Hearing Produces Mixed Results in San Diego Case

November 7, 2008 (PLANSPONSOR.com) - A federal judge has indicated that some allegations filed by the Securities and Exchange Commission (SEC) against five former San Diego officials in connection with the city's pension crisis might have to be refiled.

According to the San Diego Union-Tribune, U.S. District Judge Dana Sabraw also indicated that pleas by defense lawyers to dismiss several other civil-fraud allegations probably will be turned aside.   The judge said that it is either too soon to raise those issues or that more evidence must be developed before he can make a final ruling, according to the report.

Those comments came at a hearing on the SEC complaint against former San Diego City Manager Michael Uberuaga, former auditor Ed Ryan, former Deputy City Manager Patricia Frazier, former city Treasurer Mary Vattimo and former assistant city auditor Teresa Webster.

In  April , the SEC leveled fraud charges against the five, alleging they lied about the impact of the city’s pension funding woes on its precarious finances while carrying out municipal bond offerings in 2002 and 2003 – that they knew that the city’s pension funding shortfall was projected to leap from $284 million in 2002 to $2 billion seven years later.   The SEC also alleged that the officials knew the city’s liability for retiree health care was another estimated $1.1 billion, and that the former officials were aware that San Diego had purposely been cutting back its pension payments to allow the city to step up worker benefits while putting off the resulting cost (see  SEC Charges Five Ex-San Diego Officials with Fraud ).

Last month federal prosecutors added new wire fraud and conspiracy charges to the long-running prosecution of five former city of San Diego retirement officials, alleging that they took a wider variety of actions and received a wider variety of benefits when they decided in 2002 to put less money into the pension system than was required (see  Prosecutors Tack on New Fraud Charges in SD Pension Case ).   That new indictment contended that the five schemed to pass the reduced funding plan so that Ronald Saathoff, the former leader of the city firefighters union, could get an additional retirement benefit as a union president. The other four acted, the indictment said, so they could “maintain their positions within the City of San Diego and (the pension program), and seek new employment opportunities.”

Dismissal Motions

In the hearing, defense lawyers argued that the complaint should be tossed out on a variety of grounds, for instance that some of the allegations are not spelled out in sufficient detail, according to the Union-Tribune.   The lawyers for the defense also argued that the case should be dismissed based on legislative immunity, according to the report.

Judge Sabraw tentatively ruled that he would not dismiss the complaint now based on legislative immunity, but said he would defer a final ruling until more evidence about the role and actions of each defendant was more fully developed.   And while he agreed in the tentative ruling to dismiss some of the allegations because they were insufficiently detailed, the Union-Tribune said, he also indicated he would allow the government to amend them and provide the necessary information.

Sabraw said he will issue a final decision on the issues raised by the defense lawyers in the coming weeks.