Five former San Diego officials charged with fraud

By Jim Christie and Lisa Lambert

SAN FRANCISCO/WASHINGTON (Reuters) - U.S. regulators filed fraud charges on Monday against five former San Diego officials who played key roles in the pension fund scandal that triggered the city's recent financial meltdown.

The U.S. Securities and Exchange Commission charged all five with failing to disclose to municipal bond buyers that funding problems with pension and retiree health care were jeopardizing the finances of California's second-largest city.

As punishment, Wall Street has locked San Diego out of the municipal debt market since 2003, shattering its image as a model of municipal governance and forcing the city to seek loans from private lenders.

Those charged included the city's former treasurer, Mary Vattimo; former City Manager Michael Uberuaga; and its former auditor and comptroller, Edward Ryan.

"Municipal officials responsible for municipal bond disclosure play a key gatekeeper role in protecting investors," Linda Chatman Thomsen, director of the SEC's division of enforcement, said in a statement. "It is therefore imperative that they honor the public's trust by ensuring that investors are provided with accurate, material information about the issuer's fiscal health."

City Attorney Michael Aguirre told Reuters the charges would bolster efforts to reform how San Diego is managed. "We need now in San Diego to make a much more serious effort to reform the management of our city," he added.

According to the SEC's complaint, the officials knew the city's unfunded liability to its pension system for retired workers was projected to increase to an estimated $2 billion by 2009 from $284 million at the beginning of fiscal year 2002.

But they did not disclose that and did not disclose an estimation that San Diego's liability for retiree health care was $1.1 billion in bond offering documents or other notices, the SEC said.