Five Indicted in San Diego City Pension Case

January 9, 2006 ( - Four former top officials in San Diego's city pension system and its current lawyer were charged Friday with wire fraud, mail fraud, and conspiracy to commit wire and mail fraud in a 20-count indictment issued by a federal grand jury.

According to published reports in the San Diego Union-Tribune and the San Diego Daily Transcript, the five charged are Ronald Saathoff, former president of the local firefighters union; Cathy Lexin, former human resources director in the city manager’s office; Teresa Webster, the city’s former acting auditor and comptroller; Lawrence Grissom, former SDCERS administrator; and Loraine Chapin, the plan’s general counsel, who voluntarily went on administrative leave Friday morning.

“The defendants breached (their) fiduciary duty to the retirement system and deprived the citizens of San Diego of the right to the defendants’ honest services,” Shane Harrigan, chief of the US Attorney’s criminal division, told reporters Friday.   “These defendants engaged in this criminal conduct for their personal, professional, and financial gain.”

The criminal charges are at least the initial results of the federal two-year investigation into San Diego’s underfunded pension system.   The federal case hinges on Manager’s Proposal 2, the 2002 deal in which pension board members allowed the city to continue underfunding the San Diego City Employees’ Retirement System – something the city had been doing since 1996 – in exchange for granting increased benefits to employees (see  San Diego DA Kicks Off Pension Probe ).   The pension board approved the plan in November 2002.

“A Dangerous Practice”

“Manager’s Proposal II continued a dangerous practice of permitting the city of San Diego to avoid making its full pension contribution to the retirement system,” Harrigan said, “a practice that resulted in serious underfunding of the retirement system, thereby jeopardizing both the pension system and the financial stability of the city.”

Federal prosecutors said Lexin, Webster, Grissom, Chapin, and Saathoff kept other board members in the dark about aspects of the proposal. Saathoff agreed to vote for the proposal only after a “presidential leave retirement benefit” was created, a plan that increases Saathoff’s personal retirement benefits by more than $25,000 a year, Harrigan said.   Saathoff made the motion that ultimately put the proposal into effect, according to the Daily Transcript.  

SDCERS President Peter Preovolos said the board has cooperated with the US Attorney’s office and will continue to cooperate.

Saathoff, Lexin, and Webster were indicted by San Diego District Attorney Bonnie Dumanis last spring with charges related to the pension system as well. In that case, currently in preliminary hearings, they are charged with breaking state conflict of interest laws.   City Attorney Michael Aguirre has launched similar litigation against Chapin, Grissom, and other former pension board members, while the SEC also is conducting its own investigation into San Diego’s financial crisis (see  San Diego’s Aguirre Calls for Retirement Board Changes ).