Friday, September 02, 2005 | I got next. City Manager Lamont Ewell has inked a contract with a new law firm to represent the city of San Diego before the Securities and Exchange Commission, and possibly the U.S. Attorney’s Office. The move draws to a close the tortured tenure of Vinson & Elkins, the Washington-based law firm hired in February 2004 to help the city reconcile its financial disclosure problems.
The firm, originally envisioned as a narrator in San Diego’s sordid plot, eventually became a character as its reports were shunned by the SEC and the city’s auditor, and lambasted as white-washes by others. Over the course of Vinson & Elkins’ $5.6 million contract, the SEC and the city’s outside auditor, KPMG, found its investigations to lack the desired independence. In addition to investigating the city, the firm also defended it in front of the SEC.
Paul Maco, a partner at the firm, pulled the firm from its duties in August.
John F. Hartigan, a partner who specializes in securities law, won’t be asked to fill the duel role given to Vinson & Elkins. As spelled out in the engagement letter signed Aug. 29, Hartigan will simply represent the city in talks with the federal agencies.
It’s a job City Attorney Mike Aguirre has offered to do. He’s released an investigative report alleging that former Mayor Dick Murphy and current and former City Council members broke securities laws when approving bond offerings accompanied by faulty financial disclosures.
However, the council didn’t think too much of that idea and instead authorized Ewell to hire legal counsel last month. Aguirre had threatened to sue Ewell if he hired counsel without his approval; Aguirre said he later approved it under certain conditions.
“We think that’s a job we could handle and much more cheaply than bringing in somebody from outside,” said Don McGrath, executive assistant city attorney. “Mr. Ewell, with the consent of the council, says he’s been authorized to retain outside counsel, so we will cooperate with that person as long as they report to us like any other outside counsel.”
Ewell wasn’t available for comment.
A separate team of consultants, known as the audit committee, has been brought in to reconcile the Aguirre and Vinson & Elkins investigations at a cost of $800,000 a month.
KPMG is seeking an independent investigation in connection to allegations of wrongdoing in the pension system and the city’s financial disclosure process. The SEC also likes to see independent investigations and takes such action into consideration when levying fines and sanctions against people and entities.
In total, the city of San Diego has spent more than $15 million in legal and consultant fees in connections with its financial disclosures and pension problems.
The hourly rates of the Morgan Lewis contract are as follows: $160 to $240 for legal assistants, $200 to $470 for associates, and $430 to $750 for partners. Hartigan and two other partners will work for what the contract calls a significant discount “in consideration of the nature of this representation and further to our conversations.”
Consenting to the consent decree. In Aguirre’s desire to represent the city before the SEC, he and a team of lawyers have crafted a settlement proposal with the SEC in connection with the commission’s ongoing investigation into the city’s disclosure process.
Although a majority of the council members are generally chilly to anything proposed by Aguirre nowadays, Deputy Mayor Toni Atkins has scheduled the City Council to be briefed Tuesday on the city attorney’s proposal.
He wants the city to admit to faulty disclosure practices and remove one of the clouds of investigation that have been looming over City Hall for a year-and-a-half. The agreement will come with a plan to ensure that such disclosure problems never occur again and allow the SEC to continue with an investigation into specific individuals, Aguirre said.
When first proposed by Aguirre, Atkins said it would be akin to pleading guilty to a crime before even being charged. She didn’t discuss the specific merits of the decree during a press conference Thursday, but said:
“I have docketed the item to give my colleagues the opportunity to hear the city attorney’s rationale for this course of action and to provide input if they so desire.”
Aguirre, Ewell and Atkins met Monday to talk about the decree, she said.
Pension president Peter Preovolos precariously close to being plucked from post. When the council returns from its three-week recess Tuesday, it will be greeted by one of the issues it left dangling on Aug. 9: Whether or not to remove Preovolos from his volunteer post.
City Councilwoman Donna Frye thinks he should be removed for a whole host of reasons, but Atkins said she’s reconsidered now that the pension board has voted to hand over documents long-ago requested by investigators from the District Attorney’s Office, the SEC, the U.S. Attorney’s Office and the audit committee.
“I think only time, in the next couple of weeks, will tell whether this action actually goes far enough to satisfy the needs of those requesting the documents, including our audit committee and KPMG,” Atkins said.
The audit committee and KPMG say they need access to the documents in order to certify the city’s 2003 financial statements. Until that is done, the city cannot regain its credit rating or return to public capital markets to raise cash needed for infrastructure and other projects.
“This is nothing they voluntarily did,” Frye said, referring to a federal judge’s decision forcing the pension board to give subpoenaed documents to the U.S. Attorney’s Office. “It’s the same old same old same old.”
Sending help to New Orleans. San Diego Fire Chief Jeff Bowman said emergency rescue teams have been dispatched from the county to the storm-ravished Gulf Coast. In fact, all eight urban search and rescue squads from around California are either working in the hurricane-devastated area or en route.
In total, all 28 urban search and rescue teams in the nation have been sent. Normally, Bowman said, California only allows four of its eight to leave at once.
“Typically we only allow four at any one time to leave the state so that we have four remaining to protect California. But in this case, the situation is so dire that we opted to send them all,” said Bowman.
But with the potential of earthquakes and the onset of fire season, Bowman said the counties of Orange, Riverside and San Diego were all working to form a joint rescue team in the event of a local disaster.
From San Diego County, 80 urban search and rescue workers have been dispatched, as have 11 lifeguards. One crew has already arrived. Bowman reported that they had saved 242 people alone in their first three-and-a-half hours, but were called off of duty when civilian unrest put rescuers in danger.
A convoy of nine vehicles from San Diego is en route to New Orleans, driving non-stop to Houston. There, they plan to stay in a hotel Thursday night in Houston and begin duty in New Orleans on Friday. The costs are being reimbursed by the Federal Emergency Management Agency.
Bowman said rescue crews normally carry sufficient food and water supplies for three days; in this case they are prepared with two weeks’ worth of goods.
“We’re watching like the rest of the people around the country to see what we can do to help the people of that devastated region of the Gulf Coast,” Bowman said.
– ANDREW DONOHUE, Voice Political Writer
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