updated 1/7/2006 12:41:39 AM ET 2006-01-07T05:41:39

A federal grand jury indicted five current and former San Diego pension fund officials Friday on 20 counts of fraud and conspiracy in an investigation of the city’s troubled finances.

Ron Saathoff, Terri Webster and Cathy Lexin — three former trustees on the board overseeing the city’s retirement fund — were named in the indictment along with the fund’s former administrator, Lawrence B. Grissom, and current general counsel, Loraine Chapin.

The five were accused of concealing information from fellow board members about a crucial 2002 vote that allowed San Diego to escape payments to the retirement fund and, at the same time, enhance pension benefits.

The 2002 vote and a similar move in 1996 were largely to blame for a pension deficit that has swelled to $1.37 billion. The pension debacle has crippled the city’s ability to borrow money, sparked talk of bankruptcy and led Mayor Dick Murphy to resign from office last year a few months after he was narrowly elected to a second term.

Prosecutors allege that Saathoff and the other defendants failed to reveal that the vote raised Saathoff’s pension by more than $25,000 a year by letting him combine his union and city salaries to calculate his benefits.

Lexin, Webster, Grissom and Chapin are accused of devising the special benefit to boost Saathoff’s retirement pay in a successful effort to win his support for underfunding the pension system. Saathoff was also president of the local firefighters union.

The indictment names Saathoff on 20 counts of fraud and conspiracy and the other four on 16 counts of fraud and conspiracy.

Lexin’s attorney, Nick Hanna, said he would contest the charges. “We’re obviously disappointed that the federal government decided to get involved in this and bring charges,” he said.

Chapin, Grissom and attorneys for Saathoff and Webster did not return messages. A spokeswoman for the city retirement system also didn’t return messages.

The pension board said that Chapin “voluntarily went on administrative leave” Friday.

The U.S. attorney’s office and the U.S. Securities and Exchange Commission have been investigating city finances since February 2004. The investigation was delayed by the pension board’s repeated refusal to waive attorney-client privilege and hand over documents sought by federal investigators.

Saathoff, Webster and Lexin and three other former board members were charged last year in state court and pleaded not guilty to felony conflict-of-interest violations for allegedly casting votes from which they personally profited.

The pension mess began in 1996, when the city cut contributions and improved benefits as it grappled with raids on its treasury by state government and costs of hosting the Republican National Convention.


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