This story is getting ugly. Sacramento Bee reports that the giant pension fund's former board member, Alfred J. Villalobos, hosted the 2004 wedding of his good friend, CEO Fred Buenrostro. Villalobos was more than a friend - he stood to gain millions of dollars in fees by introducing his clients to officials at Calpers. He's a middleman between the investors and the investment companies looking for money. By the way, Buenrostro left Calpers last year and now works for Villalobos! (What's amazing is the so-what reaction from Buenrostro.)

In a recent interview, Buenrostro acknowledged his close relationship with Villalobos but said their ties didn't influence CalPERS' investments. CalPERS has said its investment decisions aren't swayed by placement agents. When asked if CalPERS knew that Villalobos hosted Buenrostro's wedding, or whether that posed a conflict of interest, spokeswoman Pat Macht said in an e-mail that "relationships related to placement agents are part of the full examination being conducted by Steptoe and Johnson."

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In an interview last week, Buenrostro said Villalobos paid for the wedding, and then he subsequently reimbursed him - without ever seeing the actual bills. He declined to say how much he paid. In any event, Buenrostro said he broke no state law. "Entertainment in AJ's home is not a reportable expense or a gift," he said. "AJ was kind enough to lend me his home for a small, private event where I invited my family. I appreciated the offer of using his personal home."