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June 16, 2008 8:26 PM

Vinson & Elkins Agrees to $4.35 Million Settlement in San Diego Pension Flap

Posted by Zach Lowe

Vinson & Elkins  has agreed to pay the city of San Diego $4.35 million to settle a lawsuit that charged the Texas-based law firm with breach of contract, breach of fiduciary duty, and professional negligence over V&E's 2004-05 investigation into the city's pension fund troubles.

San Diego paid V&E $6.3 million for a report in which the law firm established no wrongdoing with the city's failure to accurately disclose its $1.4 billion pension fund debt to investors earlier this decade, according to the San Diego Union-Tribune.

As reported in sibling publication Texas Lawyer in August 2006, the Securities and Exchange Commission as well as the city's auditor, accounting firm KPMG, did not accept V&E's report, deeming the law firm's work unacceptable. "'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,'" Texas Lawyer reported.

Vinson & Elkins has admitted no wrongdoing under the settlement terms and will not comment until after the settlement is approved by the San Diego City Council; that approval is expected on Tuesday.

Shortly after the lawsuit was first filed, V& E claimed the complaint, and a related report prepared by San Diego City Attorney Michael Aguirre, was full of inaccuracies and misstatements about its work for San Diego. "'We strongly disagree with his [Aguirre's] conclusions regarding that work,'" the Texas Lawyer quoted the firm as saying. "'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.... None of the claims made by Mr. Aguirre can be justified.'"

Aguirre has gone after a handful of law firms that had investigated the city's  pension debt. The American Lawyer reported last June that Aguirre recommended taking action against Willkie Farr & Gallagher in April 2007 over Willkie's investigation into the city's $1.4 billion understatement of its pension debt.'" Orrick, Herrington & Sutcliffe, longtime bond counsel to the city, was sued in late 2005; Aguirre claimed the law firm, "knowingly approved inaccurate financial disclosures."

To date, the city has recovered about $6 million from two accounting firms who allegedly performed faulty audits and from a pension consultant the city accused of offering bad investment advice, according to the Union-Tribune.

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