First Charges Filed in San Diego Pension Case

Six current and former trustees of the city employees pension board were charged Tuesday with felony conflict of interest for allegedly voting to raise their own pensions as part of an overall plan that led to a $2-billion deficit.

The case, filed by Dist. Atty. Bonnie M. Dumanis, represents the first criminal charges in the pension controversy that prompted Mayor Dick Murphy and five high-level city officials to resign and led to the greatest financial debacle in city history.

Charged with conflict of interest were Ronald Saathoff, 57; John Torres, 56; Sharon K. Wilkinson, 55; Cathy Lexin, 54; Mary Vattimo, 44; and Terri A. Webster, 43. They are to be arraigned today in Superior Court, and each could face up to three years in prison.

Dumanis called the charges “the first step in restoring trust in our governmental institutions.... This will send a message that the D.A.’s office is watching, and no one is above the law.”

Bob Rose, representing one of the six defendants, accused the district attorney of “political grandstanding.”

“The last office to open an investigation has to be the first to file charges,” said Rose, who represents Torres, a fingerprint expert for the Police Department who serves on the pension board as a representative of the Municipal Employees Assn.

“Legal opinions, case law and the law itself are on my client’s side,” said Rose, a former federal prosecutor.

The defendants, all city employees, are accused of breaking state law by voting in 2002 for changes in the city’s retirement plan that provided sizable increases in their own pensions, as well as boosting pensions for other employees.

At the same time, they voted to endorse a plan to allow the City Council to pay less than was necessary to keep pace with the long-term obligation of the pension fund. The benefit increases and the under-funded plan were later approved by the council.

Firefighters union leader Saathoff -- who voted for an arrangement that boosted his pension by $2,530.23 a month, to $9,703.66 -- enjoyed the largest increase of the six.

The higher pension was made possible because the 13-member board voted to allow his pension to be calculated using both his city salary and his labor union salary.

City Atty. Michael Aguirre suggested that the increase for Saathoff was a quid pro quo for him delivering political support from his union.

Aguirre said Tuesday that he expects other criminal charges to be filed. “This is just the beginning,” he said at a news conference.

In an April report, Aguirre said Mayor Dick Murphy and the City Council may have broken securities laws by voting to omit information about the pension deficit in filings with Wall Street prior to selling bonds. That omission is now being investigated by the federal Securities and Exchange Commission.

Saathoff, Torres and Wilkinson have retired since the votes in 2002 for which they are now being charged, Dumanis said. According to the charges, the pension plan changes adopted in 2002 raised Torres’ pension by $386, to $4,016 a month, and Wilkinson’s by $477, to $5,096 a month.

At her news conference, Dumanis declined to answer questions.

Through a spokeswoman, U.S. Atty. Carol Lam also declined to discuss the ongoing federal investigation into the pension board.

Lexin was the city’s human resources director, Vattimo the city treasurer, and Wilkinson was a management analyst. Lexin and Vattimo resigned Monday from their city jobs, according to City Manager Lamont Ewell. Webster, a former assistant auditor, is on suspension after allegedly failing to cooperate with federal investigators.

State law, after a measure approved by voters, requires that public employees sit on the board controlling their pensions.

But prosecutors say that doesn’t allow them to vote on arrangements that provide additional benefits to them individually or as members of a select group.

Webster, for example, was among a small group of employees for whom the ceiling was raised on pensions so they could receive more than 90% of their salary.

The 2002 changes, the district attorney alleges, raised Webster’s prospective monthly pension by $1,073, to $10,862.

Dumanis’ method of filing will lead to preliminary hearings at which evidence against the six will be made public before a judge decides whether it is sufficient to send the case to trial.

In the wake of the spiraling pension deficit and federal investigation, San Diego voters in November endorsed a change in city law that dilutes the influence of city employees on the pension board.

Torres is the only one of the six defendants to remain on the pension board.

The new pension panel, still the focus of controversy, has refused entreaties from the city attorney, the U.S. attorney and the City Council to waive attorney-client privileges so legal opinions rendered before the 2002 vote could be turned over to investigators.

City Atty. Aguirre said Tuesday he believes those opinions will show that the board’s private counsel warned members that they could be breaking the law.

Torres’ attorney, Rose, disagreed. He said that when those legal opinions are made public, they will show that his client and other pension board members were advised that they were doing nothing illegal.

The pension controversy stems from a City Council decision in the mid-1990s to depend on a rising stock market to fund the pension program. When the stock market tumbled in 2000, the City Council was faced with cutting city services to increase the city’s contribution to the fund.

But the council refused to do that, preferring instead to strike a deal: Employees would get increased retirement benefits, and the pension board would vote to allow the council to avoid making a balloon payment to keep the pension system at an adequate level of funding.

In early 2004, the City Council admitted that it had not disclosed the pension deficit in a bond prospectus, and the SEC began an investigation.

Faced with a recall and criticism over his handling of the pension problems, Murphy last month announced his resignation, effective July 15.

After the charges were filed Tuesday, Murphy issued a statement cautioning that people “not rush to judgment.”

“As I’ve said in the past, if someone did something illegal they should be held accountable,” he said. “I trust the judicial system will do the right thing.”