Four former San Diego city officials agreed to pay $80,000 to settle an SEC fraud suit that accused them of failing to disclose the size of the San Diego City Employees’ Retirement System’s unfunded pension liability when the city sold bonds.
The settlements, which must be approved by U.S. District Court in San Diego, would conclude a case filed more than two years ago against the officials, including former City Manager Michael Uberuaga and one-time Treasurer Mary Vattimo. The officials didn’t admit or deny the allegations, according to court documents. The city of San Diego settled an SEC fraud case without paying fines in 2006.
The actions stem from the city’s decisions, dating to the mid-1990s, to increase pension benefits while failing to set aside enough money to cover the cost, and to use investment returns to pay health-care costs. The strategy backfired when the Internet stock bubble collapsed, leaving the city to contend with gaps between its assets and what it promised workers.
The regulators said the city and officials made false and misleading statements in 2002 and 2003, when San Diego sold more than $260 million of bonds and failed to disclose that the pension deficit was projected to soar to $2 billion by 2009.
The shortfall led to cuts in the city’s credit rating.
The SEC has since established a unit to crack down on fraud in the $2.8 trillion municipal bond market, including cases tied to pension funds. In August, New Jersey settled claims it didn’t disclose to investors that it failed to put enough cash into its two biggest pension plans when it sold $26 billion of bonds from 2001 to 2007. It was the SEC’s first action against a state.
Four of the five San Diego officials accused in the case settled, according to documents released by the court.
Mr. Uberuaga, former Auditor and Comptroller Edward Ryan, and former Deputy City Manager for Finance Patricia Frazier each agreed to pay $25,000 fines, while Ms. Vattimo would pay $5,000.
Lawyers for the four former officials didn’t immediately return calls seeking comment.
No settlement was filed for Teresa Webster, the former assistant auditor and comptroller.
The scale of San Diego’s pension fund shortfalls came to light in 2004, when the city disclosed that it found errors in its annual financial statements. The situation led to the resignation of Mayor Dick Murphy in 2005.