CalPERS Misappropriates Funds, a Violation of the Criminal Code, By Laundering $40,000 Speaker Fee Through Randle Communications, a Nearly $500,000 a Year Advisor to Marcie Frost
As famed short seller David Einhorn would say, “No matter how bad you think it is, it’s worse.” That is particularly true of CalPERS.
The results of a new Public Records Act request has exposed that not only has CalPERS paid a $40,000 fee for a single speech to entertain participants in a “stakeholder” event, an expense so unnecessarily high that it looks like an indefensible use of public funds, but also that CalPERS engaged in accounting chicanery to find the funds to pay for it. CalPERS laundered the expenses through Randle Communications, which even before this extra cost was charging CalPERS at a roughly $550,000 annualized burn rate. As we’ll explain, this is a clear cut misappropriation of public funds under California Penal Code 424. In other words, this is criminal activity and could rise to the level of a felony.
What is also disturbing is the casualness and openness with which CalPERS officers decided to run their expenses through a third party to solve their funding problem, and that Randle Communications was so willing to facilitate this accounting fraud.
And what we know so far about Randle Communications isn’t pretty either. Even though CalPERS already has the biggest PR department of any public pension fund, 80 people, which has grown from 72 under Marcie Frost’s watch, but on top of that, the agency lavishes money on outside hired guns. It should come as no surprise given how regularly the press, including this humble blog, reports on CalPERS’ misconduct, that its PR staffing greatly exceeds that of its Enterprise Compliance, with only 21 employees.
As you can see from the purchase order at the end of this post, the purchase order for Randle Communications for seven months ended January 2020 was nearly $313,000. Backing out the $40,000 speaker fee, which is Item 8, you get $273,000. Annualizing that produces $468,000. If anything this is likely to be a low estimate since little happens between mid-December and mid-January.1
As we’ll discuss, this level of billing is hard to reconcile with the fact that Randle Communications repeatedly describes externally as having Marcie Frost, not CalPERS, as its client, and that Randle Communications is only one of a raft of communications firms that CalPERS hires.
CalPERS Questionable Decision to Hire Unnecessarily Expensive Entertainment
It would seem to be an irresponsible use of public funds for a governmental body, and in this case a seriously underwater public pension fund, to sign up what amounts to pricey entertainment. Yet Jon Gordon was the keynote speaker at an “Employer Education Forum” last fall. These employers are the local governments and agencies that participate in the CalPERS system. Bear in mind that the employers pay to attend this event, and their conference fees in theory cover all the costs of the extravaganza.
In practice, as we found, the Jon Gordon fee of $40,000 not only broke the budget, but it was also markedly higher than that of speakers that CalPERS had hired for the same event in past year. The effect of running this event at a loss meant that it added to the underfunding that all CalPERS employers have to cover, whether they chose to attend this event or not.
In addition, despite Randle Communications making clear in the e-mails we got so far that they were fans of Gordon, it appears no effort was made to get him to give CalPERS a more favorable fee. Recall that All American Entertainment listing is set as a gross fee; the All American Entertainment brokerage charge is bundled into that. On top of that, Gordon, in contrast to typical gigs where he is speaking to athletes or employees, was facing a roomful of potential clients:
Or was CalPERS instead fixated on delivering Gordon’s “No Complaining” message, per the swag that came back with our Public Records Act request and presumably was displayed in handouts to the audience?
Out of curiosity I looked up some GoodReads reviews for some of Jon Gordon’s work. Almost without exception, the top reviews were from people who had been required to read them by senior management, school principals etc. Most were uncomplimentary.
He seems to have a real knack for marketing to senior managers, who typically buy multiple copies to be distributed to their staff (his evident success in this pursuit is one of the few things that reviewers admire about him). He seems to be big on positive thinking and against complaining, so I’m guessing they find value in it as a professionally acceptable way to tell people to stop whining and fall in line.
