Tuesday, February 06, 2007 | By SCOTT LEWIS
San Diego City Councilman Scott Peters has warned the city’s pension board that unless it agrees to waive its attorney-client privilege next week, he may ask that a court-appointed receiver “assume control and management of the retirement system.”
He is the first member of the City Council to express potential support for court intervention into the affairs of the city’s retirement system.
But it’s not clear whether the move will push the reluctant board toward any different position than it has held for several months now. Two members of the pension board immediately rebuffed Peters, telling their colleagues instead to not even consider waiving the privilege until they’ve all had a chance to get additional legal advice.
Peters made the threat in a May 25 letter to pension trustee Thomas Page, whom Peters mistakenly called the “chairman” of the board of administration of the San Diego City Employees’ Retirement System. Steve Meyer, another pension trustee, is actually the interim president of the board of administration.
“I am writing to give you my perspective on these issues and to urge a rapid decision to waive the privilege,” Peters wrote. “The consequences of not doing so will be dire.”
In an interview, Peters said the letter spoke for itself. He said the retirement system’s leaders have been too cautious. “But I understand why in an atmosphere like this,” Peters said.
City officials say the city faces grave financial consequences if the pension board continues to maintain its attorney-client privilege over documents sought by the Securities and Exchange Commission, the U. S. Attorney’s Office and the city’s outside auditor, KPMG.
The board’s decision has stymied cooperation with investigators — who base their punishment on such things as cooperation — and delayed the issuance of a fiscal year 2003 audit. The lack of the audit leaves the city with a suspended credit rating, and therefore struggling without the financing to do the things that cities do, such as build sewer pipes and repair roads.
The SEC is investigating errors and omissions in the city’s statements to financial markets, while the U.S. Attorney’s Office is probing possible public corruption.
Pension trustee Thomas King called Peters’ letter “moronic” and disingenuous.
The City Council, mayor, city attorney, city manager and outside audit committee have all officially asked the retirement board to waive its attorney client privilege. The move would allow independent auditors and federal investigators to view documents that may contain information necessary to determine whether illegal acts occurred while the pension fund fell into a deficit now estimated between $1.37 and $2 billion.
But the day after Peters sent the letter to the retirement board, two of that board’s members, trustees Peter Preovolos and Thomas King, wrote a letter to their fellow trustees formally requesting that the retirement board “retain the services of a qualified law firm for the general purpose of advising them … of their fiduciary rights, responsibilities and liability as members of the board.”
Until the new law firm came on, Preovolos and King did not want to even discuss waiving the attorney-client privilege.
“Given the pressure being placed on the board to waive its attorney-client privilege, we wonder if this new board was empaneled as a strawman to do the bidding of the City Officials of expediently waiving the Boards (sic) attorney-client privilege before the board can evaluate all of the possible ramifications of doing so?” the two trustees wrote.
In an interview, King said the city councilman and the rest of the city leadership had no idea what kind of issues the pension board was dealing with. Meanwhile, he said, the city was sliding toward insolvency.
“If somebody doesn’t come forward with a very clear results-oriented action plan I want this city to be in bankruptcy. As a citizen, I want protection from the politicians. They must be protected by the courts if nobody is willing to deal with this problem,” King said.
Though he said he sympathized with what the new pension trustees were facing, Peters told the board that unless the privilege was waived at its next meeting, the city would have no choice but to act. “Among other things, I wanted you to know that I, speaking for myself, see few alternatives remaining, if any, to the suggestion that we seek appointment of a receiver to assume control and management of the retirement system,” Peters wrote the retirement board.
That suggestion was first made by City Attorney Mike Aguirre in February among a series of other sweeping reforms he said the city should make to rehabilitate its pension system and cooperate fully with the numerous investigations taking place.
“If a receiver is not appointed to place the control of the pension system under court supervision, the plan’s beneficiaries will suffer irreparable harm,” Aguirre wrote then in his “Legal Action Plan to Address City’s Financial Condition.”
As with a petition for bankruptcy, the City Council would have to vote to ask the Superior Court to appoint a receiver capable of leading the beleaguered agency.
Peters, in his letter, said it didn’t have to come to that. But the retirement system’s beneficiaries would suffer unless the board immediately waived its attorney-client privilege. Most importantly, Peters wrote, the move would allow the city’s independent auditors to complete their work and allow the city to issue bonds.
“The audit must be completed before the city can regain access to the bond markets at reasonable rates,” Peters wrote. “That is necessary for the city to complete its plan to issue more than $400 million in pension obligation bonds to reduce the retirement system’s unfunded annual actuarial liability.”
Aguirre maintains the move is necessary to help the city avoid outright bankruptcy.
King and Preovolos said their expressed desire for new legal counsel is not intended to rebuke their current counsel — the San Diego law firm Seltzer, Caplan, McMahon and Vitek. It’s just a measure of caution, they said.
“With all of the controversy and finger-pointing by city officials towards the retirement board and the misinformation continuously published in the media regarding the Board’s role in the financial woes of the city, we do not feel competent to evaluate, on our own, all of the ramifications of what we are being asked to do, nor do we have the resources to undertake a proper investigation and due diligence,” the pair wrote.
In April, attorneys Mike Leone and Reg Vitek met with the board in a closed meeting that later ended up in a vote of 8-to-4 against waiving the attorney-client privilege protecting the coveted documents. Preovolos and King were among the majority in that vote.
The April closed session marked one of the first major decisions of the newly formed board of administration whose make-up had been rearranged by a successful ballot initiative last November. At the May meeting, the board refused to revisit the vote.
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