City Attorney Mike Aguirre today attacked the $20.3 million investigative report by Kroll Inc. for failing to ultimately determine whether City Council members violated federal securities laws. He also said that the private consultants acted improperly in failing to turn over to the city the transcripts of its interviews with all 68 individuals included in the report.

Aguirre also referred to former Securities and Exchange Chairman Arthur Levitt, who spearheaded the investigation, as a “flim-flam man” – a more colorful version of “con man.”

The city attorney faulted the consultants for simply determining that former Mayor Dick Murphy and current and former council members were negligent in authorizing false financial statements to investors. In reports released last year, Aguirre accused the public officials of committing a higher level of securities fraud, saying they had knowingly and recklessly disseminated false information to investment markets.

The Kroll report, released Tuesday, found that eight former top city staffers violated the antifraud provisions of the Securities Act of 1934. However, it failed to analyze the council members’ actions beyond saying they were negligence.

“Kroll and Mr. Levitt did not even answer the question,” Aguirre said. “The $20 million question was not answered.”

Negligence is considered the bottom of the three rungs of securities fraud, and audit committee attorneys admitted the council members’ actions might have violated specific antifraud provisions. However, they said analyzing whether a violation had occurred was unnecessary for the purposes of the report. (I explained their justifications in this This Just In post yesterday.)

Aguirre maintained his findings were correct and Kroll’s were part of a cover-up. (The Kroll report also states that Aguirre’s investigations lacked a proper thoroughness to reach its strong conclusions – a judgment that was evidently shared by the city’s outside auditor, KPMG.)

Additionally, Aguirre wants to see the transcripts of interviews done with the 68 individuals who met with the consultants. Those are absent from the 25 boxes of evidence the consultants turned over to the city.

Each footnote of the voluminous report is backed up by numbered documents arranged neatly in 25 boxes being kept in the City Clerk’s Office. However, footnotes denoting each interview – including those with public officials – contain only single sheets of paper with the following phrase: AUDIT COMMITTEE INTERVIEW. (Click here to see the document.)

Aguirre said that information is city property and must be turned over.

He also reiterated that he is considering filing suit against Kroll for violating the False Claims Act for not following the city’s billing protocol and because Levitt said publicly Tuesday that all 25 boxes of evidence would be available for the San Diego public to view.

Check back for more later.


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