City Abuses Citizens' Trust

Preventing Securities Fraud in Municipal Bond Issues

By George A. Dasaro, CFE, CPA

2009-MarchApril-City Abuses Citizens Trust 
With the Obama Administration's infusion of billions for infrastructure improvements and repairs, CFEs soon will have the opportunity to bring their expertise to a vast number of government public projects. If San Diego is an indicator of fraudulent money management, some CFEs could be looking at a much busier professional life.


The people of San Diego - a city prized for its perfect climate and idyllic setting - must hope they've seen the last of municipal fraud scandals. In just seven years, a succession of fraud charges involving San Diego's government has unfolded that will leave the current and future citizens reeling under enormous financial burdens.

The Securities and Exchange Commission (SEC) charged the city of San Diego with nondisclosure to the investing public of its pension fund deficiencies when in 2002 and 2003 it issued municipal securities for sale. In an offshoot of this fraud, the commission also cited the city's independent auditor with professional incompetence.

The SEC then filed charges against five former city officials for withholding the information that they had intentionally underfunded the city's pension fund and misappropriated assets, clearly acting against the public interest.

In a January 2006 civil case predating the SEC's involvement, five former San Diego City Employees Retirement System (SDCERS) board members went to trial for violating California state conflict-of-interest laws. In still another case, a class action suit charged the San Diego Metropolitan Water Department with consumer fraud against the city's residential water customers - ironically, the settlement might enrage consumers as much as the fraud itself.

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