City Hall observers are abuzz with talk of the "others," a group of unknown individuals who have little to do with the mysterious island dwellers of ABC's sci-fi drama Lost, but everything to do with last week's 20-count indictment of five city pension-system officials.
The federal grand jury indictment alleges, in part, that three former pension trustees, Ronald Saathoff, Terri Webster and Cathy Lexin; the pension system's administrator, Lawrence Grissom; its general counsel, Loraine Chapin; "and others" conspired in 2002 to keep fellow members of the pension board in the dark and defraud the citizens of San Diego when they created and profited from a now-infamous pension underfunding scheme known as Manager's Proposal 2 (MP2).
Who are these "others"? The indictment doesn't say, and investigators aren't commenting officially, but it's widely believed by observers that former Mayor Dick Murphy, a selection of past and present City Council members who held office in 2002 and high-ranking members of city staff are all in the crosshairs of U.S Attorney Carol Lam.
Federal investigators regularly indict some targets early on in conspiracy investigations in hopes that the pressure brought by criminal charges will loosen lips and help ensnare other conspirators later.
On Monday, a high-ranking law-enforcement source close to Lam's investigation confirmed for CityBeat that the federal probe into San Diego's pension debacle would continue while shifting focus to the superiors of those already indicted.
In 2002, Webster, the city's former assistant auditor and comptroller, reported to former auditor, Ed Ryan. Lexin, the city's former human-resources director, served under then City Manager Michael Uberuaga.
Uberuaga and several of his deputy city managers, including Bruce Herring, who was instrumental in pitching MP2 to the pension board, received their direction from mayor Murphy and the City Council, comprised at the time of current Councilmembers Toni Atkins, Donna Frye, Scott Peters, Jim Madaffer and Brian Maienschein, as well as former City Councilmembers Ralph Inzunza, George Stevens and Byron Wear.
The law-enforcement source told CityBeat that the FBI and U.S. Attorney's office will focus on the larger motives high-ranking city officials may have had for wanting to avoid making a multi-million-dollar payment to the retirement system in 2002. The financing and construction of Petco Park was specifically mentioned as an item of interest.
In February 2002, city leaders finally managed, after months of delays, to issue nearly $170 million in bonds needed to fund the construction of the long-delayed downtown baseball park. On the same day, a committee of citizens appointed by Murphy to gauge the health of city finances, told the mayor that things weren't too good. But in the coming months, shipbuilding executive Richard Vortmann, a member of the committee, wrote to the mayor's staff, Ryan, Webster and others on several occasions to warn them that the committee had failed to sound a loud enough warning. "The committee's unstated concern over the ballpark financing and any impact to the city's credit rating in general are now behind us," Vortmann wrote in an April 29, 2002, memo, and suggested sounding a much louder alarm.
Attorney Michael Conger, who successfully sued the city and retirement system in 2003 to end the underfunding, said he has "intimate knowledge" of how the deal was put together and that he's not surprised federal investigators are now focusing on the city's half of the MP2 agreement.
"In my world, among the most culpable were the mayor the City Council, Uberuaga and Herring," he said. "Frankly, I think they are more responsible because they concocted it-they were the brains behind the operation."
According to a report released by City Attorney Mike Aguirre last year, the mayor and City Council voted in closed session on several occasions in 2002 to approve various incarnations of MP2-including special presidential benefits for Saathoff-in hopes of lowering the "trigger"-a predetermined funding level of the pension system-which, if breached, would force the city to make a multi-million-dollar balloon payment to the retirement system.
"There is substantial evidence consistent with a finding that the mayor and City Council did attempt to conceal and did conceal the granting of pension benefits in exchange for the waiver of the trigger and balloon payments," Aguirre wrote, going on to say the mayor and City Council did so either "knowingly or recklessly."
Conger said a lack of documentation from those closed-session meetings makes it hard for him to determine if one City Council member or city staffer is potentially more culpable than another.
But in the same report, Aguirre opined that the mayor and City Council had all allegedly committed civil violations of securities fraud when they approved documents that failed to disclose the true state of the pension underfunding to Wall Street and potential investors. Aguirre used a continuum based on the educational background of each individual elected official to assign a directly proportionate level of culpability.
On Monday, Aguirre told KLSD talk-show host Stacy Taylor that "the forces of corruption are still in positions of power," and later told CityBeat he believes some of those responsible for the pension crisis are still working at City Hall."I think that the forces that drove the underfunding of the pension plan, that drove the closed-door sessions and all of that, are all still there," he said.