Wednesday, September 21, 2005 | City Attorney Mike Aguirre made public Tuesday a statement that admits the city of San Diego violated federal securities laws, a day after the council decided not to privately discuss the document Aguirre sees as being the most rapid solution to a federal investigation into the city’s disclosure practices.

By admitting that misstatements were made by the city while also convincing SEC investigators that the city is working to fix the errors, the city government is more likely to avoid fines and penalties, Aguirre said.

The proposed decree reserves judgment on the culpability of specific individuals until the completion of a separate investigation, leaving officials to fight their own legal battles apart from the city of San Diego’s. But it does admit, without naming names, that the city as an entity violated securities laws in failing to fully disclose the potential consequences of:

– Two agreements that underfunded the pension system while doling out enhanced benefits for employees, as well as the ongoing administration and accounting of the plan. Currently, the San Diego City Employees’ Retirement System has a deficit of at least $1.37 billion.

– The creation of user rates for the city’s wastewater system, in which residential users were allegedly overcharged. The wastewater system is also the target of a class-action lawsuit spearheaded by a consumer advocate as well as a probe by prosecutors from the U.S. Attorney’s Office.

– The production of annual financial statements and bond offerings, in which errors and omissions were discovered.

The San Diego Union-Tribune, a local newspaper, published an editorial that argued that the council should not discuss the proposal behind closed doors.

The piece was published the day after Deputy Mayor Toni Atkins had already decided not to hear the issue behind closed doors because there was no new information.

The editorial stirred plenty of council discussion on Tuesday.

Councilman Jim Madaffer said that it was Aguirre’s proposal, so making the document public would be his decision.

“It’s his work and he’s the one who asked to have it in closed session,” Madaffer said. “I think the real misrepresentation left by the editorial is that this is the City Council’s action.”

Less than an hour before Aguirre made the consent decree proposal public, Atkins, who is targeted by the editorial, announced that the council will review the report at an open meeting next week. She said that she initially believed that they were only allowed to confer with the city attorney on the matter because versions of the proposal were labeled as confidential.

Mayoral candidate and former police chief Jerry Sanders, who last Monday said he wanted the consent decree to be discussed publicly, repeated his argument at a press conference Tuesday. He said he thought the council was still scheduled to talk about the proposal behind closed doors.

“Today the City Council is once again meeting behind closed doors under a cloak of secrecy to discuss the federal government’s investigation into the city’s finances,” Sanders said. The statement mirrored the language in the last sentence of the Union-Tribune‘s editorial, which asks Atkins to “throw off the cloak of secrecy.”

Sanders challenged his opponent in the Nov. 8 runoff election, Councilwoman Donna Frye, to abide by the principles of open government that she boasts time and again.

“State law does not include protecting politicians from personal liability and embarrassment,” Sanders said.

Frye was unavailable for comment regarding Sanders’ criticism, but did urge Atkins at the council meeting to schedule a public discussion.

Councilman Scott Peters said Aguirre violated the attorney-client privilege by releasing the proposal without the council’s approval.

“Anytime you have a conversation with an attorney, it’s privileged from the moment that you have it,” Peters said. “It can’t be waived without the consent of the client.”

Aguirre argued that, because he initiated the advice, he was not bound to a confidentiality agreement. He said he originally wanted to keep discussions private for the council member’s sake, but that the proposal became public a week ago when he submitted it to the SEC.

A request by Voice to view the proposal was made last week, but denied.

Mark Blake, the deputy city attorney who authored the proposal, likened the plan to a milestone SEC case in which Seaboard Corp. avoided penalties because they cooperated with the commission’s investigators to correct mistakes on the company’s financial statements.

“Once the corporation discovered these misstatements, they quickly undertook the investigation and remediation,” Blake said. “That’s no more, no less than what we’re proposing here.”

– The City Council’s waiver of attorney-client privilege in light of multiple subpoenas.

– The hiring of new auditors; outside attorneys to advise the city on financial disclosures; a law firm to thoroughly review the city’s disclosure practices relating to the pension system; an independent audit committee to review reports issued by an outside law firm and the City Attorney’s Office and to assist auditors in an illegal acts investigation.

– The past or future firing or resignations of city administrators and elected officials who Aguirre said conducted or oversaw deals or practices that contributed to the city’s financial and legal problems.

– The passage of an ordinance that effectively places stricter regulations on how the city reports its financial standing.

Please contact Evan McLaughlin directly at

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