Needless to say, thats a really cheeky ‘tude for CalPERS to take towards employers who are already up in arms about CalPERS’ charges, which are already so high that they were crowding out other budget items even before Covid-19 ravaged state and local government revenues. But Marcie Frost has never exhibited much of a sense of propriety.
CalPERS’ Criminal Misappropriation of Public Funds
The e-mails that came back with our Public Records Request were disconcertingly open about CalPERS’ willingness to violate the Penal Code to solve its overspending problem.2 You can see Randle Communication invoiced the Gordon fee on July 31, 2019. The PRA response shows a concreted effort to try to reclassify the expenditure in January back from org code 1410 to 1413. This is just more cooking of the books, since the payment was clearly made through Randle Communications under a order change to its original purchase order.
Here is when CalPERS identified it had a budget problem:
From: Evans, Linda Sent: Tuesday, June 4, 2019 11:43 AM To : Pacheco, Brad ; Fox, Kelly Subject: RE: Confirmed EdF Keynote Yes, I was informed that our budget cannot sustain the $40K now. Our operating expenses are operating expenses are coming in high.
And the immediate idea of getting Randle Communications to act as a laundrymat:
[Sender not included in PRA response but footer shows it was from Linda Evans] Sent: Tuesday, June 4, 2019 11:11 AM To: Pacheco, Brad ; Fox, Kelly Subject: FW: Confirmed EdF Keynote With all other cost items for this Ed Forum, I have been made aware that we will not have $40K for Jon Gordon. What can we do? Randle? Please see below for the amounts we have paid previously for keynotes.
Sent: Tuesday, June 4, 2019 11:11 AM To: Pacheco, Brad ; Fox, Kelly Subject: FW: Confirmed EdF Keynote With all other cost items for this Ed Forum, I have been made aware that we will not have $40K for Jon Gordon. What can we do? Randle? Please see below for the amounts we have paid previously for keynotes. Linda M. Evans | Office of Stakeholder Relations | 916-795-0791
Jenn Lim – $25,000 Grant Korgan – $18,000 Lisa Ling – $28,000 Kevin Carroll – $17,500 John Martin – $8,500 / Theresa Peyton – $15,000 = $23,500 John Bul Dau – $11,500
It turns out Deputy Executive Officer Brad Pacheco had already come up with the same too-clever idea:
From: Pacheco, Brad Sent: Wednesday, May 08, 2019 1:20 PM To: Fox, Kelly ; Evans, Linda Subject: FW: Jon Gordon Are we already in contract with the keynote we identified for the Ed Forum? Randle Communications recommended this guy and they have a relationship with him so we could probably funnel through their contract. Let me know what you think.
This may not seem like a big deal, but it is. Per California Penal Code, section 424. Note the highlighted sections:
a) Each officer of this state, or of any county, city, town, or district of this state, and every other person charged with the receipt, safekeeping, transfer, or disbursement of public moneys, who either: 1. Without authority of law, appropriates the same, or any portion thereof, to his or her own use, or to the use of another; or, 2. Loans the same or any portion thereof; makes any profit out of, or uses the same for any purpose not authorized by law; or, 3. Knowingly keeps any false account, or makes any false entry or erasure in any account of or relating to the same; or, 4. Fraudulently alters, falsifies, conceals, destroys, or obliterates any account; or, 5. Willfully refuses or omits to pay over, on demand, any public moneys in his or her hands, upon the presentation of a draft, order, or warrant drawn upon these moneys by competent authority; or, 6. Willfully omits to transfer the same, when transfer is required by law; or, 7. Willfully omits or refuses to pay over to any officer or person authorized by law to receive the same, any money received by him or her under any duty imposed by law so to pay over the same;— Is punishable by imprisonment in the state prison for two, three, or four years, and is disqualified from holding any office in this state. (b) As used in this section, “public moneys” includes the proceeds derived from the sale of bonds or other evidence or indebtedness authorized by the legislative body of any city, county, district, or public agency. (c) This section does not apply to the incidental and minimal use of public resources authorized by Section 8314 of the Government Code.
