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Ex-San Diego Officials Agree to Pay Fines to End SEC Pension Fraud Case
Four former San Diego officials agreed to pay $80,000 to settle a U.S. Securities and Exchange Commission fraud suit that accused them of failing to disclose the size of pension-fund shortfalls when the city sold bonds.
The settlements, which a judge must approve, would conclude a case filed more than two years ago against the officials, including former City Manager Michael Uberuaga and one-time Treasurer Mary Vattimo. The officials didn’t admit or deny the allegations, according to court documents. San Diego settled an SEC fraud case without paying fines in 2006.
The actions stem from the city’s decisions, dating to the mid-1990s, to increase pension benefits while failing to set aside enough money to cover the cost, and to use investment returns to pay health-care costs. The strategy backfired when the Internet stock bubble collapsed, leaving the city to contend with gaps between its assets and what it promised workers.
The regulators said the city and officials made false and misleading statements in 2002 and 2003, when San Diego sold more than $260 million of bonds and failed to disclose that the pension deficit was projected to soar to $2 billion by 2009.
The shortfall led to cuts in the city’s credit rating and prompted talk among political candidates five years ago that it should seek bankruptcy protection. The shortfall came to light in 2004, when the city disclosed that it found errors in its annual financial statement, and led to the resignation of Mayor Dick Murphy the following year.
First Officials Fined
The San Diego settlements mark the first time that the SEC has won financial penalties from public officials in a municipal bond fraud case, the agency said in a statement today.
“Municipal officials have a personal obligation to ensure that investors are provided with complete and accurate information about the issuer’s financial condition,” Rosalind Tyson, director of the SEC’s Los Angeles Regional Office, said in a statement. “These former San Diego officials are paying a price for their actions that jeopardized the interests of investors and put the city’s current and future retirees at risk.”
The SEC has established a unit to crack down on fraud in the $2.8 trillion municipal bond market, including cases tied to pension funds. In August, New Jersey settled claims it didn’t disclose to investors that it failed to put enough cash into its two biggest pension plans when it sold $26 billion of bonds from 2001 to 2007. It was the SEC’s first action against a state.
Officials Settle
Four of the five San Diego officials accused in the case settled, according to documents released by the court last week.
Former City Manager Uberuaga, former auditor and Comptroller Edward Ryan and former Deputy City Manager for Finance Patricia Frazier each agreed to pay $25,000 fines, while former Treasurer Vattimo would pay $5,000.
Lawyers for the four former officials didn’t immediately return calls seeking comment.
No settlement was filed for Teresa Webster, the former assistant auditor and comptroller.
To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.
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