Want the news summarized?
Subscribe to The Morning Report.
Tuesday, February 06, 2007 | Presumed Innocent
The Justice Department leaves readers with one last thought on the press release announcing the indictments of five pension officials:
“An indictment itself is not evidence that the defendants committed the crimes charged. The defendants are presumed innocent until the Government meets its burden in court of proving guilt beyond a reasonable doubt.”
— ANDREW DONOHUE
Grand Jury Goes Home
The new indictment may reveal a bit more than what it says. The federal grand jury that issued it was referred to as the “January 2004” grand jury.
Federal grand juries normally have 18-month terms. That would have meant the “January 2004” grand jury expired six months ago. But prosecutors can seek one six-month extension.
Add it all up and that means prosecutors likely had to seek the grand jury’s approval on indictments this month, as it appears the grand jury’s term was set to expire.
— SCOTT LEWIS
Don’t Talk About Pension
Hidden deep in the 29-page indictment issued today by the U.S. attorney is a curious piece of evidence that illustrates the interest city employees had in keeping the city’s pension problems quiet.
In July 2002, just as the pension board was preparing for a crucial vote on the now notorious agreement known as Manager’s Proposal 2, the now-indicted former Assistant Auditor Terri Webster sent an email. It concerned a memorandum the now-indicted former director of human resources, Cathy Lexin, sent to the now-indicted former pension system Administrator Larry Grissom.
The memo was meant to help Grissom answer potential questions about a deal they were working on.
“FYI regarding cathy’s letter my biggest suggestion to her is to eliminate any reference to fitch and rating agencies in #6. This letter will be seen by press and the city does not need to telegraph its pension problems to the rating agencies who don’t research the topic to any great level now.”
Until 2004, Fitch Ratings reported that the city had a very strong credit rating.
— SCOTT LEWIS
Where Was Lam?
Shane Harrigan, the head of the U.S. Attorney Carol Lam’s criminal division, said Lam couldn’t make it to a press conference Friday announcing the federal grand jury’s indictments of five key figures in the city’s pension crisis.
Lam was present at the press conference announcing the indictments in 2003 of former City Councilmen Michael Zucchet and Ralph Inzunza. And she led the press conference recently that announced the plea agreement with former U.S. Rep. Randy “Duke” Cunningham.
Preovolos: Chapin, Grissom Gone
Friday, Jan. 6, 2006 — 5:06 p.m.
In a press conference, the president of the city’s pension board announced that Lori Chapin, the general counsel for the San Diego City Employees’ Retirement System, has put herself on administrative leave.
Preovolos said the pension board would conduct a nationwide search for a permanent replacement for her.
As for former Retirement Administrator Larry Grissom — who has remained at the system as a consultant — Preovolos said he would be gone. Grissom and Chapin were indicted Friday on fraud charges. See the newly updated full story on the indictments here.
“He will not appear on this premises unless whoever is chose as his successor has a compelling need to ask him questions about the operations,” Preovolos said.
Calls for Change
Upon hearing of the indictments filed Friday against the attorney for the city’s pension system, San Diego City Councilwoman Donna Frye sent a memo requesting that City Attorney Mike Aguirre become the official legal counsel for the pension board.
“Taking this long overdue action will help restore stability and credibility, not only to the [board of trustees of the San Diego City Employees’ Retirement System], but to our city government as well,” Frye wrote.
The move came amid calls for the beleaguered retirement system to distance itself from its General Counsel Lori Chapin and former Administrator Larry Grissom. Grissom has retired but — despite being recently identified as a target in the federal probe — he remained an employee of the pension system as a “consultant.”
“The board should move immediately to remove both Mr. Grissom and Ms. Chapin from employment,” said April Boling, the former chairwoman of the Pension Reform Committee. “This should have happened long before now, but the board has steadfastly refused to act.”
Pension Board President Peter Preovolos is holding a press conference at 4:30 p.m. to discuss the indictments.
Five Face 20-Count Indictment
A federal grand jury handed down criminal indictments Friday of the president of the city of San Diego’s firefighters union along with two of his former colleagues on the city’s pension board and the pension system’s administrator and general counsel.
The justice department has accused Ron Saathoff, Cathy Lexin, Terri Webster, Larry Grissom and Lori Chapin of wire fraud, mail fraud and the conspiracy to commit wire and mail fraud.
