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SEC’s Lawsuit May Be Seen as Example to Other Local Governments

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Aired 4/19/09

San Diego is usually praised for being cutting edge with new policies or programs. But the Securities and Exchange Commission may be using the city as an example to other local governments. KPBS Reporter Amita Sharma has more.

The SEC's recent lawsuit against five former city officials for their role in understating San Diego's pension debt to bond investors is unprecedented. It's the first time the commission has sought civil penalties against municipal employees. In this case, each of the five who've been sued may have to pay $240,000 of their own money in fines.

Robert Doty is president of American Governmental Financial Services in Sacramento. He says the SEC's decision to hit the officials in their pocketbooks is a warning to people who work for other local governments.

Doty: It certainly is going to send a large message. It's going to get people's attention that in situations the personal wealth of officials of local government can be on the line if there are disclosure issues.

Meanwhile, Doty says municipal bond investors are likely paying close attention to the city's legal trouble with the SEC. 

Doty: They are looking very closely. The bonds did not default but when there are ratings downgrades that reduces the value of the portfolio and the like.

City officials are in the midst of working with rating agencies to undo the damage San Diego's financial problems have caused to its credit.

Amita Sharma, KPBS News.

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