So there’s no question that this is a crime. The only open issue is whether this incident rises to the level of a felony.
The other aspect that should worry CalPERS beneficiaries and the state legislature is the casualness with with CalPERS officials, including one of its very top officers, perpetrated this fraud. It suggests this sort of thing is business as usual at CalPERS.
And What About Randle Communication?
There’s also not a lot to like about the Randle Communications purchase order either. The first is the structure of the charges. Virtually all professional services firms, save one or two partner ones, make their money off leverage, as in marking up junior employee time and having senior officers act as marketers, relationship managers, and providers of quality control.
Instead, if you look at the Randle Communications purchase order, you’ll see the anticipated billings, just about half is from the top-billing professionals, or over eight weeks of man hours. This top-heavyness might make sense if these two billers, Jeff Randle and Mitch Zak, were primarily engaged in training or coaching member of the CalPERS PR team.
Instead, various marketing efforts by the firm depict Marcie Frost and not CalPERS as their client. For instance:
Mitch is one of California’s leading PR strategists…He has worked with several of California’s most notable leaders including Quibi CEO Meg Whitman, CalPERS CEO Marcie Frost, Golden 1 Credit Union CEO Donna Bland and former governors Arnold Schwarzenegger and Pete Wilson.
Not only does it seem like a wild misuse of time for Frost to be spending eight plus weeks out seven months on coaching. but her calendar does not reflect it.
We have gotten a copy of her calendar for the time period covered by the purchase order, and it shows only five meetings with Randle Communications. Given the heavy preponderance of social meetings, one wonder how much actual coaching got done:
And Randle Communications also billed for attending the Education Forum, but it’s not clear what if any value that added to CalPERS.
This level of expenditure might not be so galling if it weren’t being depicted as all about Marcie Frost (which one presumes is substantially true, otherwise the Randle Communications marketing claims are misrepresentations) and if CalPERS didn’t have a raft of other outside communications guns it pays for on top its oversized in house PR team, as you can see from the final embedded document. We are in the process of obtaining the contracts and related purchase orders and invoices.
sup>1 If you assume there is no/little action from mid-December to mid-January, then the guesstime would be $273,000/six months of activity x 11 (for an 11 month working year) for $500,500. Well have a better idea soon since we have put in more Public Records Act requests.
2 This is the message, in budget-speak, reconfirms in January 2020 that efforts to tidy up the accounting failed:
From: Ishikawa, Suzi Sent: Wednesday, January 15, 2020 9:30 AM To : Hernandez, Sylvia; Taraya, Rebecca; Halog, Quenniemary; Herrera, Marco; Guerra, Yvonne; FCSD AP Invoice Cc: Gonzalez, Liza; Mason, Erma Subject: RE: Req 14174 / PO 75234 Hi, Sylvia It appears, as you suspected, ePro will not allow me to make this change. The message states disallowance of negative funding requests. As an additional clarification, has the original $40,000 been transitioned by hand over to 1413 already?
Happy to assist however I am able. Thanks again for everyone’s efforts on this.
From: Hernandez, Sylvia Sent: Wednesday, January 15, 2020 8:22 AM To : Taraya, Rebecca ; Halog, Quenniemary ; Ishikawa, Suzi ; Herrera, Marco ; Guerra, Yvonne ; FCSD AP Invoice Cc: Gonzalez, Liza ; Mason, Erma Subject: RE: Reg 14174 / PO 75234 Hi Rebecca, No, I’m not able to make any org changes to the line because of the voucher paid on that line. Quennie let us know that you would be able to change the org on the voucher since the voucher cannot be lifted from line 8 on the PO. PA O F and Budgets have worked out that there is funding in the org and that these type of expenses should now be paid against org 1413. Unfortunately, with the voucher attached, I am unable to make any org code changes. If you are not able to make the org code changes on your end, are you able to lift the voucher so I can try it on my end?