SEC Demands San Diego Pension Testimony, Documents

December 20, 2004 ( - Federal securities regulators have demanded testimony and documents as part of their probe of the troubled San Diego city pension system, according to a media report.

The San Diego Union-Tribune said the Securities and Exchange Commission (SEC) has demanded that several San Diego city officials testify under oath in its ongoing securities-fraud investigation of city finances and its beleaguered pension program. The SEC also subpoenaed a variety of city financial records, according to the newspaper.

The SEC has been investigating city finances for the better part of a year along with the FBI and US Attorney’s Office. The SEC probe focuses on the city’s failure to fully disclose the pension system’s $1.2-billion deficit in bond sale documents, according to the Union-Tribune.

Tuesday, the City Council, called back from holiday recess by Murphy for a special hearing, will discuss spending up to $150,000 on outside lawyers for the subpoenaed officials, according to the newspaper.

The SEC’s latest move comes three months after Vinson & Elkins, a law firm hired to represent the city in talks with the SEC, issued a 268-page report that found widespread irregularities in city finances, but attributed them up to inattentiveness and poor management.

Earlier SEC subpoenas in April indicated that the SEC had issued a formal order of investigation of the city’s finances, based on provisions of federal law allowing for investigations when commissioners believe securities laws “have been or are about to be violated.”

The April 22 subpoenas sought documents dating to 1996, when the city started to intentionally underfund the San Diego City Employees Retirement System. They also sought documents related to City Council votes in 2002 to continue underfunding the pension system while boosting benefits, and all documents detailing possible conflicts of interest by pension trustees and by city officials who approve bond sale documents, according to the newspaper

The SEC first began looking into city finances shortly after city officials made their first admissions, on January 27, 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.