(October 29, 2010) — Four former San Diego city officials have agreed to pay $80,000 to settle a Securities and Exchange Commission (SEC) fraud suit that alleged they misled investors in municipal bond offerings about the city’s pension and retiree health care obligations.
It’s the first time that the SEC has secured financial penalties against city officials in a municipal bond fraud case as it seeks to crack down on perceived abuses.
The suit has accused the city’s officials of failing to disclose the size of the San Diego City Employees’ Retirement System’s (SDCERA) unfunded pension liability when the city sold bonds. Without admitting or denying the allegations, former City Manager Michael Uberuaga, former Auditor Edward Ryan, and former Deputy City Manager for Finance Patricia Frazier each agreed to pay $25,000, according to the SEC, while former City Treasurer Mary Vattimo will pay a $5,000 penalty.
“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,” Rosalind Tyson, director of the SEC’s Los Angeles regional office, said in a statement. “Municipal officials have a personal obligation to ensure that investors are provided with complete and accurate information about the issuer’s financial condition. 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.”
According to the statement by the US regulator, the SEC filed the charges against the city officials in April 2008, alleging that they were aware that San Diego had been intentionally underfunding its pension obligations to increase benefits while deferring the costs. The SEC claimed the officials were aware that the city would face difficulty funding its future retirement obligations without new revenues or cuts to employee benefits or city services. But, “despite this extensive knowledge, they failed to inform municipal investors about the severe funding problems in 2002 and 2003 bond disclosure documents,” the SEC’s statement said.
Similarly, in August, the State of New Jersey settled claims that it fraudulently misled municipal bond investors while underfunding the state’s two biggest pensions covering teachers and other state employees in the first SEC case against a state.
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