By Dale Kasler
Published: Wednesday, Sep. 1, 2010 – 12:00 am | Page 8B

RENO – Throwing confusion into California’s case against former CalPERS board member Alfred Villalobos, a bankruptcy judge indicated Tuesday he would block the state’s lawsuit accusing Villalobos of bribing officials with the pension fund.

Although U.S. Bankruptcy Judge John Peterson won’t make a formal ruling for a couple of weeks, he suggested at an hourlong hearing that Villalobos’ Chapter 11 bankruptcy case trumps the California lawsuit.

“You’re asking me to hold up this whole Chapter 11 case,” the judge told Deputy Attorney General Richard Sintek.

Attorney General Jerry Brown sued Villalobos for $95 million in May. The Stateline, Nev., businessman filed for bankruptcy a month later, a move that generally shields him from litigation.

State officials sought a ruling from Peterson so they could proceed with their lawsuit, arguing that their case is a “police or regulatory” action that takes precedence over the bankruptcy.

If the judge does stymie the lawsuit, the state would likely have to pursue a claim against Villalobos in Nevada bankruptcy court.

Legal experts say bankruptcy is generally a more favorable venue for a debtor such as Villalobos. The attorney general would have more sway against Villalobos in Los Angeles Superior Court, where the May lawsuit was filed.

Nonetheless, Villalobos’ lawyer Neal Stephens brushed aside the state’s suggestions that Villalobos sought bankruptcy protection simply to avoid the state’s pursuit.

“They can’t show he’s a wrongdoer improperly seeking haven in this court,” Stephens told the judge.

He and Villalobos declined to comment after the hearing, as did the state’s lawyers.

The state’s lawsuit accuses Villalobos, who served on the CalPERS board from 1992 to 1995, of bribing three key officials to influence the pension fund’s investment decisions. Villalobos obtained billions of dollars of investments for his clients from the California Public Employees’ Retirement System, earning more than $50 million in commissions.

The state in May obtained a court order in Los Angeles freezing most of Villalobos’ assets, including his millions of dollars’ worth of real estate, and placing them under the control of a receiver. But court records show that the assets were released back to Villalobos in mid-August.

Also named as a defendant in the lawsuit is former CalPERS Chief Executive Fred Buenrostro, who went to work for Villalobos shortly after leaving the pension fund in 2008. The lawsuit says Villalobos paid for Buenrostro’s 2004 wedding, among other things.

Buenrostro sat in the back of the courtroom Tuesday but didn’t speak at the hearing. He declined to speak with reporters afterward. Both he and Villalobos have said they’ve done nothing wrong.

According to the lawsuit, Villalobos bribed two other men at CalPERS, recently retired board member Charles Valdes and Leon Shahinian, who just resigned as CalPERS’ senior investment officer. The alleged bribe recipients weren’t named as defendants in the case, however.

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