The Morning Report
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Monday, June 13, 2005 | By SCOTT LEWIS
Pension trustee Thomas King said he’s had enough. He’s been on the board of administration of the San Diego City Employees’ Retirement System for two months.
It doesn’t take long. In a recent interview that touched on much broader issues than the current, very tense, stalemate between his board and, well, virtually everyone else, King said he wasn’t quitting the board – not yet anyway. But he’s not exactly enjoying his new volunteer gig. “I can’t imagine why anybody with an IQ of more than 75 would want to serve on this board,” he said.
King and fellow board member Peter Preovolos recently circulated a letter amongst their colleagues suggesting that they all hire yet another law firm to advise them on what has become an incredibly important decision: whether or not they should waive their attorney-client privilege. The privilege is currently protecting, or at least is supposedly protecting, documents that may answer questions about the legality of the previous board’s actions while the retirement system was plunging into a very unhealthy status.
King said that people need to understand the magnitude of the decision the city is asking he and the other board members to make. All decisions, for that matter, King said, are pretty tough these days. “I don’t want to see myself on the front page of the Union-Tribune someday under indictment all because city officials asked me to do them a favor so that they could solve a problem,” King said. “Maybe they should look in the mirror if they’re trying to find the problem.”
It may be a growing sentiment on the board.
Assume that the board really is independent. In a few years, it could send the city a huge bill to make up the pension shortfall. A lawsuit settlement has already guaranteed the pension system huge swaths of the city’s most valuable real estate in case the city can’t make the cash payments required to the fund.
So why should the pension system do the city any favors in its time of need now? Doing that in the past has led to some trouble. In other words, King said, he doesn’t want to end up in the same situation as “the guy who sits next to me.”
That guy is John Torres, the only member of the current board who was around for the complex deal in 2002 known as Manager’s Proposal II, or MPII. The district attorney has now charged Torres and five others with a felony.
The arrangement boosted the pension benefit of Torres and his fellow city employees at the same time it allowed the city to pay less into the pension fund than what was required. Now auditors, federal prosecutors, the Securities and Exchange Commission and a pack of journalists are dying to get a look at the secret documents the board is protecting.
“We’ve been flat-out threatened. We have to know all the risks of what we’re being asked to do,” King said.
So they want more lawyers. What’s not exactly clear is whether or not more lawyers are going to help.
After all, the recent history of legal counsel to the pension board is not exactly glowing. At the same time last year when the board and its president were continuing to insist that it did nothing wrong by approving Manager’s Proposal II, they were quietly initiating malpractice litigation against the legal counselors who had approved of that deal. The board accused those lawyers of fraud and malpractice for allowing it to approve MPII, thus solidifying a not-so-successful public relations strategy: blaming others for something bad that might have happened while simultaneously arguing that nothing bad happened.
The accused lawyers – Robert Blum and Constance M. Hiatt from the law firm Hanson Bridgett, Marcus, Vlahos and Rudy, LLP – are reportedly in settlement talks right now with the pension board, which may mean millions for the fund.
Not a billion, though – keep dreaming.
The pension board alleges that Blum and Hiatt mysteriously changed their opinion about MPII – that they went from being skeptical to embracing the notorious deal. That’s not exactly the best legal advice at the time, many have concluded. And don’t look back to 1996 for any hidden examples of notable legal advocacy that protected the retirement system. In April of that year, City Attorney John Witt was preparing to collect a pension of his own and, in an eerily portentous memorandum to the retirement board, he declined to even give advice as to whether MPII’s older brother, Manager’s Proposal I, or MPI, should be approved. That infamous agreement, ingeniously crafted by City Manager Jack McGrory, set the precedent for what happened in 2002.
Witt wanted no part of it. “The manager’s proposal involves proposed benefit increases, which substantially enhance my retirement benefits. Although I realize that I do not have a legal conflict of interest, I am very concerned about the appearance of a conflict of interest,” Witt wrote to the retirement board.
The retirement board then had just replaced its fiduciary counsel “because it had been slow to respond to requests for legal opinion,” according to later investigators of the fund’s history.
The new guys signed off on MPI with only minor concerns. The board even asked the counselors whether there was any worry about conflict-of-interest laws. No, they were told.
Now a couple of board members want to hire yet another group of attorneys, this time to advise them as to their individual liability for what may or may not happen as a consequence of their decision.
You have to wonder what kind of person with an IQ of more than 75 would take that job.
Scott Lewis is a former reporter at The San Diego Daily Transcript. You can e-mail him at