Internal San Diego Report Clears Officials of Wrongdoing

August 3, 2005 ( - A law firm hired to investigate the city of San Diego's troubled financial reporting practices has concluded that there isn't enough evidence of wrongdoing by city employees.

The investigation report is the second by Vinson & Elkins, hired by the city last year after errors were discovered in bond disclosure statements related to the debt-ridden San Diego City Employees’ Retirement System (SDCERS), the San Diego Union Tribune reported.

Vinson & Elkins’ report directs “substantial blame” for the reporting problems on Ed Ryan, the former city auditor, and Terri Webster, the former assistant city auditor.   Both, according to the report, “had knowledge of facts indicating that certain risks to the SDCERS funded status were not properly reflected in city disclosure, but failed to act in a timely manner to remedy these omissions.”

“The record does not indicate that any city employees, including its senior officers, suspected at any time that they were engaging in conduct that might be prohibited by law,” the report stated, according to the newspaper.

The 118-page report suggested that while the “inaccuracies and omissions” were unintentional, it doesn’t mean there were not violations of federal securities laws by certain city “gatekeepers.” Laws can be violated through “negligent conduct,” according to the report.

“The most damaging insight to come from this phase of the investigation is that certain officials consciously avoided bringing negative information to the attention of the bond rating agencies,” Vinson & Elkins asserted in the report.

The flawed bond disclosures, and a shortfall of at least $1.4 billion in the retirement system, are the now the subject of investigations by the Securities and Exchange Commission, US Attorney’s Office and the FBI (See  San Diego DA Kicks Off Pension Probe ).

The report also pointed the finger of blame at former City Manager Michael Uberuaga, former Deputy City Manager for Finance Patricia Frazier and former City Treasurer Mary Vattimo.   Those officials, the lawyers wrote, likewise “failed to act with the standard of care to be expected of individuals in their positions.”

The report also said that the mayor and council during 2002-2003 “did not act with reasonable prudence in continuing to authorize bond offerings without making further inquiry into the status of the city’s pension system.”

City Attorney Michael Aguirre called the second Vinson & Elkins’ report a “whitewash,” saying it did not adequately address the role of the council and mayor in forging agreements in 1996 and 2002 to increase retirement benefits while at the same time underfunding the pension system.

Aguirre alleges that the benefits were granted illegally and contributed to the pension debt. He wants the benefits rolled back (See  Lawsuit Intends to Roll Back San Diego City Pension Benefit Increases  ).