SEC Sanctions City of San Diego
Tuesday, November 14, 2006
Nearly two years after the SEC began investigating San Diego’s bond disclosure practices, the agency said today that the city committed fraud. The SEC said the city did not tell the investing public it had a billion dollar pension-fund shortfall. SEC official Linda Chatman Thomsen said the agency’s enforcement action against San Diego “signifies our resolve to hold state and local governments accountable when they commit fraud while seeking to borrow the public’s money.”
City attorney Mike Aguirre, who negotiated with the SEC on the city’s behalf, called the agency’s order a hard pill to swallow for San Diego residents who themselves are not responsible for the fraudulent activity that took place.
Michael Aguirre: This is a tough day for the city of San Diego. You know i’m very sorry to see the community have to go through this. This is a national story and will have a national impact on our reputation. The question now is can we match this negative with positive action action to show the investing community and really the rest of the country that San Diego is not a corrupt city and that we have learned our lessons.
Aguirre said it was unusual and significant that the SEC chose not to impose any penalties on the city. He said it showed an effort not to punish taxpayers. The SEC’s investigation of the city as an entity may be over but agency officials say they are continuing to scrutinize individuals. Those potentially under review include current and former city councilmembers, city officials and former mayor Dick Murphy. Aguirre, who is in a court battle to roll back pension benefits that he deems illegal, used today’s SEC announcement made a pitch to the council.
Aguirre: If the city council wanted to correct the damage that’s been done, they could agree to roll back the illegal benefits and then address the restoration of a level of benefits that would be properly funded in exactly the way they should have to be begin with.
Aguirre also engaged in a bit of “I told you so” comments. He said the SEC probe could have been over a year ago had the council read his investigations of the city’s finances and followed his advice in early 2005.
Mayor Jerry Sanders called the SEC settlement a milestone in the city’s emergence from financial wilderness. He said San Diego has learned a big lesson.
Jerry Sanders: I think the city has learned that we need to disclose very carefully what we’re doing. We need to be honest in what we’re doing. We need to let everybody know what we’re doing and that’s what our remediation efforts do.
Part of those efforts include hiring an independent consultant to monitor the city’s disclosure obligations. Sanders said with the SEC’s probe of the city out of the way, he hopes to restore San Diego’s credibility with Wall Street with the release of long-awaited audits and return to the bond markets by next summer.