CA: SEC subpoenas slew of pension, finance records

San Diego Union -Tribune ^ | 12/24/04 | Philip J. LaVelle

[NormsRevenge]

A federal subpoena served on San Diego's city manager seeks a mountain of material on the city's pension underfunding, on possible conflicts of interest at the pension board and on financial reporting irregularities by city officials.

The Securities and Exchange Commission subpoena of City Manager Lamont Ewell, issued Dec. 16 and made public yesterday, makes 36 demands for a broad range of records, including e-mails, notes, phone messages, financial documents, calendars and minutes of meetings dating back to Jan. 1, 1996. It also orders him to testify over two days, beginning Feb. 3, at San Diego's downtown federal building.

The SEC also issued subpoenas Dec. 16 compelling the sworn testimony of Financial Management Director Lisa Irvine, Assistant City Attorney Les Girard and four current or former non-management city employees who were not identified yesterday.

Irvine was ordered to testify Feb. 10, and Girard on Feb. 24.

The SEC is investigating whether city officials committed securities fraud. Meanwhile, the FBI and Justice Department are conducting criminal probes focused on city finances and possible public corruption.

City Attorney Michael Aguirre released copies of Ewell's SEC subpoena, as well as the Irvine and Girard subpoenas, to the media yesterday.

Several news organizations, including The San Diego Union-Tribune, had asked for copies of all the subpoenas under the California Public Records Act and Proposition 59, the ballot measure approved Nov. 2 that amends the state Constitution to allow greater access to public documents.

Aguirre said he probably would release copies of subpoenas of the non-management city employees in the near future. He said he did not release them yesterday, as requested, because some had yet to be served.

"We think it's in the public interest to release them," Aguirre said. But before that happens, "we want to get it into their hands. We don't want them to read it in the newspaper."

Materials demanded by the SEC include "all documents" concerning:

San Diego municipal bond sales, dating back to Jan. 1, 1996.

Disclosure of pension obligations, the controversial Deferred Retirement Option Program and retiree health care obligations as detailed in 1996 and 2002 pension underfunding arrangements.

Possible conflicts of interest by board members of the San Diego City Employees Retirement System related to pension, Deferred Retirement Option Program and retiree health care obligations.

Analysis and reporting of the causes of the pension system underfunding.

Negotiations between city management and representatives of public employee labor unions, including materials related to officials who serve on the pension board and participate in wage-and-benefit negotiations.

The Deferred Retirement Option Program allows senior city employees to draw retirement pay, which is deposited into special accounts, in their last five years of employment. Proponents say DROP enables the city to retain experienced employees, while critics say it is costly and allows for "double dipping," or the simultaneous receipt of regular pay and retirement pay.

The SEC also issued a series of subpoenas in April. Among the records sought were all documents related to votes in 2002 to underfund the pension system while boosting benefits, and all documents detailing any conflicts of interest by pension trustees and by city officials who approve city bond documents.

Aguirre said the range of documents sought by the SEC reflects the seriousness of the ongoing federal probes focused on the pension system, which has a $1.2 billion deficit, and the city's financial disclosure practices.

"It shows that city officials have to come to grips with the fact that this is serious, that there's a real chance there will be charges brought against the city by the SEC," he said.

Former SEC official Paul Maco, who prepared a 268-page report on city finances on behalf of the city, said Sunday that the subpoenas are routine and do not reflect an expansion of the agency's probe.

The same day, Mayor Dick Murphy characterized the subpoenas as an expected part of the investigation.

Murphy was on vacation yesterday and unavailable to comment on the release of the subpoenas, a spokesman said.

The City Manager's Office released written statements from Ewell and Irvine. Girard was on vacation and unavailable for comment, according to the City Attorney's Office.

In his statement, Ewell said: "I was not surprised and actually anticipated (the subpoenas). It makes perfect sense that the highest-ranking official be asked to provide testimony. As we have done in the past, and will continue to do so in the future, we as City officials will fully cooperate. From my point of view, this is a key element of cooperation."

Irvine's statement said: "This is part of the investigative process to talk to me and other city officials. I will fully cooperate with the SEC and other investigative bodies. I hope the process will answer lingering questions. Our goal is to have our financial statements completed, so the City can focus on implementing solutions."

The SEC, FBI and U.S. Attorney's Office have been investigating city finances for 10 months. The probes followed the initial disclosure in January by city officials of errors and omissions in financial documents used by potential investors in San Diego municipal bonds.

The Jan. 27 disclosure came 12 days after longtime city Auditor Ed Ryan announced his surprise resignation, and marked the beginning of the steady decline of San Diego's financial image.

The SEC subpoenas also seek all documents concerning audits and reviews of the city's pension obligations prepared by Ryan and his successor, Terri Webster, who is also a pension board trustee.

All the major credit-rating agencies lowered the city's bond rating this year on the heels of disclosures of financial irregularities. One agency, Standard & Poor's Ratings Services, suspended its San Diego rating in September, citing the city's failure to release annual audits for 2003 and 2004.

The next month, the city's outside auditor, financial services giant KPMG, informed city officials it could not move ahead on the audits until the city investigated whether criminal acts have occurred.

Until the audits are done, the city is unable to sell bonds to finance major projects, such as federally mandated sewer upgrades.

The SEC's probe is a civil matter. Evidence of criminal activity collected by the agency will be handed over to the U.S. Attorney's Office, the local arm of the Justice Department.