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DALLAS � The city of San Diego has sued Vinson & Elkins, alleging the firm failed to fully investigate problems with the city’s troubled pension system and provide a “warts and all” report into a $1.4 billion to $2 billion pension funding shortfall. The city brings breach of contract, breach of fiduciary duty and professional negligence causes of action against Houston-based V&E and seeks at least $10 million in damages. City of San Diego v. Vinson & Elkins was filed on July 27 in San Diego County Superior Court. No individual attorneys are named in the suit. In its complaint, the city alleges V&E overcharged San Diego for the firm’s work from 2003 through 2005 and failed to provide a report that would be accepted by the Securities and Exchange Commission. The SEC and the U.S. attorney’s office each are investigating the San Diego pension system, according to the complaint. In a written statement, V&E says the complaint, and a related report prepared by San Diego City Attorney Michael Aguirre, contain numerous inaccuracies and misstatements about the firm’s work for San Diego. “We strongly disagree with his [Aguirre's] conclusions regarding that work. V&E competently and professionally performed the work for which it was engaged and none of the work that it performed harmed the City in any way. In fact, the City benefited from the firm’s work. None of the claims made by Mr. Aguirre can be justified,” the firm says in the statement. In a written statement on July 27, Aguirre said the city filed the suit to seek a refund from V&E for “incompetent” work. “We will no longer tolerate exploitation by outside consultants who take advantage of a city when it’s most vulnerable. We will recover this money and hold these people accountable,” Aguirre said in the statement. San Diego initially hired V&E in 2003 to review its investor-information Web page and other disclosure issues. In 2004, after some problems arose with the city’s pension fund, the city hired the firm to represent it in dealings with the SEC and the U.S. attorney’s office, which were looking into the disclosure of pension-related information. As part of that work, V&E was expected to prepare an objective “warts and all” report into the pension system that would be used by accounting firm KPMG for a related audit of the city’s 2003 financial statements, the city alleges in the complaint. San Diego alleges in the complaint that in the report V&E provided to the city in September 2004, the firm identified a series of disclosure violations by the San Diego City Employees’ Retirement System. However, San Diego alleges in the complaint, V&E “made no assessment of potentially illegal acts by anyone, within or outside the city.” Because of that, KPMG rejected the report, San Diego alleges in the complaint. The city appropriated more money to allow V&E to provide a second report, and the firm provided a draft second report in July 2005, according to the complaint. “The second V&E report found that the City did not adhere to proper accounting and financial disclosure practices. … However it concluded that no individuals knowingly violated any laws. The report was discounted by KPMG and was widely considered to be another V&E ‘white wash,’” San Diego alleges in the complaint. San Diego alleges in the complaint that it had to hire Kroll Inc. in 2005 to “sort out the findings of V&E.” Kroll has not completed its work. San Diego alleges in the complaint that V&E billed the city a total of $6.4 million for its work, and says the firm ran up a big bill by using far too many lawyers on the work. “V&E billed the City for unnecessary legal work, billing $6.4 million in fees � the equivalent of a well paid attorney working 8 hours a day, 5 days a week, 50 weeks a year for 10 years � which itself was not only a breach of fiduciary duty … but was also nearly $1 million in excess of the approved contracts and amendments,” San Diego alleges in the complaint. John Murchison, a partner in Houston, declines specific comment on the allegations in the suit, but says San Diego paid the firm about $5 million. Brenda Sapino Jeffreys is a reporter with Texas Lawyer, a Recorder affiliate based in Dallas.

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