Thursday, September 01, 2005 | The pension board president has called the famous archive of pension documents simply “boring.” That could be true, as he’s one of very few with access to the actual documents. But their contents have captivated the growing audience of City Hall voyeurs for months.
The pension board voted Tuesday to hand over the documents to federal investigators and the audit committee investigating alleged acts of wrongdoing by city officials, breaking a lengthy logjam that threatened to stymie the city’s cooperation with federal agencies and its return to fiscal normalcy.
While the release doesn’t make the documents open to the public to judge their worth for themselves, the vast logs cataloguing the documents – obtained through a public records request by the Voice of San Diego – give hints of what lies in the more than 7,000 e-mails dating back to 2001 that have remained protected by the pension system.
Indeed, much of the contents appear to be, in board president Peter Preovolos’ words, boring. However, the subject lines of a number of the protected e-mails provide clues to the exact details sought by the diverse groups of investigators probing City Hall finances and politics.
There are, after all, reasons the Securities and Exchange Commission, the U.S. Attorney’s Office, the District Attorney’s Office and the audit committee have shown such a keen interest in their contents.
Because of the pension board’s decision Tuesday, the documents will in short time fall into investigators’ hands, who hope they will provide insights into whether laws were broken in the city’s pension dealings and public financial disclosures.
Sources say one of the items of most attention is a March 2003 opinion by the pension system’s outside counsel, Seltzer Caplan McMahon Vitek, that states that certain pension trustees likely broke the state’s conflict-of-interest law when voting on a 2002 deal made between the city and the pension board. The sources had to remain anonymous because of the protected nature of the documents.
The logs give a line-by-line detail of all electronic documents from 2001 to 2004 that pension officials say are protected by the attorney-client privilege, which allows a client to guard documents shared with its legal counsel. The detail follows a basic pattern, presenting the date of the e-mail, followed by the persons who sent and received the correspondence, along with the subject line, such as “Re: FWD: Retirement Board.”
One of the SDCERS logs, for example, lists more than 5,000 e-mails shared from 2001 until 2004 between lawyers from Seltzer Caplan, SDCERS, pension trustees and staff members.
The Seltzer Caplan opinion of interest is dated March 5, 2003, passed from outside attorney Reg Vitek to pension system attorney Sheila Leone, according to a source. Sources say it opines that pension board members likely broke laws governing public officials when they voted in favor of Manager’s Proposal 2, a deal made between the city and pension board that allowed the city to continue its historical underfunding of the pension system while increasing pension benefits for city employees.
The SDCERS log shows that the following day, on March 6, Leone sent an e-mail to fellow pension staff members Lori Chapin, Larry Grissom and others with the subject line, “Seltzer Caplan Opinion Letter.”
Such a document would be of import to a number of the diverse investigators peering in on City Hall. That includes the District Attorney’s Office, which has charged six current and former pension board members with criminal violations of the conflict-of-interest law. The case is currently in pre-trial proceedings; the pension officials claim they were only doing their duty as prescribed by the city’s laws.
The opinion could also be central to City Attorney Mike Aguirre’s attempts to rollback a series of pension benefit enhancements, including all of the 2002 benefits negotiated as part of Manager’s Proposal 2. His team of attorneys believes they can get the benefits voided by a court if they can prove pension trustees broke the law in creating them.
The pension system carries a deficit that’s estimated to be at least $1.37 billion and threatens to crowd city budget discussions into the future. Aguirre has sued the pension system in an attempt to overturn benefit enhancements given in 1996 and 2002, saying they were created illegally and are void. Such a ruling, he estimates, would take $700 million to $800 million out of the deficit.
Aguirre, however, isn’t one of the officials who will be granted access to the documents.
“We’re doing everything to get those documents,” said Don McGrath, executive assistant city attorney. McGrath said he planned to file subpoenas and public records requests.
Preovolos said he didn’t believe the waiver of the attorney-client privilege, urged by city officials for months, was necessary.
“What is necessary is that key regulatory agencies, including the Kroll organization, wanted some specific information,” he said.
Former SEC officials with Kroll, Inc. make up the city’s audit committee, a group put together to investigate allegations of wrongdoing related to the pension system and the city’s financial disclosure process.
The information in the logs is crucial to Kroll’s work.
Kroll officials said they needed the documents to complete their investigation. The city’s outside auditor, KPMG, has said it needs the investigation completed before it certifies the city’s long-stalled fiscal year 2003 financial statement.
Without the audit, the city cannot regain its credit rating and return to the capital markets to raise cash for infrastructure and other projects.
The logs contain volumes of communication between attorneys and pension officials, and the subject lines touch on all the topics germane to today’s crisis: pension accounting that critics say understates the deficit, details of the 2002 pension deal and some disclosure issues.
Aguirre said he believes the documents will also show whether pension staff pressured legal counsel into providing opinions that paved the way for pension deals made in 1996 and 2002 that have contributed to the pension deficit.
Although many of the e-mails in the lengthy list come with mundane subject lines such as “Re: meetings” and “Re: can you take a look at this,” other subject lines match up with information sought by the U.S. Attorney’s Office in connection with its probe into possible political corruption.
Specifically, U.S. Attorney Carol Lam has asked the pension trustees to turn over communications between pension attorneys and staff related to Manager’s Proposal 2 and retirement benefit increases.
Investigators will soon, apparently, get the answers to many of their questions. The log shows that between July and November 2002, the timeframe in which the deal was being completed, e-mails passed through the pension system with subject lines bearing the titles of specific benefits granted during this period.
They include the president benefit, which allowed some union presidents to collect their pension based on their union and city wages, and a grandfathering clause that exempted city employees who began working at the city before age 23 from a city-imposed cap on maximum pensions. These two benefits specifically aided two of the pension board trustees charged by the district attorney.
There is also a second log pertaining solely to communications between pension officials and Blum and Constance Hyatt, the outside attorneys who first opposed Manager’s Proposal 2, but supported the later version ultimately approved by the pension board and the City Council.
Subject lines show much back and forth between pension officials and the attorneys as Manager’s Proposal 2 worked its way toward completion. Other e-mail subject lines discuss tax compliance, pension ordinances and insurance issues.
Still others appear more lighthearted, such as a Feb. 22, 2002, e-mail from Blum to Grissom with the subject line: “FW: The Words Women Use.”
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