SEC Charges Five Ex-San Diego Officials with Fraud

April 8, 2008 ( - Federal securities regulators have leveled fraud charges against five former San Diego officials over allegations they lied about the impact of the city's pension funding woes on the its precarious finances while carrying out municipal bond offerings in 2002 and 2003.

A Securities and Exchange Commission (SEC) news release said the five ex-officials knew that the city’s pension funding shortfall was projected to leap from $284 million in 2002 to $2 billion seven years later. They also knew the city’s liability for retiree health care was another estimated $1.1 billion, the regulators alleged.

Additionally, according to the SEC, 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.

Named in the SEC action were:

  • Michael T. Uberuaga, the former San Diego City Manager,
  • Edward P. Ryan, the former Auditor & Comptroller,
  • Patricia Frazier, the former Deputy City Manager for Finance,
  • Teresa A. Webster, the former Assistant Auditor & Comptroller, and
  • Mary E. Vattimo, the former City Treasurer.

The SEC announcement said its suit filed in U.S. District Court in San Diego charges that:

  • Uberuaga signed the closing letter for one of the bond offerings, falsely certifying that it was accurate and did not contain any misleading statements.
  • Ryan signed letters falsely representing that the city’s audited financial statements included in the securities offerings were accurate.
  • Frazier regularly reviewed and revised the false and misleading disclosure documents, and signed the closing letter for two of the five bond offerings. She falsely certified that the disclosures were accurate and did not contain any misleading statements. Additionally, she reviewed and made presentations to the rating agencies.
  • Webster reviewed the city’s financial statements that contained some of the false and misleading disclosures.
  • Vattimo participated in drafting the city’s false and misleading disclosures. Additionally, Vattimo and Webster both knew that in 2003, the rating agencies had concerns about the city’s growing pension obligations and that those obligations could negatively affect the city’s credit rating.

The Commission earlier sanctioned the city for committing securities fraud by failing to disclose to the investing public important information about its pension and retiree health care obligations in the sale of its municipal bonds in 2002 and 2003 (See  San Diego Slapped with SEC Sanctions for Bond Sale Fraud ). It also previously filed a settled civil injunctive action against the outside auditors for the City of San Diego and its pension system (See San Diego Former Auditors Agree to $15K for Fraud Charges ).