Judge sends six to trial in city pension scandal

SAN DIEGO – A Superior Court judge ruled Friday morning that there is sufficient evidence to try six former city pension board members on a single felony conflict-of-interest charge stemming from the massive underfunding of the city retirement system.

Judge Frederic Link dismissed two of the felony conflict-of-interest charges, ruling that they overlapped the main charge against the defendants. But the six still would face up to three years in prison if convicted of the single charge.

The defendants – Cathy Lexin, former city human resources director; John Torres, a Police Department fingerprint examiner; Ronald Saathoff, a fire captain and president of the city firefighters' union; Mary Vattimo, former city treasurer; Terri Webster, former acting auditor; and Sharon Wilkinson, a city analyst – contended through their lawyers they did nothing illegal and were merely acting in their official roles as pension board members.

Link set the next court date for Feb 1; the defendants' trial date may be scheduled at that hearing or later.

The judge's ruling comes after a preliminary hearing that lasted almost a month – they are usually relatively brief proceedings – with a day and a half of closing arguments.

The case focuses on the defendants' actions as members of the San Diego City Employees' Retirement System board between May and November 2002.

Under the terms of a 1996 agreement with the pension board, the city had been putting less money into the system than it needed to pay future benefits.

That deal worked until the stock market deflated and the fund's earnings sagged. The 1996 agreement contained a provision – known as "the trigger" – that essentially said that if the pension system's funded ratio fell below 82.3 percent the city would have to inject a large payment to make up the difference.

By early 2002, it appeared the trigger was about to be tripped. That is when then-City Manager Michael Uberuaga came to the pension board with a deal to modify the 1996 agreement by lowering the trigger to 75 percent.

At the same time, the city was negotiating a package of enhanced retirement benefits with its labor unions. City officials told the board the increase in benefits were contingent on the board granting the relief in pension payments being sought by city officials.

The board eventually approved the modified plan. Even though it no longer included the 75 percent trigger, it did absolve the city from having to make a balloon payment.

Prosecutors argued that the defendants' votes to approve the contribution relief were linked with the enhanced benefits they would receive. They said that violated a state conflict-of-interest law, which bans public officials from participating in formulating contracts in which they have a financial interest.

The defense contended that no such link existed when the deal was approved. They argued that the city had backed off from coupling the benefits to the pension board's approval in a closed session with the City Council on July 9, 2002 – two days before the pension board approved the plan.

Moreover, the defense said, the retirement benefits were already in effect, since the city and its labor unions – with the exception of the one representing police officers – had agreed to a new labor contract in May of that year.

They also said that the pension board voted only on a plan dealing with how the system would be funded, and that its members had nothing to do with benefit boosts. Therefore, the lawyers argued, their clients had no financial interest in the contribution plan and could not be guilty of the crime.

A federal grand jury indicted three of the defendants – Lexin, Saathoff and Webster – on fraud and conspiracy charges last week. That indictment also named Lawrence Grissom, the former administrator of the San Diego City Employees Retirement System; and Loraine Chapin, the system's general counsel.

Although they center on basically the same events, the charges in the federal case are broader and more complicated than those in the state prosecution, and carry more serious possible penalties.

In the state case, prosecutors have said the defendants face a maximum sentence of up to three years in prison if convicted.

In the federal case, some of the 20 charges could result in five-year maximum sentences, while others could lead to 20-year maximum terms, though it is expected any sentences would be shorter.

Key players

Six to stand trial

Cathy Lexin: Former labor relations manager who played key role in preparing the 1996 and 2002 underfunding deals. During a June 21, 2002, meeting, Lexin said she "didn't see anything with [underfunding the pension system] that is outside the Board's primary fiduciary duty."

Ron Saathoff: President of S.D. City Firefighters Local 145. In 2002 he voted for a deal that included boosting benefits for union presidents. As result, Saathoff's annual retirement pay was increased by an estimated $26,000.

Sharon Wilkinson: City management analyst, 1992 to April 2005. Involved in actions that would increase her monthly pension by $477, to $5,096.

John Torres: Vice president of the Municipal Employees Association, the largest labor union for city employees. Resigned Oct. 18, 2005.

Mary Vattimo: Former city treasurer. in a 2003 memo said the pension deficit "numbers are staggering," yet discouraged disclosure. Reports in Dec. 2004 that employees in her office were destroying documents put the FBI on alert.

Terri Webster: Former San Diego assistant city auditor whose infamous "earnings EEEK!" e-mail was not disclosed in subsequent mayoral reports on the city's fiscal health. Webster voted in 2002 to increase benefits for city workers, including herself. Was later put on leave for not turning over documents.

"That is when then-City Manager Michael Uberuaga came to the pension board with a deal to modify the 1996 agreement by lowering the trigger to 75 percent. "

I remember somewhere that he was "taking the 5th." Mike is one of those MPA smart career government types.

Looks like he was "slick" enough to avoid this round of indictments. He is no longer with the city of San Diego.

Probably retired at about $200,000 per year.

He is the former city manager of my town-Huntington Beach, which is NOT known for good city government.

HB is known for salary "spiking" whereby government employees final year pay rates are jumped up, for the pension basis.

A recent former mayor faces federal prison, for real estate fraud.

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