by John M. Curtis
(310) 204-8700

Copyright April 6, 2006
All Rights Reserved.

aught in the cookie jar, California State Controller and Democratic gubernatorial candidate Steve Westly used his position to pressure the California Public Employees Retirement System in 2003 and 2004 to invest in a risky New York-based venture capital fund Healthpoint Partners LP, netting him thousands in donations to his personal campaign. Westly, a multimillionaire co-founder of the popular Intenet auction site Ebay, has already committed $22 million of his personal fortune for his run for governor. Allowing himself to get involved with start-up venture capital fund showed incredibly bad judgment considering today's paranoid atmosphere about campaign finance reform. If he really wanted to land a better yield on investments for CalPERS, he shouldn't have lined his own pockets when CalPERS' outside advisor urged the board to pass on Healthpoint Partners.

      Westly influenced CalPERS' board to invest $5-million in the risky venture capital fund. Friends of Healthpoint, in turn, kicked in $50,000, or 1%, of CalPERS' investment to Westly's campaign. Westly's dealings bypassed public meetings which might have exposed not only Healthpoint's risks but donations to Westly's campaign. It's no accident that one of Healthpoint's directors, Chicago-based attorney Joseph Cari, was indicted in Illinois for extortion in an unrelated pension fund scandal. Whether or not Westly's actions, or those of CalPERS' board, were legal, doesn't erase egregious conflicts-of-interest. “I want to make sure we do everything we can to maximize the returns to our pension funds,” Westly told the LA Times at an event in Modesto. “I'm always looking out for firms I think can provide above-average returns, and I do that from time to time,” concealing contributions to his campaign.

      Westly's campaign spokesman Nick Velasquez, while admitting no impropriety, offered to return $15,000 back to Healthpoint, as a token of good will. Returning money reveals that a line was crossed. Refunding the cash “out of an abundance of caution,” says nothing about Westly's inappropriate behind-closed-doors actions that won Healthpoint $5-million in CalPERS' pension funds. Westly had no business laying his arm of CalPERS's board when an independent auditor advised against the investment, though the University of California already lost $145 million with Enron's collapse. “I can only assume the campaign didn't get the memo,” said Velaquez, regarding a CalPERS' memo informing board members about the indictment of one of Healthpoint's key directors. Professing ignorance shows why Westly can't be trusted as controller and certainly not as governor.

      Getting funds from CalPERS, or other state-managed retirement funds, is a favorite target for risky investment schemes. When the independent advisor told CalPERS to pass on Healthpoint, Westly should have backed off. When you consider Westly kicked in $22 million for his own campaign, it's inconceivable why he felt compelled to solicit donations from Healthpoint. It's strangely reminiscent of Martha Stewart selling on an insider tip $250,000 worth of ImClone Systems stock, saving her around $60,000, when her own company, Martha Stewart Omnimedia, was worth over $1-billion. CalPERs spokeswoman Pat Macht said everything in the Healthpoint deal was done by the book. She indicated that venture capital firms regularly make pitches to CalPERS' board members. If elected officials override the judgment of independent auditors and pressure CalPERS' board members to make risky investments, the legislature has a lot of work to do.

      There's no question elected officials are offered a quid pro quo by lobbyists and companies with interests in doing business with the state. Elected officials like Westly must know right from wrong before succumbing to outside pressure or influence government officials to make investments. “When we looked at it a year later, the investment staff thought they had an interesting strategy,” said Macht, diverting attention away from how CalPERS was pressured to go against their outside advisor's recommendation. Returning money indicates that something shady went down. No matter how much CalPERS or Westly's staff justifies the decision, getting a state contractor to contribute campaign money crosses the line. “This looks like a case where you have a politician making a call to help out donors,” said UCLA law professor Stephen Bainbridge, not liking the smell.

      Westly showed unforgivable judgment pushing the CalPERS board to invest $ 5-million in Healthpoint Partners LP. Risky start-ups like Healthpoint have no place in CalPERS' portfolio, knowing what happened to legitimate investments during the 2001 stock market meltdown. No matter how much Westly wants to raise campaign funds, he should stay clear of California's retirement system. Despite his denials, pushing CalPERS to invest proved that Westly has little regard for CalPERS' investors or for California voters. Allowing multimillionaires like Westly to fund their campaigns violates the spirit of legislation designed to crackdown on arrogant businessmen seeking elective office. Like Martha Stewart, Westly didn't need the extra cash but couldn't resist the temptation to generate more for his campaign. With judgment like that, it's time for Westly to step aside.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging the Bullet and Operation Charisma.

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