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Tuesday, May 17, 2005 | Three upper-level managers tied to ongoing federal and local investigations into city of San Diego finances and politics resigned Monday.
A memo from City Manager Lamont Ewell circulated to city management officials Monday announced the resignations of Patricia Frazier, one of Ewell’s top deputies; Mary Vattimo, treasurer and former pension board member; and Cathy Lexin, human relations director and former pension board member.
The memo states that the three “have each chosen to resign from their positions and pursue other professional interests.”
The move comes less than a week after a fourth high-level employee was placed on administrative leave for failing to comply with federal subpoenas and appears to signal the first remediation steps that experts say city officials must exact in order to right San Diego’s wrongs in the eyes of auditors and investigators.
Former assistant auditor and pension board member Terri Webster was placed on administrative leave last week after officials received a further records request from the FBI and U.S. Attorney’s Office, the Voice of San Diego reported Friday.
Three of the four resigned or suspended employees are former members of the pension board.
The pension system and its deficit, estimated to be between $1.37 billion and $2 billion, are at the heart of a Securities and Exchange Commission probe into errors and omissions in the city’s financial disclosures and the U.S. Attorney Office’s investigation into possible political corruption.
The District Attorney’s Office is also investigating possible criminal violations of the state’s conflict-of-interest law by former pension board members in connection with a 2002 deal between the city and pension board that allowed the city to continue its historical underfunding of the pension system while granting employees increased retirement benefits.
Lexin, Vattimo and Webster are each named specifically in records requests made by district attorney investigators. None of the four employees could be reached for comment Monday evening.
“I certainly thank them for their contribution to the city and I wish them success in whatever endeavors they embark upon,” Ewell said in a prepared statement.
In a self-investigation released in September, the names of all four employees appear frequently in connection with the pension deal and the city’s faulty financial disclosures. Frazier, Vattimo and Webster all had a role in preparing the disclosures used by investors to gauge the city’s financial health or in dealing with credit rating agencies, according to the city’s investigation.
The three were reassigned to different duties following the city’s self-investigation, conducted by the law firm, Vinson & Elkins, representing it before the SEC.
The SEC’s investigation focuses on revelations that financial disclosures made to investors contained errors and omissions. One of the three major credit agencies suspended the city’s credit rating after the release of the self-investigation.
The investigation also found a quid pro quo – Latin for “something for something” – occurred between the city and pension board members in the 2002 deal.
Lexin, Vattimo and Webster all benefited from the deal personally as some of the 11,000 city employees covered by labor contracts at the time.
Webster was also one of 300 employees who benefited from a provision that exempted employees who began working for the city before their 24th birthday from a rule that capped annual pension checks at 90 percent of their highest annual salary, according to the testimony of retirement administrator Larry Grissom in connection with a 2003 lawsuit.
Lexin was also involved with the pension deal from two angles. First in her role on the pension board, as well as in her position as human relations director, where she negotiated contracts with labor officials for the city.
When reached in the past, Lexin has declined to comment on the investigations. The voice mail message on her office phone indicated she would be out of the office this week.
In the end, the city’s investigation found no wrongdoing on the part of any individual.
That conclusion failed to satisfy SEC investigators and the city’s outside auditor, KPMG. The auditor won’t bless the city’s long-delayed fiscal year 2003 audit without a complete independent investigation into possible wrongdoing in connection with city finances.
Without the audit, the city remains essentially frozen from Wall Street and unable to raise funds for important short- and long-term infrastructure and construction projects.
SEC guidelines for cooperating with investigations call for the removal of officials responsible for past errors as a method of proving that changes have been made to an organization.
The city was scolded by federal investigators in March for its lack of cooperation; observers and City Attorney Mike Aguirre have been calling for the firing of many top city officials for months.
Defenders of the officials have asked that investigations be allowed to run their course before finding anyone guilty of anything.
Experts say that remediation must be wholesale to convince the SEC – which regulates the nation’s financial markets – that sufficient changes have been made to prevent similar problems from reoccurring. Layoffs are only part of the remediation equation and must be followed by changes in the city’s financial-reporting structure.
“If we don’t get remediation, along with full cooperation … we may not get where we ultimately need to be,” said Troy Dahlberg during a council hearing last week.
Dahlberg is part of a three-man team brought in to coordinate the city’s interaction with auditors and investigators. His colleagues are Arthur Levitt, former SEC chairman, and Lynn Turner, the commission’s former chief accountant.
Former Auditor Ed Ryan, former City Manager Michael Uberuaga and Mayor Dick Murphy have all either retired early or resigned in the wake of the city’s legal and political woes.
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