The Securities and Exchange Commission has entered an order sanctioning the City of San Diego for committing securities fraud by failing to disclose information about its pension and retiree health care obligations.
To settle the action, the city agreed to cease and desist from future securities fraud violations and to retain an independent consultant for three years to foster compliance with its disclosure obligations under the federal securities laws.
The SEC order found that the city failed to disclose an unfunded liability to its pension plan that was projected to dramatically increase, growing from $284 million at the beginning of fiscal year 2002 to an estimated $2 billion by 2009, prior to the sale of municipal bonds in 2002 and 2003. Similarly, the city didn’t disclose that its liability for retiree health care was an estimated $1.1 billion.
Further, the SEC said that the city also failed to disclose that it had intentionally under funded its pension obligations so that it could increase pension benefits but defer the costs.
The city consented to the issuance of the order without admitting, or denying, the findings. The SEC is continuing to investigate whether individuals or other entities may have violated federal securities laws.
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