Tuesday, April 8, 2008
The SEC charged 5 former San Diego officials with fraud in connection with the City’s false and misleading financial statements in five 2002 and 2003 bond offerings. According to the SEC’s complaint, these five former officials knew that the city had been intentionally under-funding its pension obligations so that it could increase pension benefits but defer the 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. They 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. The complaint seeks a final judgment permanently enjoining the officials from further violations of the securities laws and ordering them to pay civil penalties. To settle the action, the city previously agreed to cease and desist from future securities fraud violations and to retain an independent consultant for three years to foster compliance with its disclosure obligations under the federal securities laws. The Commission also previously filed a settled civil injunctive action against the outside auditors for the City of San Diego and its pension system.