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Wednesday, August 10, 2005 | While former Securities and Exchange Commission chairman Arthur Levitt on Tuesday was rebuffing City Attorney Mike Aguirre by claiming that the lawsuits he filed were a nonviable way to solve the city’s financial and legal troubles, San Diego’s police officers’ union was announcing a civil suit it filed that charges Aguirre and other past and present city officials for damages related to the embattled retirement system.

The litigious climate swirling City Hall continued Tuesday as the city, its retirement system and 27 officials hailing from both agencies were sued by the Police Officers Association for agreements that were struck in 1996 and 2002 that allowed the city to underfund its employee pension system when the plan’s benefits were created so that the city could eliminate its contributions to Social Security.

San Diego’s municipal workers voted in 1981 to replace Social Security benefits as long as the city provided retiree medical benefits that would be funded by the city and the employee, the suit states. The city has failed to pay for employees’ retiree health since it switched from Social Security, the suit claims.

Aguirre knew about the underfunding, a union attorney argues, and tried to get city workers to “abandon vested pension benefits” for a $650 million bribe during a conference call he held with union leaders in January, a month after he took over as city attorney. Additionally, the city attorney was not authorized to collectively bargain on behalf of the city, the suit states. The current council was notified, but did not take action against Aguirre, POA attorney Gregory Petersen said late Tuesday afternoon.

The city attorney said Tuesday evening that the union’s suit was “irresponsible” and would not bring about solutions to the retirement fund’s $1.37 billion-plus shortfall.

“This suit asks Mr. Aguirre to forfeit his office pursuant to the provisions in the city charter,” said Petersen, whose claim is on behalf of about 1,300 individual officers. “It also will address the systematic looting of the pension fund over the last 25 years, which has now created a multibillion dollar unfunded liability.”

The city is also currently at an impasse with the police officers union after the latest round of labor negotiations this spring.

The suit names defendants who sat on councils dating back to 1996, but not the past mayors – Dick Murphy and Susan Golding – who served during that span. The civil complaint, which was filed in federal court, also sues former pension board members who are defendants in other cases for their involvement in underfunding agreements, but not those representing unions, such as firefighters union president Ronald Saathoff or Municipal Employees Association vice president John Torres.

The civil complaint comes about one month after Aguirre filed two suits related to the San Diego Employees’ Retirement System. The first suit challenges the legality of pension benefits created in deals struck in 1996 and 2002. The second case attempts to place the troubled San Diego City Employees’ Retirement System into receivership, a procedure that transfers the retirement agency’s management over to a court-appointed expert.

“Oh, we’re suing for retaliation,” said Petersen.

“You have the opportunity to set a tone of cooperation, not acrimony; negotiation, not litigation; discussion, not diatribe,” said Levitt, who was appointed to head the SEC in 1993 by President Bill Clinton. He resigned the post in 2001.

Levitt was in town along with his audit committee associates from Kroll, Inc. and its attorneys at Willkie Farr & Gallagher to provide the council with an update of their work for the city while also asking for enough money to complete their task of overseeing an investigation that will suit the needs of KPMG before the auditing firm certifies the city’s financial statements for 2003.

Three million dollars was unanimously approved by the council for Kroll, Willkie Farr and KPMG with the understanding by City Manager Lamont Ewell that the sum would last through December for those three firms. Funding will come from the city’s public liability fund, which has about $6 million allocated for the 2006 fiscal year, deputy city manager Lisa Irvine said.

Vinson & Elkins – the law firm charged with representing the city throughout the SEC’s probes along with conducting two investigations into the city’s pension dealings and disclosure practices – also presented a work update to the council, although lead attorney Paul Maco said its work with the city of San Diego was complete and the city should seek a new outside attorney for the SEC investigation.

The firm has completed the scope of work requested by the city and a consultant, Chicago Partners, Maco said. The firm published two reports on the investigation. The first, released last September, was supposed to satisfy KPMG’s questions so that the 2003 audit could be released, yet KPMG said it did not. Last week, the draft form of a second report was released after the council waived the confidentiality protecting the document from public view.

Aguirre released the second document, calling it “Whitewash Report No. 2,” because, in his opinion, the investigation let various officials off the hook for what he argues were illegal acts.

Including the contract extensions granted Tuesday, the city has doled out about $15.7 million for the work performed by Vinson & Elkins, KPMG, Kroll and Willkie Farr.

William Morris, a managing partner at KPMG, questioned Vinson & Elkins’ independence, but said Kroll’s work on reconciling the firm’s investigations along with those conducted by the City Attorney’s Office eased the outside auditor’s concerns.

Several of the consultants Tuesday reiterated their belief that the SDCERS board should waive its attorney-client privilege to allow investigators access to protected documents that they said are also crucial to the audit’s release.

The council deferred proposals to remove SDCERS board president Peter Preovolos and appoint four new board members that were thought to be in support of a waiver until Sept. 6. Pension whistleblower Diann Shipione, taxpayer activist Richard Rider, attorney Ezekiel Cortez and accountant Thomas Hebrank were all nominated to the board by Deputy Mayor Toni Atkins to replace four trustees who resigned last month.

Shipione said in a letter to Atkins, dated Tuesday, that she may be willing to return to the pension board in the future. She later said that she was concerned about serving alongside Preovolos after reading some of his comments in a recent Voice of San Diego story.

Levitt also said that the “unrelenting drumbeat of almost non-stop public accusations coming from the City Attorney’s office” was contributing to the city’s problems.

Aguirre shot back, objecting to the contract extensions because of his concerns that the audit committee was not acting independently and that it was possibly a waste of taxpayers’ money. He pointed to various meetings between Kroll and Vinson & Elkins over recent months as examples of how both firms’ objectivity was being compromised.

The city attorney also indicated that of the 28 city employee hard drives searched by Vinson & Elkins to sift through electronic documents that could potentially be evidence, hard drives belonging to former Mayor Dick Murphy or council members were not scanned. Maco said that city never asked for those data storage devices to be searched.

Some council members and consultants were rankled at Aguirre’s assertions.

“With all respect to the city attorney, it seems like the only one who’s ever right in this room is the city attorney, and that everybody else must be wrong,” Councilman Jim Madaffer said. “And it seems that if you don’t agree with the city attorney, you must be corrupt, and I don’t think that’s a productive way to get anything done around here.”

The outside attorney and consultant fees are in addition to more than $1.1 million the city has spent on legal advice for council members and employees in connection with the ongoing SEC investigation into errors and omissions found in the city’s financial statements to investors, and the FBI and U.S. Attorney’s Office probes into possible political corruption.

– Voice Staff Writer CLAIRE CARASKA contributed to this report.

Please contact Evan McLaughlin directly at

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