Saathoff is the president of the firefighters union. Lexin is the city’s former director of human resources. Webster is the former assistant auditor. Grissom recently stepped down as the administrator of the city employees’ pension fund and Chapin is that fund’s head legal advisor.
It was a 20-count indictment.
The five allegedly devised “a scheme to deprive [the San Diego City Employees’ Retirement System, or SDCERS], members of SDCERS and the citizens of their right to honest services,” the indictment reads.
Lexin, Webster and Saathoff are already facing criminal conflict of interest charges from District Attorney Bonnie Dumanis.
CHARGES COMING IN PENSION SCANDAL
The U.S. Attorney’s Office is expected to announce criminal fraud charges this afternoon against a number of current and former city of San Diego officials involved in the city’s pension scandal.
A press conference is scheduled for 2 p.m.
Indictments would signal the first significant legal actions of the two-year-old federal investigations that have roiled City Hall. The city’s fiscal crisis and accompanying probes have forced the resignations of former Mayor Dick Murphy and a cadre of top city officials.
The Securities and Exchange Commission and the Justice Department are also reportedly investigating possible civil and criminal securities violations after errors and omissions found in the city’s financial statements called into question the veracity of its financial reporting.
Former retirement administrator Larry Grissom and the pension system’s chief legal advisor, Lori Chapin, have reportedly been told they are targets of the pension investigation. Federal subpoenas have also shown agents’ heavy interest in the pay and pension given to firefighter union president Ron Saathoff.
Saathoff and five other former pension trustees have also been charged by the District Attorney’s Office with criminal conflict-of-interest violations in connection with votes they took while on the pension board. A pre-trail hearing in that case is set to resume Monday after a holiday recess.
The city’s pension dealings first came under scrutiny in late 2002 when pension trustee Diann Shipione began raising public concerns over the city’s ability to pay its future pension bills and possibly corrupt deals cut between the pension board and city administrators.
The pension system is now saddled with a deficit estimated to be more than $1.37 billion. The deficit threatens to consume the city’s annual operating budget for years to come and has caused a political upheaval at City Hall.
Federal investigators entered the fray in February 2004 after the city admitted to errors in its financial disclosures.
— ANDREW DONOHUE
A Chargers official told Voice earlier this week that the team would need to come to an agreement with a developer within the next two weeks in order to have a stadium proposal ready for the November ballot.
So, then, when would voters conceivably get a chance to decide on a proposal?
That would be the next citywide election, which for now isn’t until the California presidential primaries in 2008. Another possibility would be the general presidential elections in November 2008 (although in these times the idea of a citywide special election being called sometime in the next two years isn’t totally out of the question).
Special elections generally cost about $3 million, but the city’s fiscal crisis makes it highly unlikely that a special election would be called solely for a stadium proposal.
By the time 2008 rolls around, the team will be free to move to another city.
— ANDREW DONOHUE
Council President Scott Peters laid out his vision for the coming year on Thursday, sharing a sense of optimism despite the “rough times” that may carry over into 2006.
“This is the year we get past lawyering and finger-pointing and refocus our energy on the people’s business,” he said in front of the picturesque Balboa Park promenade to a crowd of about three dozen. (Click here to read a copy of Peters’ speech.)
Peters alluded to myriad clouds surrounding City Hall, including various probes into the city’s financial practices and the city’s inability to have its books certified by an outside auditor since 2002.
While not specifically laying out his stances on issues, the event served more as a coming-out party for Peters as he assumes the new leadership post this week.
“(San Diegans) told us that they wanted strong leaders with integrity and with a clear vision of where the city needs to go to turn itself around,” he said. “I’m honored to serve as San Diego’s council president to help define and articulate that vision.”
As the city’s first council president, Peters will be the first district-elected official to set the legislative agenda for the entire city because of the voter-approved switch to a strong-mayor structure.
Beginning this week, Peters took over the mayor’s responsibilities of leading the council while Mayor Jerry Sanders assumes authority over the day-to-day operations of the city government. Read more about what the strong-mayor form of government will look like here.
He was unanimously chosen by the council to chair the council for one year, although he may run for president again. Extending the strong-mayor structure past 2010 will require another citywide vote.
Peters also recognized his fellow council members, spelling out their various chairmanships for the upcoming year and the responsibilities they’ll play in those capacities.
