Paul Maco had better be trustworthy. As co-author of the now infamous Vinson & Elkins report-the 281-page audit of the city's disclosure practices surrounding the San Diego City Employees Retirement System's $1.17 billion deficit-and as the city's legal counsel in the Securities and Exchange Commission's investigation of those disclosures, he bears a lot of responsibility. Some say too much.
That's why some observers are asking questions about a possible conflict of interest between Maco's dual roles as unbiased fact-finder and the city's defense attorney. The most salient issue at hand: did the man charged with delivering the God's-honest-truth regarding who exactly failed to disclose what about the city's pension system avoid his responsibility in order to strengthen his hand in his duty to protect the city from SEC action?
Maco, a former head of the SEC's Municipal Securities Office (the same office eyeballing the city) who also represented Enron, says he's doing his job. Both of them.
“The engagement letter with the city makes it very clear that conducting an objective, ‘warts and all' investigative report takes precedence over representing the city before the SEC,” says Maco. “To the extent that there is a right of zealous representation before the SEC in the inquiry, the city waives that in deference to the need for the objective report.”
Maco also points out that the report was commissioned before the SEC began its investigation.
Those assurances seem to be good enough for embattled Mayor Dick Murphy, who at a press conference Friday touted the recommendations contained in the Vinson & Elkins report as one of three key pieces of a roadmap that he claims will lead the city toward financial salvation. On Tuesday the City Council acted on those recommendations, voting unanimously to endorse them and make, according to the mayor, San Diego's disclosure practices some of the tightest in the nation.
But it's not the recommendations that are raising eyebrows so much as what might be missing from the report's pages. The most glaring omission: a smoking gun.
“It's a whitewash. A pure and simple whitewash,” says Michael Conger, the lawyer who sued the city last year on behalf of some of its pensioners. “They are trying to put the best face forward on massive securities fraud.”
Indeed Murphy used the report at his press conference to rebuff questions regarding impending legal action against city officials. “The Vinson & Elkins report said there was no evidence of intentional misconduct,” he said, adding, “I'm just telling you what they said.”
Conger scoffs at the notion that the Vinson & Elkins report is objective and accuses Maco of conducting his investigation with “one eye closed.” As evidence of this alleged willful blindness, Conger points to the report's finding that the individuals responsible for the city's information-disclosure issues “lacked both motive and opportunity to mislead.”
“I've never seen this much evidence of motive and opportunity,” he says. “Maco says they didn't have opportunity. They did it! The very trustees who got major benefit increases themselves are the ones who actually made the motions to under-fund! They committed a caper, and he's saying that they didn't have any opportunity to do it!”
Maco says he stands by the integrity of his report, contending that it demonstrates serious problems that the city must come to grips with.
“It certainly doesn't come back and say there is no fault,” he says. “It comes back with serious faults, including the failure to provide adequate disclosure historically going back to 1996.”
And Maco admits that while his report doesn't find any city officials to be criminally culpable, he wasn't able to determine if SEC codes were violated.
“It may be. There are a variety of different facts and circumstances that go into measuring that and the ultimate conclusion involves accessing information and other materials that weren't available to us to fairly draw that conclusion,” he says, noting that his team lacked the authority to compel testimony under oath and was dependent on the cooperation of city officials and individuals.
City Councilmember Donna Frye, who voted to implement the Vinson & Elkins recommendations Wednesday, isn't as critical of the report as Conger, but she says she's not buying its findings that the disclosure issue was essentially created by innocent bungling and incompetence.
“I don't think that it's a complete whitewash because there are an awful lot of damning statements in there, but it's incomplete in what it addresses.... I don't buy the fumbling-idiot theory. I think that there is probably some of that, but I don't buy it.”
She says that although Maco's dual roles certainly give the appearance of a conflict of interest, she is nonetheless putting her faith in his good intentions and experience to help guide the city through its present woes.
Maco's firm isn't complaining. On Monday, the City Council voted to increase the city's contract with Vinson & Elkins from $1.3 million to $2 million to cover the costs of the report and SEC representation. At that same meeting, City Attorney Casey Gwinn announced that he would return in the near future to ask the City Council for additional funds.