SPSP to SDCERS Submitted by Patricia Karnes on July 27, 2005

Hello fellow-attendees at Aguirre's July 27, 2005-11:00am meeting.
Attending: Nancy Acevedo, Virginia Silverman,Charles Buchanan, Richard Wilken and myself, Patricia Karnes. Here is my first draft of notes from the meeting. Please send me additions and clarifications, as well as disagreements. It was an active discussion.
      On my way home, Radio 600am, at 1:00pm, discussed Aguirre's news conference that followed our meeting. Ewell has apparently reacted by calling him, "Emperor Aguirre". A Deputy City Manager (Ewell?) apparently signed off on each of the transfers from the "City's Social Security" (or SPSP) to SDCERS.      Thinking back to the meeting, it isn't totally clear, to me, why the individual transfers from SPSP, which totaled $121 million to SDCERS, was a scam, even when Aguirre said it was to increase cash liquidity in SDCERS. That figure must be from the American Express report that Aguirre received. He said that SDCERS offered a discount on the actual cost of purchase of service to lure people into the deal. DROP, purchase of service, etc. made the underfunding worse, while SDCERS pulled in liquidity. I didn't know that SPSP had a Board, and members included Saathoff, Lopez and Grissom. He asked who came up with the scheme and why out of SPSP? He has notified the FBI about this scam.
      When the telephone call came from Deputy Mayor Atkins, and Aguirre telling her about the scam and that she was a victim of fraud, the atmosphere had the aura, for me, that this wasn't really happening. When he said that he was contacting the FBI about the ponzi scheme, it had the feel of a Hollywood script. It was difficult to believe that this is really happening.
      He was nominating Steve Francis, Pat Shea, Diana Shipione, and Richard Rider for new trustees of SDCERS as he felt they would waive the attorney-client privilege. Aguirre asked how the City can borrow money (bonds) if they owe $2 billion? They need the waiver to borrow.
      No retirees at the meeting, but me, seemed to believe that the City can't pay the negotiated benefits, when Aguirre said that the City can only afford $400 million, which he hoped would bring the funding level to 80%.
      Receivership is about re-organization. If receivership is accepted by a judge, the receiver would 1)put more responsible people on the SDCERS Board, 2)re-organize what had become a ponzi scheme, 3)match benefits to funding, and 4)send claims to the City.

     Aguirre expected 3rd party claims, such as AIG (victims include SDCERS and Deferred Comp). The receiver would have an independent lawyer. In six months, SDCERS would look completely different. If the City loses the receivership issue, it will take longer than the end of the year and the City will need to go into bankruptcy. Receivership could take 4 or 5 years to complete. He expected a receiver to squeeze on purchase of service credits, etc., but not on basic benefits --perhaps up to $50,000 yr. The City must pay for diverted dollars and underfunding. It would not pay for the agreement to exchange benefits for people on the SDCERS Board.
      Yes, he said, there will be all kinds of lawsuits. Retiree appeals would go to the same judge who appointed the receiver.
      Receivership was more flexible than bankruptcy. The City would file for bankruptcy if receivership was not possible or doesn't work. Pension Obligation Bonds would only increase City payments because they would increase the interest due.
      On indemification: Aguirre said that if we give them indemification, we induce them to do something wrong. (I think due to the on-goingness of SDCERS previous illegal acts.) Aguirre said that under "3-17" that SDCERS should have had an illegal acts investigation, and that the City is doing one because of SDCERS. The current SDCERS Board is still sueing Aguirre personally. There was not an opportunity to inquire about the use of some names, repetitions, and lack of other names from Aguirre's lawsuit of SDCERS Board members. Aguirre said that if Joe Flynn waives, then the SDCERS Board pays for Joe's lawyer. The City doesn't need to pay for Joe's defense.
      Aguirre thinks the new appointees were facing "emergency conditions" and not "long term care". Murphy had said that new appointees were more qualified and it was alright to leave fire, police, etc. on the SDCERS Board. Ron Roberts said the fire and police, etc. were still on the Board due to an election support deal between Saathoff and Murphy. Aguirre thought the new SDCERS Board knew what they were getting into, when they volunteered.
                                               Send me comments back please, Patricia