SAN DIEGO (CN) – Five former city officials were charged with securities fraud Tuesday, in an SEC complaint that claims they played key roles in the city’s pension and health care fiasco that knocked San Diego’s finances into a cocked hat in 2002 and 2003. City Manager Michael Uberuaga, Treasurer Mary Vattimo, Auditor and Comptroller Edward Ryan, Deputy City Manager of Finance Patricia Frazier, and Assistant Auditor and Comptroller Teresa Webster were charged with securities violations – all are former officials.
They are charged with failing to disclose to investors buying the city’s municipal bonds that there were serious funding problem in pension and health-care obligations, and that those obligation placed San Diego “in serious financial jeopardy.”
“Despite knowing of the city’s substantial pension and retiree health care liabilities, these five former San Diego officials failed to disclose what they knew to municipal securities investors. Their actions not only jeopardized the investors, but also compromised the interests of the city’s citizens and its current and future retirees,” said Rosalind Tyson, acting director of the SEC’s regional office.
The Commission claims the officials knew San Diego had intentionally underfunded its pension obligations so it could increase benefits but defer the costs, and they knew the system would implode unless new revenue were obtained, benefits were reduced, or city services were cut.
They knew that the city’s unfunded liability to its pension plan would grow from $284 million in fiscal year 2002 to $2 billion by 2009, and that liability for retiree health care was another $1.1 billion, but they failed to disclose these and other material facts to rating agencies or to investors in bond offering documents and continuing disclosures, the complaint states.
San Diego has been racked by municipal corruption this decade. Its slogan is “America’s Finest City.”