WASHINGTON - The Securities and Exchange Commission filed securities fraud charges against five former San Diego officials yesterday in federal court, claiming they made false and misleading statements in connection with $260 million of the city's municipal securities sold in 2002 and 2003 as well as in presentations made to rating agencies and secondary market disclosures.
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.
SEC officials are seeking an injunction against further violations of the commission's anti-fraud rules as well as unspecified monetary penalties. Yesterday's charges, the first against individual San Diego officials, are the latest installment in a drama that was first sparked when the city revealed in early 2004 that it had not disclosed to bond investors the extent to which is had underfunded its employee pension plan.
"Municipal officials responsible for municipal bond disclosure play a key gatekeeper role in protecting investors," Linda Chatman Thomsen, the SEC's director of enforcement, said yesterday. "It is therefore imperative that they honor the public's trust by ensuring that investors are provided with accurate, material information about the issuer's fiscal health."
According to the SEC's complaint, which was filed in San Diego, the five former officials knew that the city had been intentionally under-funding its pension obligations so that it could increase pension benefits but defer their costs. They were aware that the city would face severe difficulty funding its future pension and retiree health care obligations unless new revenues were obtained, pension and health care benefits were reduced, or city services were cut, the SEC said.
The complaint said that the former officials specifically knew that the city's unfunded liability to its pension plan was projected to dramatically increase, growing from $284 million at the beginning of fiscal year 2002 to an estimated $2 billion by 2009, and that the city's liability for retiree health care was another estimated $1.1 billion. But the officials failed to disclose these and other material facts to rating agencies or to investors in bond offering documents and continuing disclosures.
The complaint alleges that Uberuaga signed the closing letter for one of the bond offerings, falsely certifying that it was accurate and did not contain any misleading statements. Ryan signed letters falsely representing that the city's audited financial statements included in the securities offerings were accurate.
Frazier regularly reviewed and revised the allegedly false and misleading disclosure documents, and signed the closing letter for two of the five bond offerings, the SEC said. She falsely certified that the disclosures were accurate and did not contain any misleading statements. Additionally, she reviewed and made presentations to the rating agencies.
Webster reviewed the city's financial statements that contained some of the false and misleading disclosures, and Vattimo participated in drafting the city's false and misleading disclosures. Additionally, Vattimo and Webster both knew that in 2003, the rating agencies had concerns about the city's growing pension obligations and that those obligations could negatively affect the city's credit rating. Nevertheless, they withheld material facts from the rating agencies, the SEC said.
Lawyers for the five could not be reached for comment.
