Tuesday, February 06, 2007 | Council President Scott Peters has owned more than $100,000 in stock in the parent company of the private firm investigating City Hall at the same time the firm, Kroll Inc., has charged the city at least $16.2 million.
Peters voted at least five times since the beginning of 2005 to grant contracts or authorize increased payments to Kroll Inc., whose contentious tenure as the city’s audit committee has been marked by multiple delays, cost overruns and concerns surrounding its independence.
The councilman said he was unaware that Marsh & McLennan Cos. was the parent company of consulting firm Kroll Inc. until he was questioned on the matter this week by a voiceofsandiego.org reporter.
City Attorney Mike Aguirre has referred the issue to his Public Integrity Unit for investigation but refused to comment further on the implications of Peters’ stock ownership.
The potential conflict could invalidate the City Council’s approval of the original Kroll contract and five subsequent amendments that allocated $16.2 million to the consulting firm. Such a scenario could force the council to revote on the contracts and, if so, reignite the discussion of whether to continue with the audit committee.
A great deal of Peters’ wealth is drawn from the extensive investment portfolio controlled by his wife, as well as the holding corporation she heads. He has removed himself from council decisions in the past on items in which he had a potential conflict. Peters has recently sat out on council business involving Bank of America, Citibank and Lehman Bros. because of his holdings in the firms, he said.
“We’re really careful about it,” Peters said.
The City Council was forced to revote on a financing deal with the Bank of America last November after Peters discovered that he owned stock in the bank.
The discovery of Peters’ stock ownership in Marsh & McLennan came after the City Clerk’s Office released Monday the annual statements of economic interest for city officials and elected officials. The statements record the official’s outside income, investment holdings and gifts received for a calendar year.
Peters and his wife, Lynn Gorguze, control an extensive stock portfolio, with broad investments in international retail, petroleum, pharmaceutical, software, medical device and other outfits.
Peters listed his stock ownership in Marsh & McLennan on his economic statement, listing the investment’s value at between $100,001 and $1 million. It is listed as his wife’s property.
In an interview, the councilman said the value of his stock ranged between $68,000 and $116,000 in 2005 as his wife bought and sold the insurance firm’s stock regularly. He valued the investment at $78,000 currently, but said his wife controls the stock and the two typically don’t discuss the investments.
Additionally, the investment firm in which Peters’ wife is president also owned Marsh & McLennan stock for a brief period in 2005. The corporation, Cameron Holdings Corporation, bought the stock on February 14 — the day in which Kroll was originally hired by the city. The corporation purchased 700 shares of Marsh & McLennan stock that day, when the high trading price was $32.48.
It sold the stock less than a month later on March 10, when the high sales price was $31.10. Exact figures on the purchase and sales price of the stock weren’t available from Peters’ office as of press time.
City staff prepared a memo weekly for City Council members listing the companies that will have business before the council in the coming week in order to prepare the politicians for possible conflicts. Documents provided by Peters’ office for the weeks in which audit committee expenditures were approved do not list Kroll or Marsh & McLennan.
A spokesman for Mayor Jerry Sanders declined to comment, only saying that the mayor will await an opinion from the City Attorney’s Office on whether the stock ownership invalidates the council’s earlier votes.
Peters said he didn’t believe the council would need to vote again on the audit committee’s contract and expenditures. As council president, Peters controls what items the City Council votes on.
California Government Code 1090 forbids public officials from voting on issues in which they have a personal economic interest. Peters said he isn’t affected by the conflict-of-interest statute because he doesn’t own at least 3 percent of the firm in question.
The council president said the next time the audit committee comes before the council for more money, he will either have sold the stock, recused himself or sought an outside legal opinion regarding his eligibility to vote.
The audit committee, led by former Securities and Exchange Commission Chairman Arthur Levitt, was hired in February 2005 to conduct an independent investigation into allegations of wrongdoing and illegal activity that had dogged City Hall.
The costs of the Kroll investigation have become a sensitive topic in a city that has been forced to curtail its basic services to pay its ballooning pension bills and the legal and consultant fees associated with federal investigations into City Hall and a suspended credit rating.
Council members are nearly unanimous in their belief that the Kroll investigation is mandatory to the city regaining its financial credibility, although relations with Sanders have been cold since he took office in December.
Another major setback in its investigation could fissure the tenuous relationship even further.
The city cannot bond in the public finance markets for vital infrastructure projects until outside auditors bless the outstanding 2003, 2004 and 2005 financial statements, which have been delayed by errors and omissions found in the 2003 statement.
Outside auditors will not release the audits until the Kroll investigation is complete.
The Securities and Exchange Commission, Justice Department and District Attorney’s Office are all investigating City Hall and the latter two agencies have filed criminal charges against a total of eight officials tied to the pension system.
The city first hired law firm Vinson & Elkins in February 2004 to complete an independent investigation. However, the firm produced two reports, both of which were rejected by outside auditors and the SEC for their lack of independence.
Kroll was hired last February to reconcile differences between conclusions reached in the Vinson & Elkins reports and a number of investigative reports released by Aguirre. Officials from Kroll quickly deemed that neither party’s investigation would be sufficient and has undertaken its own.
The Kroll investigation has run into problems of its own, as glitches in its electronic documents database caused the group to miss its December deadline. The consultants now believe their report will be released sometime in May.
Please contact Andrew Donohue at