Tuesday, August 23, 2005 | Officials in the city of San Diego’s pension system have accepted a judge’s secret order to turn over long-guarded documents to federal investigators, according to a source close to the proceedings.
Under the threat of being held in contempt of court, pension officials are giving the documents to investigators who have been probing possible political corruption in City Hall since early 2004, according to multiple sources who requested anonymity due to the sensitive nature of the case.
A secret hearing had been called as part of U.S. Attorney Carol Lam’s attempt to force the documents’ release, and a judge ruled in favor of the federal government, sources said.
The documents sought pertain to a deal cut between city and pension officials in 2002 that allowed the city to continue its historical underfunding of the pension plan in exchange for increased benefits for employees. The deal, and a similar 1996 pact, has contributed significantly to a pension deficit estimated to be at least $1.37 billion and appears to be central to the investigation being conducted by the FBI and the U.S. Attorney’s Office.
Federal subpoenas seeking information related to the 2002 deal had earlier been rebuked by pension officials on the grounds the documents were protected by the attorney-client privilege.
When a newly constituted pension board took control of the system in April, Lam reiterated the request with a letter to the pension board seeking any communications between pension attorneys and board members or employees related to retirement benefit increases granted in 2002.
The letter also asks for a waiver of attorney-client privilege related to two lawsuits involving the pension system.
The first suit, known as the Gleason lawsuit, took issue with the city’s practice of annually contributing less than recommended to its pension system. It resulted in a settlement with the city last year that required the city to make larger payments in to the pension fund.
The second suit is a malpractice claim brought by the pension board last year against its outside legal counsel for advice given during the consummation of the 2002 pension deal, known as Manager’s Proposal 2. The suit is currently in settlement proceedings.
As a result of the 2002 deal, six current and former pension trustees have been charged by the District Attorney’s Office with felony violations of the state’s conflict-of-interest statute.
Assistant U.S. Attorney John B. Owens declined to comment, as did Michael Leone, outside counsel for the pension system. Retirement administrator Larry Grissom said it would be inappropriate to comment on grand jury proceedings.
The move to turn over the documents doesn’t constitute a full waiver of the attorney-client privilege, meaning the archives won’t yet be made available to the city’s outside auditors. The auditors, KPMG, say they won’t certify the city’s long delayed fiscal year 2003 audit without access to these documents. Without a certified audit, the city remains frozen from the capital market to raise funds for infrastructure and construction projects.
Pension officials have been under pressure for months to release the documents from the city’s auditors, elected officials and federal investigators.
Secret judicial hearings involving counsel for the government and related parties are used in connection with secret federal grand jury proceedings. They remain shielded from the public in order to protect the secret nature of the grand jury.
In addition to the Justice Department’s investigation, the Securities and Exchange Commission is also investigating City Hall for officials’ alleged failure to disclose the true depths of its financial problems to investors.
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