SAN FRANCISCO — The
The charges were brought in 2005, in the wake of a scandal that followed the city’s 2004 disclosure that it had not disclosed to bond investors the extent to which it had underfunded the pension system.
The Securities and Exchange Commission formally sanctioned the city in 2006, and San Diego was without access to public bond markets for six years as it audited its financial statements, set up new internal controls, and instituted new disclosure processes.
The state’s high court tossed out the felony conflict-of-interest charges against five pension board members who voted in 2002 for the arrangement that resulted in the pension fund’s underfunding.
The premise of the charges was that the accused board members of the San Diego City Employees’ Retirement System, all city employees, agreed to a quid pro quo that saw their benefits improved in return for an agreement not to press the city to increase its annual contribution to the fund.
The high court threw out the cases against former city Treasurer Mary Vattimo, former assistant city auditor and acting auditor Terri Webster, former human resources director Cathy Lexin, and union representatives John Torres and Sharon Wilkinson.
While they all received the increased pension benefits that flowed from the pension board’s 2002 decision, those benefits were available to all city employees, according to the Supreme Court’s opinion, authored by Judge Kathryn Werdegar.
“They received a pension benefit on the same terms and conditions as did a broad segment of their constituents, without regard to their board membership, and with no special tailoring or individualized consideration,” the opinion said.
“By intentional legislative design, many of the board’s trustees were members of the retirement system and thus had interests in common with the membership as a whole,” Werdegar noted.
“For public officials to have a conflict of interest there must be some differentiation between their financial interests and the financial interests of those they represent,” she wrote. “Here, there was none.”
The ruling allows the state felony case to proceed against one defendant, Ronald Saathoff, who was president of the city firefighters’ union.
The charges against Saathoff allege that his vote as a pension board member to reduce San Diego’s contribution requirements was contingent on the city agreeing to a policy that calculates his pension based on his combined city salary and union salary — a policy change that affected no one else.
“As such, it was an individually tailored benefit that raised the prospect of favoritism or more nefariously — under the people’s theory here — buying off a key vote, the person who 'runs the show’ at SDCERS,” Werdegar wrote.
Despite the state Supreme Court’s action Monday, two long-running federal cases — one civil, one criminal — remain open in the wake of the San Diego pension crisis. The SEC filed civil securities charges against five former city officials in 2008, claiming they made false and misleading statements in connection with the sale of municipal securities.
The SEC’s civil case named Vattimo and Webster, plus former city manager Michael Uberuaga, ex-auditor and comptroller Edward Ryan, and former deputy city finance manager Patricia Frazier.
The parties in the case are working toward a settlement, according to the minute report from the last proceeding in the case, a Jan. 19 status conference. In another case that remains open, the U.S. attorney in San Diego in 2006 announced indictments against five people on counts of wire fraud, mail fraud, and conspiracy.
Saathoff, Lexin, and Webster were charged in the federal case, along with the pension system’s former administrator, Lawrence Grissom, and former general counsel, Loraine Chapin. The next status conference in that case is now set for March 11.
