(CN) – Four former San Diego officials agreed to pay $80,000 collectively to settle claims that they failed to inform municipal investors that the city had been intentionally underfunding its pension obligations, the SEC said Wednesday.
The SEC filed a securities fraud action in 2008 against former City Manager Michael Uberuaga, former City Treasurer Mary Vattimo, former Auditor and Comptroller Edward Ryan, former Deputy City Manager for Finance Patricia Frazier and former Assistant Auditor and Comptroller Teresa Webster.
The SEC claimed the ex-officials knew that the city wasn’t able to meet its pension obligations, but hid this information from municipal bond investors.
In 2002 and 2003, the defendants “knew, among other things, that the city faced severe difficulty funding its future pension and retiree health care obligations unless new revenues were obtained, pension and health care benefits were reduced, or city services were cut,” according to the complaint.
“Nevertheless … [they] acted recklessly in failing to disclose these and other material facts to investors and rating agencies,” the SEC claimed.
“There was no disclosure in 2003 that the city’s unfunded liability to CERS [San Diego City Employees’ Retirement System] was expected to dramatically increase, from $720 million at the beginning of fiscal year 2003 to an estimated $2 billion at the beginning of fiscal year 2009, and its estimated annual pension contribution would grow from $51 million in 2002 to $248 million in 2009,” according to the lawsuit.
Without admitting or denying the allegations, Uberuaga, Ryan, Frazier and Vattimo agreed to pay $80,000 in penalties to settle the claims. Uberuaga, Ryan and Frazier agreed to pay $25,000 each, and Vattimo agreed to pay $5,000.
The SEC’s charges against Webster are still pending.
“These former San Diego officials are paying a price for their actions that jeopardized the interests of investors and put the city’s current and future retirees at risk,” said Rosalind Tyson, director of the SEC’s Los Angeles Regional Office.
The settlement heads to U.S. District Judge Dana Sabraw for approval.