Like Mayor Jerry Sanders, we're anxious to file the city of San Diego's legal and financial problems away in a drawer marked “Past Mistakes” and move on to better things. The U.S. Securities and Exchange Commission (SEC) pushed us one step forward this week in terms of legal entanglements, but, sadly, we have a long way to go to get past the financial problems they caused.
Unethical and illegal behavior has left San Diego taxpayers with a huge bill and will strip residents of various government services for many years. The people responsible for it must be punished. For its part, the SEC is seeking to punish at least five people: former City Manager Mike Uberuaga, former Deputy City Manager Patricia Frazier, former City Auditor and Comptroller Ed Ryan, former Assistant City Auditor Terri Webster and former City Treasurer Mary Vattimo. The SEC has accused them, generally speaking, of knowingly lying about the city's financial condition to credit-rating agencies and potential investors in five city bond offerings. More specifically, they allegedly lied about how the city had put itself in serious debt (estimated at $2 billion by 2009) by increasing retirement benefits for city employees (retroactively to 1980) and not making its legally required payments into the retirement system.
Presumably, all the alleged fibbing was done simply to maintain a good reputation on Wall Street and keep interest rates low when it came to borrowing money for capital projects.
It didn't work out that way. As we all know, the city's name is mud on Wall Street, and it's been shut out of the public borrowing market for the past five years.
Also on the scorecard: District Attorney Bonnie Dumanis has charged six people—Webster, Vattimo and four other retirement system trustees, Ron Saathoff, John Torres, Cathy Lexin and Sharon Wilkinson—with breaking state conflict-of-interest laws (for agreeing to a deal that boosted their own benefits), and the U.S. Attorney's office has indicted five people on fraud and conspiracy charges—Webster, Lexin and Saathoff, plus the retirement system's former administrator, Lawrence Grissom, and lawyer, Loraine Chapin.
If our math is correct, that's 11 people facing either criminal charges (the state and federal cases), civil penalties (SEC) or, in Webster's case, all of the above. Is that enough? Or should more people be on the hook?Some folks (City Attorney Mike Aguirre) think the list is light on elected officials. After all, members of the City Council participated on two levels: They approved the finance documents that got Uberuaga, Ryan, Webster, Vattimo and Frazier in hot water with the SEC, and they approved the deal that allowed the city to shortchange the retirement fund in exchange for handing over those handsome benefits. In both cases, the question is: Did they really know what they were doing.
In the SEC matter, we've said before in this space that we don't believe they knew they were sending fraudulent information to Wall Street. The misleading information was in the fine print of extremely esoteric documents. City staffers tell the City Council everything's shipshape, and away they go. That's why the staff is in trouble, and that's why investigators (Kroll Inc.) concluded that the City Council was “negligent” in its duty, which gets them nothing more than a sharp whack on the back of the hand from securities regulators. We think that's all they should get.The underfunding-for-benefits deal (the reason for all the lying) is a different matter. Kroll investigators spanked the City Council for approving the illegal deal in 2002—Scott Peters, Brian Maienschein, Toni Atkins, Jim Madaffer and Donna Frye still remain from that vote—but blasted the city's lawyers for not telling the council that it was illegal. (Will someone please tell us how former City Attorney Casey Gwinn has managed to wriggle off the hook?)
The City Council members were presented with the deal in spring 2002 in closed-door meetings. It remains unclear how sharp their understanding of it was at that time. When it came time to give final approval in November, the council voted unanimously to shortchange the retirement fund. Diann Shipione, then a retirement-system trustee, clearly told them, at that meeting, that the city was “buying” the retirement board's complicity in allowing the city to shortchange the system and load it up with debt a few years down the road. She also said, correctly, that the deal represented a conflict of interest on the part of several retirement-system trustees. That's when Frye voted against the benefit increases. The rest of the council ignored Shipione.
Does that mean the council members should be brought up on federal conspiracy charges? We're not qualified to make that judgment.
What we do know is that Peters and Maienschein, who are both running for city attorney, continue to suggest that criticizing them for ignoring Shipione's warning is unfair—and that's patently absurd. They obviously want the whole mess swept under the rug, but their opponents (and not just Aguirre) have every right to question their record, and voters have every right to expect an explanation.
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