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Tuesday, Oct. 3, 2006 | The city of San Diego and the Securities and Exchange Commission reached a tentative settlement over the weekend that would end the commission’s two-and-a-half year investigation of the city, a source said Monday.

The revelation came about during a day of flurried action Monday as the mayor and city attorney cancelled a planned trip to Washington, D.C. to meet with SEC officials, and the City Council called a special hearing later this week to discuss the status of a possible settlement, known as a consent decree.

Before the weekend began, Mayor Jerry Sanders, City Attorney Mike Aguirre and Councilman Kevin Faulconer were poised to visit SEC headquarters in the nation’s capital on Monday to kick-start talks over a proposed settlement that has been pending for months. That settlement found new life over the weekend, causing the officials to cancel the trip.

Any settlement would have to be approved by both the City Council and the SEC’s five-member commission. A settlement with the city as an entity would still leave individuals to be punished separately by the SEC.

Aguirre refused to comment on what had led to the cancelled trip and the council meeting, which comes in the middle of a legislative recess.

“We’re continuing to try and resolve all of our issues with the SEC,” he said.

The Mayor’s Office released a statement saying that the mayor wouldn’t comment on any aspect of the investigation. “The SEC’s staff has requested complete confidentiality in these discussions; it would be counter-productive to the City’s interest not to honor this request,” the statement said.

Council President Scott Peters also declined to speak on any specifics. “[Aguirre] wants a meeting with us and there’s not much objection” from other council members, he said.

The source, who requested anonymity because the sensitive nature of the negotiations, said Monday’s activity was spurred by a tentative settlement reached over the weekend. SEC staff, Aguirre and an outside lawyer for the city have been negotiating a settlement since last year.

Hoping to separate the city’s fate from that of its officials and more quickly resolve its problems, Aguirre last fall split individuals from the negotiations. He has sought a settlement that would deal with the city’s securities law violations in broad terms, leaving any individuals to be dealt with by the commission on their own.

Peters and four of his council colleagues – Toni Atkins, Brian Maienschein, Donna Frye and Jim Madaffer – were found by private consultants to have acted negligently in releasing faulty financial information to potential investors. The $20.3 million report by consultants, released in August, found that the city understated liabilities in the pension and wastewater systems by hundreds of millions of dollars, providing Wall Street with an overly rosy take on its finances.

The SEC has been conducting its own probe of City Hall independent of the consultants. If the SEC agrees with Kroll’s findings, it’s likely the council members will escape personal punishment. Others might not be so lucky. The Kroll report also found that eight former city staff members recklessly or intentionally committed securities fraud, a judgment that would spur at least civil charges if seconded by the SEC.

Aguirre has released his own reports claiming that current and former council members committed securities fraud. He has advocated that the SEC take a stronger stance on council members’ culpability than the consultants did.

A settlement with the SEC would draw to a close one of the many painful chapters in the city’s current crisis. The SEC and Justice Department have been investigating City Hall since February 2004.

In that time, the district attorney and U.S. attorney have each brought separate corruption cases in relation to a 2002 pension agreement made between city and pension officials. The state attorney general has also opened up an investigation into the billing practices under former City Attorney Casey Gwinn.

The faulty financial disclosures have also led to the suspension of the city’s credit rating and its banishment from Wall Street. It has been unable to borrow money for vital infrastructure projects such as road repairs, mandatory sewer upgrades and fire stations.

The mayor hopes to return to public finance markets by June, a feat that will require auditor’s blessings on the city’s long-delayed fiscal year 2003, 2004 and 2005 financial statements. The Mayor’s Office released a draft copy of the unaudited 2003 statements on Monday evening.

Aguirre has said an SEC settlement would ease KPMG’s concerns and help it issue its audits quicker; Sanders’ office has said that the SEC probe and KPMG’s work have no connection.

The draft statements issued Monday restated 55 line items in areas such as debt, value of capital assets, energy expenses and claims against the city. In total, the restatements caused the city’s net assets to be reduced by $464 million, or 6.8 percent.

Please contact Andrew Donohue directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.

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