IPO buy involved company on internal restricted list, CalPERS says

02/18/2014 1:31 PM

02/19/2014 12:47 PM

CalPERS investment managers on Tuesday said they have again run afoul of an anti-insider trading policy by purchasing stocks that were on a “restricted trades list” of securities.

Fund officials said the trade involved an initial public offering last Novemeber, but they wouldn’t disclose which company or how much was spent. The purchase was handled over the telephone, said CalPERS Senior Investment Portfolio Manager Daniel Bienvenue, before the stock could be coded into a computer system that flags questionable trades.

CalPERS’ latest disclosure during its monthly board meeting came as federal regulators look into allegations that CalPERS violated insider trading laws last March when investment staff purchased tens of millions of dollars in restricted-list stocks and then decided there was no need to reverse the trades once discovered.

Stocks on the list aren’t supposed to be bought or sold because at least one person at CalPERS has information about matters that could affect the companies’ stock price, such as earnings estimates, significant changes in management and planned mergers or acquisitions. Trading on such inside information violates federal law.

CalPERS’ investment staff recieve the restricted list. Bienvenue’s unit – which was involved in the IPO trade – doesn’t look at it as a matter of investment philosophy.

“The reason for that is we are not in possession of non-public information,” he told the fund’s board. “We are happy to not be in possession of material nonpublic information. To look at the restricted list goes in the face of that. Our belief is we rely on our technology and our systems to catch these things.”

A few employees in a CalPERS oversight unit last year raised concerns after they found that investment staff had bought $26.6 million in stock in JPMorgan Chase & Co. and a Midwest energy company. The Securities and Exchange Commission has been reviewing the trades and CalPERS’ decision not to reverse the purchases.

CalPERS has said no one who made any of the trades had inside knowledge or personally benefitted from any of them and that it has fine-tuned its restricted-list policy to prevent similar trades in the future. Fund spokesman Brad Pacheco noted that CalPERS restricted-list violations account for a miniscule fraction of its $277 billion in assets.

“We’re trading thousands and thousands of stocks per day,” Pacheco said in a telephone inteview. “We’ve had two instances (of restricted-stock violations).”

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