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Friday, Oct. 6, 2006 | The City Council met privately Thursday to discuss a tentative settlement that would draw to a close the Securities and Exchange Commission’s two-and-a-half-year probe, but didn’t vote on the matter.
Some officials said the closed-door discussions strayed away from the content of the tentative settlement and toward a legal opinion by City Attorney Mike Aguirre that addressed the role that certain council members, who are also under investigation by the SEC, would play in the city’s settlement proceedings.
One council member, who spoke on the condition of anonymity because the meeting was closed to the public, described the meeting as “outlandish,” saying the discussion consisted of “a lot of venting by the council and a lot of suspicion of the city attorney.”
The city’s resolution of the SEC probe was complicated by the fact that five current council members who would potentially be asked to vote on the city’s settlement could also face personal sanctions from the commission.
Before the two-hour meeting, Aguirre issued a memo that laid out a process for approving a settlement if a majority of the council chose to avoid possible conflicts and abstain from voting. However, Aguirre did not specifically rule whether the five council members in question – Scott Peters, Toni Atkins, Brian Maienschein, Donna Frye and Jim Madaffer – did indeed have a conflict.
“While we do not have enough facts to make a determination on this issue, some Council members may determine that such a conflict exists and choose to recuse themselves for this matter,” Aguirre wrote in his opinion.
The opinion’s vague message miffed some on the council who were looking for more direct advice on whether or not to vote on the settlement.
“It shouldn’t be hard to tell. It’s not a question of using your best judgment, this is a legal issue,” Atkins said.
Two council members – Frye and Atkins – chose to leave the meeting Thursday, with each taking a different perspective on their recusal. Frye said that she wanted to distance herself from the discussion if there was even a slight chance that she was conflicted.
“As much as I can, I err on the side of caution to protect the public interest,” Frye said. “I don’t want my role to slow down the progress of the city.”
Maieneschein, who has begun boycotting the closed-door meetings, did not initially attend the private session, but Aguirre said the councilman showed up later on.
Atkins echoed Frye, but added that she was frustrated that she was not provided a more clear answer as to why she should or should not participate.
Also, Atkins said she wondered why Aguirre rendered a legal opinion on the conflict-of-interest Thursday even though the council has met privately to discuss the SEC investigation several times.
“I wanted to move forward today, but we really needed to have an answer to that question,” Atkins said. She added: “That memo made me feel more concerned about moving forward.”
Aguirre said he thought it was time for any interested parties to recuse themselves at this point because a specific proposal was now being weighed, but reiterated that it’s still debatable whether the five council members are legally conflicted.
“Where exactly you draw the line is hard,” Aguirre said.
It takes at least five council members to vote on an issue, as five affirmative votes are necessary to approve an issue in most cases.
If enough officials disqualified themselves on their own volition that it resulted in the participation of less than five council members, the city would have to employ the so-called “rule of necessity,” Aguirre said.
To remedy the shorthanded council, recused officials would be chosen at random until there were five council members available to approve the settlement. A simple majority of that five-member panel would be needed to bless a settlement instead of the usual five votes, Aguirre said.
Aguirre reportedly reached a tentative settlement with the SEC over the weekend, causing city officials to call Thursday’s special hearing and cancel a planned Monday trip to commission headquarters in Washington, D.C.
The settlement would reportedly end the commission’s investigation of the city as an entity, but leave the door open for individual punishment. Any settlement approved by the City Council would also have to be approved by the five-member board of the SEC.
Atkins’ complaints are resonant of the tension between Aguirre and four of the five council members (Frye is an Aguirre ally) since the city attorney took office. Those four council members have criticized Aguirre’s maverick style, claiming it’s hard to follow advice from an attorney who has independently persecuted them on the securities issue and others.
At issue is the delicate balance between assigning blame to the city government and to the individual city officials whose decisions ultimately spurred the SEC probe. Aguirre and an outside attorney have been negotiating on the city’s behalf for more than a year. Many city officials – including the five council members – have their own attorneys to represent them in the investigation.
A report by private consultants released in April found that council members acted negligently in allowing the release of faulty information regarding the city’s financial health to be released to investors. The report stopped short of assigning a higher, more severe level of securities fraud to council members.
It found that eight former city staffers acted intentionally or recklessly, levels of securities fraud that would likely spur enforcement action if the SEC concurs with the consultants.
Aguirre, on the other hand, maintains that the council members committed securities fraud and should be individually punished by the SEC.
Council members have responded by saying they relied on the advice of attorneys and city staff members when they approved the bonds. The trouble they find themselves in today has made them weary of accepting counsel from officials such as Aguirre, especially if the expert’s advice appears vague, they said.
“I think we wanted more information about the process and what’s expected of the council,” Councilman Ben Hueso said.
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