Diann Shipione is a former trustee of the San Diego, California

California

California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...

 City Employees' Retirement System pension board, credited with exposing unlawful underfunding

San Diego Pension Scandal

The San Diego City Employee's Retirement Pension Fund was the source of a multiyear scandal and has been an ongoing financial concern for the city of San Diego, California. This scandal has been compared to a similar scandal in Bell, California...

 of the pension fund and omissions in municipal bond sales.

Situation Background

The San Diego City retirement system had been underfunded in some form for more than a decade. As a result of years of sharp increases in pension benefits combined with decreases in pension funding and a decrease in the value of investments in 2001 the fund fell below funding targets.

Escalating Conflict

In 2002, Diann Shipione, a pension board trustee, raised concerns to the San Diego Mayor and City Council about a proposal that would essentially reduce money going into the retirement fund and increase money going out of it.

In 2003 she raised additional concerns that an announced $500 million City of San Diego bond sale prospectus had material omissions as a result.
The pension board, among its efforts to discredit her, at one point bought an ad in city's major newspaper, the San Diego Union-Tribune, that scoffed, "Chicken Little Would Be Proud." Then, in what smacked of political vengeance, the Mayor and a council majority voted to ban investment advisers from the pension board. Shipione, whose tenacious whistle-blowing had made her persona non grata at City Hall, was the only investment adviser on the pension board.

Conflict came to a peak on November 19, 2004 when she was ordered to leave a closed session of the trustees, and a plan to place her under citizen's arrest and have police remove her was almost implemented, but she left as ordered. The other board members voted to file ethics charges against her, ask for her removal as a board member, and ban her from meetings. Shipione was vindicated when the San Diego Ethics Commission dismissed the complaints levied against her by the pension board.

Fallout

The investigations already had a life of their own, however, and once details came to light the tables were turned, producing many quick changes to the political landscape. The situation led to the resignation of the City Auditor, City Manager, City Treasurer and newly reelected Mayor Dick Murphy

Dick Murphy

Richard M. Murphy is a former U.S. politician. He served as the 33rd Mayor of San Diego, California from 2000 to 2005-Early life:...

, by way of an unflattering article in the New York Times. (Note that the financial scandal is unrelated to the replacement of three of the city council members resulting from bribery allegations, but which increased the magnitude of the change.) The entire board was restructured and replaced by the voters in 2004, Shipione among them. There had been an effort to ban financial professionals from the new board (not enacted), and despite calls for Shipione to be appointed to the new board, she was not.

After the Scandal

The City of San Diego was the target of two federal investigations following revelations in January 2004 that financial documents used to secure bonds had been filled with errors and omissions. In 2005 the San Diego Regional Chamber of Commerce awarded Shipione the Catalyst for Change award. Shipione's husband, attorney Pat Shea, who received both an MBA and law degree from Harvard in 1975, unsuccessfully ran for mayor in 2005, stating that the City should go into a Chapter 9 bankruptcy to address its financial problems. In April 2006, the League of Women Voters awarded Shipione the Civic Service Award for public policy. In November 2006, the SEC entered an order sanctioning the City of San Diego for committing securities fraud by failing to disclose to the investing public important information about its pension and retiree health care obligations in the sale of its municipal bonds in 2002 and 2003. To settle that 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. In 2007 the SEC filed a civil injunctive action for fraud against outside auditors for the city and its pension system. The auditors consented to the entry of a final judgment permanently enjoining them from violating the antifraud provisions of federal securities laws and paid a civil penalty. In 2009 Shipione was admitted to the Harvard Kennedy School of Government Master's program in Public Administration. While at Harvard she remained active in the national public pension debate and participated in three separate Governmental Accounting Standards Board official Invitations to Comment regarding potential changes to pension accounting and financial reporting standards.