Three former trustees and the administrator of the San Diego Employees’ Retirement System and its lawyer have been charged by a federal grand jury with wire fraud, mail fraud and conspiracy to commit wire and mail fraud in a 20-count indictment.
The announcement was made Jan. 6 by U.S. Attorney Carol Lam, whose office has been investigating the city’s under-funded pension system for more than a year.
Those indicted are former trustees Ronald Saathoff, Cathy Lexin and Teresa Webster, former administrator Lawrence Grissom and general counsel Loraine Chapin.
According to the indictment, “the defendants agreed to devise a scheme to deprive trustees of SDCERS, members of SDCERS, and the citizens of San Diego of their right to honest services.”
The indictment also alleges that they “deceived their fellow trustees by concealing material information about SDCERS, including the fact that Saathoff would receive an increase in his yearly retirement of more than $25,000 if the SDCERS board enacted Manager’s Proposal 2.”
That proposal, approved by the City Council in 2002, permitted the city to avoid making recommended contributions to SDCERS, in exchange for increased benefits for employees.
The retirement system’s deficit is estimated at $1.4 billion.
“The defendants had a duty to act in the best interest of the city retirement system,” said Lam. “They breached that duty by engaging in self-dealing, ignoring conflicts of interest, and exploiting their positions to the detriment of the retirement system.”
“The board has fully cooperated with the U.S. attorney’s office and will continue to cooperate fully going forward,” said Peter E. Preovolos, SDCERS board president, in a prepared statement Jan. 6. “In order for these issues to finally be resolved, it is crucial that the legal process be able to run its course.
“Our members and the citizens of San Diego need clarity and a resolution to these difficult issues in order to move forward as quickly as possible. I want to emphasize that this is a new retirement board and that this board is committed to reform.”
Preovolos said that the board now is conducting a nationwide search to replace Grissom, who retired Dec. 31, and noted that general counsel Chapin “voluntarily went on administrative leave.”
“We are able to call upon our assistant general counsel, Roxanne Parks, to immediately assume the responsibilities of the general counsel position,” said Preovolos.
The new independent fiduciary counsel, Harvey Leiderman, of Steefel, Levitt & Weiss, will assist Parks, said Preovolos.
Meanwhile, City Councilwoman Donna Frye on Jan. 6, in a memo to council President Scott Peters, asked that he “docket as soon as possible the matter of restoring the city attorney to the position of general legal counsel of the SDCERS board.”
“Taking this long-overdue action will help restore stability and credibility, not only to the SDCERS board, but to our city government as well,” she said.
, Pat Broderick