Ex-San Diego officials agree to fines in pension fraud case

The SEC accused four officials, including a former city manager and former city Treasurer, of failing to disclose the size of San Diego's pension shortfalls when they sold muni bonds to investors. Under terms of the settlement, the officials, who didn't admit or deny wrongdoing, would be fined $80,000. From Bloomberg:

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.

As you may recall, the shortfall became so severe that there was talk about the city filing for bankruptcy protection. From the SEC release:

"Municipal officials have a personal obligation to ensure that investors are provided with complete and accurate information about the issuer's financial condition," Rosalind Tyson, director of the SEC's Los Angeles Regional Office, said in a statement. "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."

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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