Friday, Sept. 15, 2006 | The San Diego City Council privately met Thursday with the outside attorney representing the city in front of the Securities and Exchange Commission, despite the concerns that some council members expressed regarding the closed-door nature of the meeting.
The council has met with attorney John Hartigan to be briefed on the SEC’s probe of the city of San Diego several times, but the impromptu nature of the Thursday meeting and talk of an undisclosed draft settlement between the municipal government and the federal securities regulators attracted more attention than usual.
Hartigan, council members and City Attorney Mike Aguirre spent most of the 40-minute public session preceding the closed-door meeting addressing claims made by a local newspaper’s editorial board.
The San Diego Union-Tribune argued in an editorial last week that the SEC should identify by name the city officials culpable for the city’s securities violations in any enforcement action against the city as an entity. The paper claimed to have seen a draft cease-and-desist order that spoke in broad terms about the city’s violations without naming names.
Hartigan said the SEC operates differently, bringing enforcement actions against entities and specific individuals separately, as it did in its enforcement action against Orange County. He said the city would more rapidly conclude its investigation by negotiating for itself separate of the individuals.
Aguirre and Hartigan, the former assistant director of enforcement for the SEC, stressed that the city is being probed as a separate entity from officials who may have been responsible for errors and omissions that were found on bond disclosures between 2002 and 2003.
“This way has been in the best interest of the city of San Diego to resolve the matter for the city as an entity as soon as possible,” Hartigan said.
The city has twice hired firms to sort out the disclosure allegations since officials learned in 2004 that an SEC query was underway. The internal investigations have cost the city more than $26 million in total.
The recent Kroll Inc. report found that several officials acted recklessly or negligently issuing bonds accompanied by faulty financial information. Kroll found that bond disclosures downplayed the size of the city’s pension debt and omitted details of the its sewer rate structure, which jeopardized $265 million in loans and grants and exposed the municipal government to $200 million in litigation.
Hartigan said that any action the SEC takes against individuals will come later. one council member have discussed possible settlement talks with the commission.
Council members asked the attorneys if it was appropriate to hold the meeting behind closed doors, saying they wanted to ensure that they allowed as much public access as possible. A second editorial in the Union-Tribune chastised the council Thursday for agreeing to a private meeting on the SEC matter.
“I want to make as much discussion public as possible,” Councilwoman Toni Atkins said.
The state’s public meeting law allows a governmental board to meet in private about labor negotiations, real estate transactions and current or expected litigation. The SEC matter qualifies for a private conference under the state law, Aguirre said. The council regularly receives comment in from the public about closed-session topics before retreating to the private session. One speaker addressed the council Thursday, urging for a public discussion of the SEC probe.
Hartigan and Aguirre said the city risked losing the confidence of the SEC if negotiations were made public. The SEC should be the first to publicly announce any findings of the probe, the lawyers said.
“[This] must be done in closed session in order to respect the protocol of the Securities and Exchange Commission,” said Aguirre, who commended council members for having earlier waived the confidentiality of documents so that they could be used in the investigation.
The SEC has declined comment on its investigation.
Hartigan added that his comments Thursday were the most advice he had ever offered outside of a private meeting with a client.
At his press briefing this afternoon, Council President Scott Peters said he was disappointed in the editorial’s suggestion that the council was trying to hide information from the public.
“A lot of council members felt stung, particularly about what was reported in the editorial this morning, which I would say was unfair in some respects,” Peters said.
Councilman Brian Maienschein did not attend the closed-door meeting in protest, as he has done before. Councilman Jim Madaffer did not attend, but colleagues said that he was out of town on family business.
Aguirre accused Maienschein of breaching his duty to the city by boycotting the closed-door meeting. The city attorney blamed the Union-Tribune for pressuring the councilman into skipping the hearing, saying the newspaper’s editorial board members were acting as “politicians, not journalists.”
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