Saturday, July 23, 2005 | City Attorney Mike Aguirre and pension board President Peter Preovolos greeted each other Friday with the kindness of two chums meeting at a ballgame rather than bitter opponents who have agitated each other publicly for months.
Both strolled into the San Diego City Employees’ Retirement System’s board room at the same time.
“Michael, it’s good to see you,” Preovolos said pleasantly. “It’s like tradition.”
“Well, this is how we do things,” Aguirre said with a chuckle before both found their seats. Preovolos sauntered to the head of the dais to lead the meeting of trustees overseeing the embattled retirement plan, while the city attorney, a frequent speaker at the board’s public comment period, headed off to the table reserved for public speakers even though he contends he should be seated beside Preovolos in the chair marked for the board’s legal counsel.
Aguirre has argued since January that the city charter calls for him to be the retirement system’s legal counsel, a claim disputed by Preovolos and other trustees. By meeting in closed session without him, the board is doing so without the consent of its proper legal advisor, Aguirre claims.
The retirement board is suing the city and Aguirre on the matter, and it appears Aguirre’s role with SDCERS and the recent legal actions he’s taken against the retirement system will be one decision the City Council knows it will have to grapple with while being shorthanded for at least three and a half months.
“We’re all frustrated with the amount of time it’s taken (the retirement trustees) to waive the attorney-client privilege which will allow us to get our audit, but it’s inappropriate to sue them for money damages” said Councilman Scott Peters, who stood alongside Councilman Jim Madaffer to oppose Aguirre’s lawsuits where individuals are named as defendants.
Getting the board to waive the attorney-client privilege will allow auditors from KPMG to examine SDCERS documents before issuing the city the certifiable financial bill of health it needs before San Diego can sell bonds on the municipal market. The pension fund currently has a deficit of more than $1.37 billion and has been the target of federal and local probes. The District Attorney’s Office filed criminal conflict of interest charges against six former and current pension trustees in May.
At a press conference Friday, the councilmen urged Aguirre not to follow through with any lawsuits where volunteer trustees are named.
“We know there are people out there who are willing to serve (on the pension board), as long as they’re not under the threat of being sued individually,” said Peters, who said he would rather wait two or three weeks to appoint new trustees than sit by for 18 months before a court could appoint a receiver.
A receivership is when a mismanaged company or agency is put into the control of an individual or firm by a judge. The City Council decided to consider a receivership by hiring Heller Ehrman LLP for $250,000 on Monday for advice on how to proceed.
Peters said the council will pursue two tracks simultaneously: recruiting and appointing volunteers who are intent on waiving the attorney-client privilege to serve as pension trustees while also weighing the pluses and minuses of a receivership.
Four volunteer trustees who were nominated by then-Mayor Dick Murphy have stepped down in the last two weeks, citing a contentious climate. Three other Murphy nominees quit before the new 13-member board held its first meeting in April.
Since Aguirre filed two lawsuits earlier this month – one challenging the legality of more than $700 million in pension benefits he contends were created illegally, and the other to make a case for sending SDCERS into a receivership – trustees Thomas King, Robert Wallace, Susan Snow and Thomas Page all stepped down.
“My resignation is for personal reasons, exacerbated by the unsupportive political/legal environment that surrounds this activity … placing a chill on volunteerism,” wrote Page, who resigned Monday.
The conflict between the agitating city attorney and the embattled retirement system is multifaceted, starting with Aguirre’s contention that he is the only one fit to legally represent the SDCERS administration and its trustees. By going into closed session, he says, the board is doing so without the consent of its proper legal advisor.
Aguirre claims the board’s current counsel, Lori Chapin, lost the authority to advise the board when he invalidated a 1998 memo from then-City Attorney Casey Gwinn that had created two independent attorney positions in the retirement system.
A judge on Tuesday struck down the retirement system’s request to serve Aguirre with a temporary restraining order. SDCERS asked the judge to halt the City Attorney’s Office from making threats of prosecuting trustees and to stop Aguirre’s assumption that he is the agency’s attorney.
Aguirre has also recently engaged the retirement system in a fact-finding mission that Preovolos believes is a stretch.
In response to a letter Aguirre sent last Thursday to trustees of the San Diego City Employees’ Retirement system, the pension board’s president Peter Preovolos rebuffed the city attorney’s claims that SDCERS was using city money to pay obligations that the fund lost money in its investment of American International Group, or Aguirre’s claim that he should be the legal representative to the SDCERS system.
Preovolos denied that $1.3 million of the city’s day-to-day fund was used to pay retirement obligations in May, as Aguirre alleged. Upon hearing Preovolos’ response, the city attorney questioned why the pension board president was using a different accounting method, based on cash, than the accrual method of bookkeeping that he said is normally used in the city’s financial statements.
Larry Tomanek, the city’s assistant auditor and comptroller, said the city’s books were square and that records don’t carry balances when a check is written, but when the check clears another bank.
“The main thing is that we never went negative in our account, we don’t bounce checks,” Tomanek said.
Aguirre also asked the pension board to examine its AIG holding in light of the lawsuit filed by San Francisco’s retirement system against the financial services conglomerate. AIG announced in May that it had overstated earnings by about $2.7 billion, causing its stock to drop 30 percent.
San Francisco’s city attorney said the retirement system – which counts 50,000 future and current beneficiaries – lost $4.2 million on shares it purchased between October 1999 and March 2005.
Preovolos said SDCERS’s AIG shares that were purchased during that same period have gained more than $750,000.
“Your claim that SDCERS ‘lost a substantial amount of money’ as a result of the alleged fraud by AIG’s officers or directors is patently false,” Preovolos stated.
Owen Clements, chief litigation officer at the San Francisco City Attorney’s Office, said that a net gain in assets doesn’t mean there wasn’t a wrongful loss.
“You could have damages even though you had a net gain,” Clements said, arguing that the short-term losses at AIG might not affect the whole value of the holding, but that they are unfair losses nonetheless.
Aguirre, at a press conference Friday, said he’s agitating in the city’s best interest.
“San Diego city government is not in the business to provide excessive pensions or unfair profit for others,” he said.
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