Former Pension Board Members Indicted

SAN DIEGO -- A federal grand jury returned a 20-count indictment Friday charging former San Diego pension board members and administrators with wire and mail fraud, along with conspiracy.

Click Here To Read Entire Pension Board Indictment

Named in the indictment are former board members Ronald Saathoff, Cathy Lexin and Teresa Webster, along with former pension administrator Lawrence Grissom and current pension general counsel Loraine Chapin.

Arraignments are expected within the next few weeks, said Shane Harrigan, chief of the criminal division of the U.S. Attorney's Office.

Each of the five defendants is charged with one count of conspiracy to commit mail and wire fraud, four counts of wire fraud and 15 counts of mail fraud.

Some of the counts carry a maximum penalty of 20 years in prison, while others carry a penalty of five years behind bars, Harrigan said.

"This case is a significant case for our office," he said. "Public trust in our public servants is important."

The indictment alleges the defendants devised a scheme to deprive trustees of the San Diego City Employees' Retirement System, members of the pension board and the citizens of San Diego of their right to honest services.

The defendants are accused of deceiving their fellow trustees by concealing material information about SDCERS, including the fact that Saathoff would receive an increase in his yearly retirement of more than $25,000 if the SDCERS board enacted the so-called "Manager's Proposal #2."

To encourage Saathoff to support that proposal, Lexin, Webster, Grissom and Chapin helped design and implement the "presidential leave retirement benefit," which would increase Saathoff's benefits, the indictment alleges.

According to the court papers, the defendants never revealed to all of the SDCERS board trustees that Saathoff would receive the presidential leave benefit in exchange for his support of "Manager's Proposal #2."

The defendants also concealed considerable other material information from the SDCERS trustees, including crucial information about SDCERS' financial status, according to the indictment.

The indictment alleges that all of the defendants enjoyed increased retirement benefits due to their involvement in "Manager's Proposal #2."

Harrigan said his office, along with other law enforcement agencies, are dedicated to ferreting out public corruption when it occurs.

By concealing information from fellow pension board members, the defendants deprived the citizens of San Diego their right to honest services, Harrigan said.

"That is a duty to conduct their business in an open and fair manner," he said.

FBi Special Agent in Charge Daniel Dzwilewski said the case was not an indictment of San Diego government at large.

"This case highlights why the FBI's public corruption investigations are so critical," Dzwilewski said. "Much of the work we do in the FBI would not matter if our democracy failed. The democratic form of government is destroyed when any federal, state or local level of government does not enjoy the trust and confidence of its citizens."

The 2002 pension agreement granted increased retirement benefits in exchange for smaller city contributions into the pension system.

San Diego's pension system is saddled with a $1.4 billion deficit which has prompted various probes, including an investigation by the Securities and Exchange Commission into the city's failure to properly disclose the scope of the deficit.

Saathoff, president of the San Diego City Firefighters union, Lexin, the former director of human resources for the city, and Webster, former acting city auditor, also face felony conflict-of-interest charges brought by the District Attorney's Office for their alleged roles in the 2002 agreement.

A preliminary hearing in that case is scheduled to resume Monday.

Harrigan said the federal investigation began in February 2004 and intensified that October. He wouldn't comment on who or what sparked the probe, and defended the amount of time it took to secure an indictment.

A year ago, District Attorney Bonnie Dumanis assigned Deputy District Attorney Mike Still to the U.S. Attorney's Office to aid in the investigation, Harrigan said.