Ex-San Diego Officials File Motions to Dismiss SEC Cases

SAN FRANCISCO - The five former San Diego city officials facing civil securities fraud charges from the Securities and Exchange Commission filed motions this week seeking to have the cases dismissed.

The SEC filed the charges against the five individuals in April, some 18 months after it sanctioned the city government for securities fraud, citing its failure to disclose to bond investors the city's growing unfunded pension liabilities and retiree health care liabilities that placed it in serious financial straits.

The SEC charges against the five individuals, brought in U.S. District Court in Southern California, claim they made false and misleading statements in connection with $260 million of the city's municipal securities sold in 2002 and 2003, and also in secondary market disclosures and presentations to rating agencies. The commission is seeking injunctions against further violations of its anti-fraud rules and unspecified monetary penalties.

The officials are: former city manager Michael T. Uberuaga, former city auditor and comptroller Edward P. Ryan, former deputy city manager of finance Patricia Frazier, former assistant city auditor and comptroller Teresa A. Webster, and former city treasurer Mary E. Vattimo.

In their motions to dismiss, filed Monday, the five argue that the charges against them aren't grounded in law, are not backed up by facts, that the defendants are immune, that the charges are overdue, or combinations thereof. A hearing on the motions is currently scheduled for November.

All five argue that their actions as city employees are covered by legislative immunity.

"Because legislative immunity aims to protect the integrity of the legislative process, it applies to any act undertaken by a government official that serves 'the due functioning of the [legislative] process,' irrespective of his or her specific title or position," Uberuaga's motion says.

The issuance of all the municipal bonds in question was the result of resolutions adopted at the discretion of City Council, the defendants argue.

Uberuaga's motion argues that the city's employees were unjustly singled out.

"Why are no current or former members of the City Council named parties in the complaint or the cease-and-desist order, considering they generally are responsible for raising and spending money through municipal securities offering?" his motion asks.

Vattimo, the former treasurer, argues that the city's offering documents did in fact give an accurate portrayal of the "most salient actuarial information." She noted that bond documents for the city's 2003 bond issues disclosed that the city's pension funding ratio as of June 2002 was 77.3% compared to 89.9% the year prior.

Webster argues that the SEC's complaint fails to establish that she "participated in any way in the city's securities offerings during 2002 or 2003."

Ryan, who as auditor oversaw the city office that prepared annual financial statements, argues that the SEC fails to link the statements his office prepared to any attempt to defraud investors.

"The city auditor's office's obligation was to comply with [the Governmental Accounting Standing Board] in its completion of the comprehensive annual financial report," his motion says. "That it did."

His motion notes that his office received awards for its preparation of financial statements.

"The CAFR was signed long before it was attached as an exhibit to a bond offering," the motion said.

Frazier, echoing arguments made by several others, argues that no investors in San Diego securities lost any money, nor did she derive any financial benefits from the issuance of the securities.

The motions for dismissals also argue that any attempt to sanction the former city employees in connection with securities issued in 2002 is barred under the statute of repose, requiring actions to be brought within five years of the alleged impropriety.

The SEC's 2006 sanctions against the city itself did not impose any monetary penalties, ordering it to cease and desist from further violations and hire an independent consultant.

The city has not issued bonds in the public debt markets since the crisis first surfaced in early 2004, though it hopes to regain market access soon now that it has caught up on a backlog of audited annual financial statements.

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