A former city of San Diego redevelopment leader turned her agency’s retirement plan into “her tax-free ‘checkbook’ from public funds,” according to a new lawsuit filed last week that accuses the ousted official of a fresh batch of abuses.
The Southeastern Economic Development Corp. alleges that its former president, Carolyn Y. Smith, took more than 50 illegitimate loans out of her retirement account and unilaterally decided her agency would pay her a higher pension than other employees.
The lawsuit goes far beyond Smith’s now well-known clandestine bonus system and paints the picture of a public official who continually flouted the rules in order to enrich herself at the cost of an agency that’s tasked with revitalizing some of the city’s poorest neighborhoods.
As the trustee of SEDC’s retirement plan, Smith manipulated the plan in order to ensure she could receive a boosted pension, dip into her retirement account at will, gamble on improper investments and write her own loans, SEDC alleges.
The agency claims its former leader thereby committed fraud and violated conflict-of-interest laws.
SEDC “was entitled to expect that its President and CEO would not profit from a non-profit corporation funded by tax dollars by her breaches of fiduciary duty, conflicts of interest and self-dealing,” the agency’s suit says.
It seeks to void Smith’s $100,000 severance package and recoup pay and benefits Smith unilaterally awarded herself.
The SEDC board fired Smith in July 2008 after a voiceofsandiego.org investigation revealed that she and former SEDC Finance Director Dante Dayacap had orchestrated a clandestine bonus system that paid out more than $1 million to SEDC staffers over the course of five years. Smith and Dayacap were the largest beneficiaries from the secret bonuses.
This summer Smith sued the agency, claiming she’s owed the severance that SEDC later rescinded, her retirement benefits, access to her retirement account and an accounting of those benefits.
SEDC responded with its own countersuit against Smith, alleging that she:
• Used her secret bonuses to boost how much SEDC paid into her retirement account despite knowing it wasn’t allowed.
• Used the retirement fund as collateral in investment trading.
• Loaned more money than she was allowed and for longer than she was allowed, in a method she wasn’t allowed to use.
• Created her own bonuses and signed her own bonus checks.
The SEDC retirement plan was originally set up in 1991, a few years after Smith joined the agency and three years before she became president.
The plan, which is similar to a 401(k), didn’t require employees to pay into it. Each month the agency paid an additional percentage of each employee’s salary into the account.
In 1994, Smith became a trustee of the plan.
Shortly thereafter, the SEDC lawsuit contends, Smith decided that the agency would pay 15 percent of her salary into her retirement account, while other employees only received 12 percent. That decision was never cleared by the SEDC board, the agency’s lawsuit contends.
The payments into each employee’s retirement account were calculated as a percentage of that employee’s monthly salary, which was set by the agency’s board and approved by the City Council.
But SEDC claims Smith manipulated the plan so that the monthly retirement payments were calculated not just on her and her employees’ salaries, but also on the hundreds of thousands of dollars she was handing out in secret bonuses.
We reported in 2008 that Smith had used those bonuses to boost the amount being paid into her retirement account.
For example, on May 7, 2008 Smith was paid $27,500 for two weeks’ work, most of which was labeled as “incentive pay” — one of the euphemisms Smith used for her bonuses. For the same pay period, SEDC records show, the agency paid $4,125 into Smith’s retirement plan. Had the pension payment been calculated only on Smith’s base salary, she would have received $1,075.
In total, the lawsuit says she received $130,000 more than she should have in the retirement plan alone.
SEDC also accuses Smith of dipping into her retirement account more than 50 times over more than a decade.
Smith took out dozens of “hardship loans” from her account, without meeting IRS requirements for what a “hardship” is, SEDC contends. Smith borrowed more money and paid the loans back over a longer period of time than allowed, the lawsuit alleges.
Smith’s lawsuit claims she has continuously asked SEDC to pay her the balance remaining in her retirement account.
The agency has refused to give her any information about the account and has refused to pay her the money she earned over more than 20 years as an employee, her lawsuit claims.
SEDC attorney Leslie Devaney said the agency hasn’t been able to because much of the money that was paid into Smith’s plan should never have found its way in there in the first place.
“We said ‘We know you’re owed something, but we’re trying to figure this all out, considering that you were signing your own checks, taking out loans and paying too much into the plan,’” Devaney said.
The SEDC lawsuit goes further than the retirement plan, however. It hopes to get a judge to force Smith to pay back more than $200,000 she paid herself in bonuses and extra compensation while she was president.
It’s not the first time the city has sought to have Smith repay the bonuses.
A short-lived lawsuit filed by former City Attorney Mike Aguirre in the wake of the 2008 bonus scandal claimed Smith breached her employment contract and breached her fiduciary duty to the agency by paying herself and her staff the bonuses.
Aguirre said he dropped the lawsuit in September to “clear the way” for a criminal investigation by District Attorney Bonnie Dumanis.
Dumanis has never confirmed or denied that she’s investigating.
A federal grand jury launched an investigation into the agency in 2008 and, in October of that year, the FBI raided SEDC and seized computers and a computer server. No criminal charges have been filed against anyone at SEDC.
Smith’s attorney didn’t respond to a call for comment.