Judge Orders San Diego Pension Documents Turned Over to Feds

August 25, 2005 (PLANSPONSOR.com) - Despite the insistence of San Diego pension fund officials that internal fund documents are protected by attorney-client privilege, a federal judge has ordered that the documents be turned over to federal investigators.

Chief US District Judge Irma Gonzalez of the US District Court for the Southern District of California ordered the city of San Diego’s pension board to turn over the requested documents to the US Attorney’s Office so investigators can move forward with their criminal fraud probe, the San Diego Union Tribune reported.

Despite a gag order from Gonzalez about the documents being sought by US Attorney Carol Lam, the Union Tribune quoted unnamed lawyers in the case.   Lam subpoenaed the documents in 2004, but pension officials had refused to release them.

Pension board President Peter Preovolos said he is not concerned that the system could be the target of the investigation. The board can challenge the order to turn over the documents, but that appears unlikely.

While the judge’s order assists the US Attorney’s investigation, it does not require release of the documents to the city, its auditors or the general public.

According to the newspaper, Deputy Mayor Toni Atkins said the City Council will continue pressing the pension board to waive attorney-client privilege and turn over the documents to the city so it can complete its overdue 2003 fiscal audit. The city is also late on its 2004 audit. Without the audits, the city has been unable to borrow money for important projects.

“This moves one set of challenges forward for the US Attorney’s Office and the Securities and Exchange Commission,” Atkins told the newspaper. “But this doesn’t help our need for information in any way. We have to stay on the path we’re on and get the (pension) board to waive attorney-client privilege.”

The San Diego City Employees’ Retirement System is running at a deficit of at least $1.4 billion, caused in part by the city’s underfunding of the pension system since 1996 in order to balance its budget. The shortfall has caused the city to dramatically increase its annual payments to the pension system to $163 million for this fiscal year – an amount that has strained the city’s budget.

Federal investigators are probing city financial records to determine whether city officials committed fraud by withholding information about San Diego’s fiscal woes from bond investors.