a placement agent was involved to insure full disclosure.

In the summer of 2007 ARVCO agreed with Apollo to secure an investor disclosure letter with respect to a placement of funds from CalPERS. When ARVCO requested that the pension fund furnish such a letter, however, it declined based on the advice of counsel. ARVCO never contacted CalPERS again, according to the complaint.

In January 2008 Apollo told ARVCO that it was going to contact CalPERS regarding the letter. This followed several discussions over the prior months regarding the required investor letter. At that point Mr. Villalobos created a letter using the CalPERS logo from Mr. Buenrostro’s business card. Mr. Buenrostro then executed the letter. It was submitted to Apollo who pad a placement fee of $3.5 million.

In the ensuing weeks the two men engaged in an on-going scheme utilizing false investor letters, according to the SEC’s complaint. Specifically, in four other instances Mr. Villalobos created false investor letters on forged CalPERS letterhead which were executed by Mr. Buenrostro. Overall, Apollo was induced to pay ARVCO over $20 million based on the false documents.

The Commission’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is in litigation. The Commission’s complaint follows a similar action filed by California state authorities against the two men according to Bloomberg.