After a reporter asked a question about whether he still had beef with the city attorney, Peters said that it was a problem that “our own running back is tackling the quarterback,” referring to Aguirre as the running back. A follow-up question was whether Peters was the quarterback in that equation.
— EVAN McLAUGHLIN
More on Council Pension
City Council District 2 candidate Kevin Faulconer was unavailable for comment Wednesday on the city attorney’s proposal that the council undo its own retirement benefit increases, but he said Thursday morning that he supports the idea.
“I support giving the council benefits that are the same as every employee in the city of San Diego,” Faulconer said.
Aguirre said he will ask the City Council to undo benefits for elected officials that allow them to qualify for a pension after four years while other city workers must work 10, among other perks. If the council refuses to repeal the benefits themselves, he said he will sue the council.
Council President Scott Peters, who schedules what gets voted on at council meetings, has been cool to the idea. He said such an action would bring on more litigation from council members, and the costs of attorney fees outweigh the savings from unwinding those benefits.
Faulconer’s opponent, Lorena Gonzalez, also said she supported the idea, but wanted to see the legislation before she voted on it.
The City Council elections are Tuesday.
— EVAN McLAUGHLIN
Aguirre: Go for Lo-Go
City Attorney Mike Aguirre is expected to endorse Lorena Gonzalez for the District 2 City Council seat, sources close to Aguirre and Gonzalez said Thursday.
Gonzalez, an environmental attorney, said during her debate with opponent Kevin Faulconer on KPBS’s “Full Focus” on Wednesday that she is “happy to have the city attorney’s support.”
Aguirre said he admired Gonzalez’s work “to hold utilities accountable” when she worked in Lt. Gov. Cruz Bustamante’s office, but shied away from saying he endorsed her during a Thursday morning interview. An official endorsement is expected later today.
Faulconer, a public relations executive, was endorsed by Mayor Jerry Sanders last month. In Sanders’ first month in office he and Aguirre have made for early partners in their attempts to reform City Hall. Both Aguirre and Gonzalez are Democrats, while Sanders and Faulconer are Republicans.
— EVAN McLAUGHLIN
Last Chance for Debate
With an important special election on the horizon for City Council District 2 and District 8, the Catfish Club is set to host a debate with all four candidates Friday at noon. The lunch club — which, yes, serves catfish — holds weekly gatherings to feature speakers on public affairs and politics.
Voice staff writer Evan McLaughlin will moderate the debate. He declined to comment when asked what questions he will ask of candidates.
— ANDREW DONOHUE
With the news today that City Attorney Mike Aguirre could end up suing the City Council over pension benefit enhancements, the Voice staff finds it an opportune time to take a tally of the city attorney’s recent focus:
He is now investigating his own office, possibly suing the City Council and reviewing a possible investigation of the county Board of Supervisors.
— VOICE STAFF
The FBI is Watching
The local branch of the FBI is currently investigating 10 cases of alleged real estate fraud in San Diego.
Real estate fraud has been named by the FBI as one of the most serious financial crimes facing citizens of the United States. FBI Assistant Director Bill Swecker said he considers Southern California and San Diego to be particularly susceptible to real estate fraud because of the region’s high home prices and booming real estate market.
An FBI spokeswoman said the number of investigations is high considering the relative stability of San Diego’s real estate market recently. Volitile markets are said to foster increased real estate fraud.
The spokeswoman said investigators in the bureau expect to see an increase in criminal activity as the market starts to sink, as many analysts have predicted.
— WILL CARLESS
Now, Sue the Council
City Attorney Mike Aguirre says that his plan to rollback pension benefit boosts for elected officials will have to go through the City Council itself before the courts. The city attorney says the council will either have to vote to undo the benefit enhancements or become defendants in a lawsuit.
A Superior Court judge allowed the City Attorney’s Office the opportunity to amend its lawsuit targeting benefit enhancements for elected officeholders until the end of the month. Aguirre says he will have to sue the council to keep his legal argument alive and would rather let the council determine its own fate.
If the council decides to pass legislation that strips elected officials of their benefit increases and their easier standards for qualify for a pension, Aguirre won’t have to sue the City Council, he said.
If not, he will proceed with a lawsuit against the council.
“There’s no hesitiation, that’s what I’m here for,” he said.
Elected officials have been granted a number of pension benefit increases since 2000. As the pension system’s fund has perilously dwindled, benefit hikes given to employees and politicians in the last decade have come under increased scrutiny.
