Potential Lawsuits Abound in San Diego Pension Fiasco

January 25, 2005 (PLANSPONSOR.com) - The San Diego pension fiasco seems headed to the courts, with the City Attorney and a pension system attorney threatening legal action against each other in a power struggle over the City's retirement program.

City Attorney Michael Aguirre told reporters on Monday that he had retained litigator Donald McGrath – a long-time San Diego lawyer – to initiate a probe and legal action against the City’s pension board in order to garner their cooperation into a current investigation into financial disclosure practices. Aguirre is not using his office’s Public Integrity Unit in order to avoid a conflict with the federal investigation, according to the San Diego Daily Transcript.

At the same time, pension board attorney Mike Leone has said he is preparing a lawsuit against the City Attorney’s office in an attempt to keep Aguirre from wrestling control of the board’s independent counsel from his firm and team leader Lorraine Chapin.

Until 1998, Aguirre noted, the pension board’s legal advice had to come from the City Attorney’s office. He is attempting to wrestle control back from the outside attorney’s, according to the Daily Transcript. Leone is questioning where Aguirre gets the authority to sue the pension board without approval from City Council.

Aguirre has also announced the launch of a separate investigation into whether city employees destroyed documents that possibly related to the ongoing federal pension investigation. He said that the city manager, treasurer and auditor are being uncooperative with his probe.

At the end of December, the Department of Justice (DoJ) delivered subpoenas to 12 current and former San Diego officials in a criminal investigation regarding the handling of the city’s beleaguered pension fund (SeeDoJ Subpoenas San Diego Pension Officials). Aguirre is alleging that employees possibly destroyed certain documents on a “cleaning day” in December.

The SEC first began looking into city finances shortly after city officials made their first admissions, on January 27, 2004, of errors and omissions in financial statements used by potential investors in San Diego’s bonds to assess the city’s fiscal strength (See  Pension Flap Costs San Diego City Manager His Job ). Among the omissions: the full story of the deficit in the city retirement system, now estimated at $1.2 billion.

The San Diego pension fund drew considerable attention in 1996 when city officials decided to both underfund the plan and increase benefits, a move viewed by many as irresponsible. For a PLANSPONSOR article on poor management at pension funds, please see Misbehaving in Public?