Read Thursday’s edition of Voice for further coverage.
— EVAN McLAUGHLIN
Timetable of Reform
Jerry Sanders has been the City Hall chief for less than a month, and, it appears, things are as bad — or even worse — than he imagined during the campaign for mayor.
“San Diego’s government systems are broken and badly in need of repair,” he told a bunch of reporters this afternoon.
The new mayor gave the media a big briefing today on how things will look structurally under the new strong-mayor form of government. Essentially, the city’s processes are going to be “reengineered” a la the Navy under the tenure of Ronne Froman, who is now Sanders’ chief operating officer. The focus will be on customer service and efficiency.
Sanders gave a long list of current deficiencies at City Hall. He then provided a loose outline on how the rest of his financial recovery program will go. First, he fulfilled one of his key campaign promises by asking for the resignations of 300 of the city’s top managers. He said he expects to only accept about one-third of those, but that decisions won’t be made until his team completes a comprehensive review of the city structure. The resignation idea was a campaign promise Sanders used to illustrate his desire to clean house at troubled City Hall.
Additionally, he said he is working with the City Attorney’s Office to craft language on a ballot measure that, if approved by voters, would open up some city services to competition from the private sector. He said work is also being done on a ballot measure that would create a new, two-tiered pension system and require voters to approve any future pension benefit enhancements.
The City Council will need to vote to place the measures on a June ballot that will feature a number of council primary races. If the council doesn’t put the items on the ballot, Sanders will be forced to conduct a signature drive, something that could push the initiatives off until the November ballot.
Sanders, the former police chief, said he will soon begin negotiations with the city’s labor unions with the hopes of reworking labor contracts and lessening the city’s future pension burdens. The negotiations were to begin in January but have been pushed off to an indefinite date.
The administration plans to name its final two top managers this week as well.
“The next few years are going to be difficult ones for the city,” Sanders said.
— ANDREW DONOHUE
Stir It Up
Local bloggers have picked up on Voice of San Diego‘s coverage of the real estate market, and have generated dozens of replies.
A popular housing bubble blog picked up on the latest articles on appraisal fraud. The blog’s posts have developed into a thriving discussion of the appraisal fraud issue
Another local Web site, www.piggington.com, has been following Voice’s stories with interest. The site provides analysis of the recent appraisal fraud and market trend articles.
— VOICE STAFF
Reorganization Will Include Spring Cleaning
Tuesday, Jan. 3, 2005 — 11:15 a.m.
San Diego Mayor Jerry Sanders is expected to announce today at noon that reorganizing the troubled city government will take several months.
Sanders plans to regroup the functions performed by the city into new departments by March, the same period of time it will take him to review how many top managers will be included in his new administration.
Also beginning this month, Sanders will be reviewing four aspects of the city government he believes need to be addressed immediately: the city’s contracts, its personnel and human resources department, information technology and administration. Each review will be performed by task forces comprised of representatives from several city offices, union representatives and “stakeholders,” such as residents and businesses. Recommendations will then be forwarded to the mayor.
If any of the suggestions the mayor wants to enact requires legislation, it will be subject to a City Council vote. Starting this week, the mayor no longer votes with the City Council. Read more about the strong-mayor changes.
The Mayor’s Office will also be creating a “management plan,” which is similar to a code of ethics but also serves as an instructional manual for city operations, staff members said.
— EVAN McLAUGHLIN
California’s legislators are working to create a national registry of enforcement actions against mortgage industry insiders.
A recent story in the Los Angeles Times outlines legislators’ concerns about the state of California’s home equity lending market. Legislators cite the increasing number of incidents of mortgage fraud, the increasing role of mortgage brokers in the lending process and the vast increase in lending activity as a result of the state’s booming real estate market as the primary reasons for needing the database, the Times reported.
The proposed database would record incidents of fraud, disciplinary actions and license revocations against mortgage industry insiders.
The FBI has identified mortgage fraud as one of the most severe financial crimes being perpetrated against United States citizens. Mortgage fraud can range from simply exaggerating one’s income on a mortgage application, to complex fraud rings that use a network of players to inflate the value of a property before selling it on to an unsuspecting buyer.
The effort to create the national database is being driven by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Realtors, the Times reported.
Read the Times story here.
— WILL CARLESS