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— Those who point fingers should have clean hands. But outside consultants pocketing big bucks to pinpoint San Diego's financial woes are themselves suspected of having sticky fingers.

Four law, accounting, and investigative firms have wangled contracts aggregating more than $15 million to probe the city's concealment of pension and health-care deficits. Two of those firms and the parent of a third are under investigation for their roles in financial capers through offshore tax and secrecy havens.

The accounting firm KPMG won't certify the 2003 city audit because it believes that the Houston law firm Vinson & Elkins did an inadequate job digging into the pension mess. City attorney Mike Aguirre and pension whistle-blower Diann Shipione agree that the two Vinson reports were whitewashes -- just what the city wanted. Thus far, KPMG has positioned itself for more than $3 million in payments, and Vinson will get more than $6 million.

For a year and a half, a federal grand jury in New York has been investigating offshore-based tax shelters sold by KPMG from 1996 to 2002. Those shelters cost the government $1.4 billion in lost tax revenues, says the Internal Revenue Service. Last week, it appeared that KPMG might avoid a criminal indictment by settling with federal regulators for $450 million.

On August 11, a former executive with a German bank pleaded guilty to charges of fraud, conspiracy, and tax evasion for his role in promoting and preparing papers for the allegedly abusive KPMG shelters. KPMG has been reticent with the press, but it has issued statements saying it takes responsibility for actions of its former partners.

Vinson represented Enron, which concealed its losses and debt in complex offshore partnerships. In 2001 alone, Enron shelled out $35.6 million to Vinson, almost 8 percent of the law firm's revenue. Enron was the firm's biggest client. According to a May 22, 2002, story in the Wall Street Journal, Vinson sometimes raised objections to Enron's offshore deals but "didn't blow the whistle. Again and again, its lawyers backed down." Vinson partners represented Enron in Cayman Islands-based off-balance-sheet transactions, according to the Journal. Enron management and the board "relied heavily on the perceived approval by Vinson & Elkins of the structure and disclosure of the transactions."

In civil suits, financial institutions have now agreed to pay a collective $7 billion for their roles in the Enron debacle. But Vinson and other institutions have not yet agreed to cough up, and San Diego attorney William Lerach, the lead plaintiff lawyer, warns that those who take their time settling may get squeezed. Vinson did not return a call for comment.

Kroll Inc. will receive at least $3.55 million from the city. It is charging the city $900 an hour for the services of former Securities and Exchange Commission chairman Arthur Levitt, who is maneuvering to win himself "a plan that keeps him employed indefinitely at massive amounts of money," says Aguirre.

Kroll was hired to reconcile the Vinson whitewashes with Aguirre's tough probes. Aguirre charges that ex-mayor Dick Murphy and former and present city councilmembers violated securities laws by hiding negative information from bond investors and granting enhanced benefits to pension board members who could wield their influence so that pension underfunding could continue. "We found that Kroll had been working with Vinson & Elkins on a report that cleared everybody except some subordinate employees," says Aguirre. That was just what the council, paying Kroll's bills, wanted.

Levitt has snowed the city council with platitudes. In one speech aimed at Aguirre, he rhapsodized, "It's a choice between personal grudges and the community's well-being, between arguing about the past and finding solutions for the future, between cynicism, skepticism, and hope." Ugh. Such Fourth of July oratory would get laughed off Wall Street, but the Union-Tribune lapped it up and Councilmember Jim Madaffer called it "one of the best speeches I've ever heard." As Eskimos say: mush, mush, mush. Levitt's team did not respond to numerous calls for comment.

Despite its professed Batman mission, Kroll is hardly a paragon of cleanliness. It began in 1972 as a detective agency, employing former federal gumshoes. In the 1980s, it did its snooping in the takeover madness, becoming known as "Wall Street's private eye." Its supercozy client: Drexel Burnham Lambert, the junk bond/takeover firm that employed Mike Milken, the kingpin. In 1988, the Securities and Exchange Commission accused Drexel, Milken, and others of insider trading, fraud, stock manipulation, and other offenses. Later that year, Drexel pleaded guilty to six felonies and paid a $650 million fine. In 1990, after the junk bond market collapsed, Drexel filed for bankruptcy. That same year, Milken was sentenced to ten years in prison.

According to Connie Bruck, author of The Predators' Ball, Kroll was first hired in the early 1980s "to do background checks on Drexel clients." James B. Stewart, author of Den of Thieves, wrote that Drexel hired Kroll to dish up dirt on Ivan Boesky, the Milken collaborator who also went to prison. Boesky eventually wound up in La Jolla, which he still uses as his base for his world travels. Kroll spied on other Drexel associates, too, said Stewart.

But did Kroll ever peer into Drexel? That Wall Street junk bond/takeover firm was close to entrepreneurs with gambling-industry and organized-crime backgrounds. For example, as the government was investigating Drexel, big swingers would take out full-page ads lauding the firm. One such ad featured two characters who had been instrumental in funding Carlsbad's La Costa, then an organized crime hangout, with money from the Teamsters Central States pension fund. Another ad featured eight casino owners and executives.

Kroll has branched out from detective work to forensic accounting, personnel background screening, drug testing, security engineering, corporate restructuring, and electronic data recovery. Jules Kroll, the company founder, stayed close to Frederick Joseph, former head of Drexel. Joseph and his minions, now with another firm, assisted Kroll Inc. in its 2003 buyout of Zolfo Cooper, which is handling the Enron reorganization, as well last year's deal in which the insurance broker Marsh & McLennan purchased Kroll for $1.9 billion.

After Drexel's demise, the detective firm, then called Kroll Associates, ran into financial trouble. According to press reports, it was bailed out by insurance giant American International Group, with which it still has a snug relationship. A Kroll spokesperson acknowledges that in 1993, American International had a minority position in Kroll and remains a client today.

Both American International and Kroll's parent, Marsh & McLennan (called Marsh Mac), are being investigated by Eliot Spitzer, New York's attorney general. Last October, Spitzer accused Marsh Mac of fraudulent self-dealing and bid-rigging. American International was one of the companies said to be involved in the bid-rigging that included a Bermuda insurance company. Early this year, Marsh Mac settled the charges with a payment of $850 million, but Spitzer is still investigating.

American International (the same firm that refused to fully fund any settlement San Diego may make with Roque de la Fuente) is under investigation by both Spitzer and the Securities and Exchange Commission. One subject is dubious accounting that may have inflated earnings by $3 billion in the last five years, according to the Wall Street Journal. Part of the probe revolves around another Bermuda-based insurance company in which the company has a 50 percent stake.

Offshore intertwinings are incestuous in the insurance industry. Spitzer told a U.S. Senate subcommittee last year that Bermuda insurance operations created "numerous opportunities for secrecy and insider dealings." Insurance companies do business in "offshore havens" to evade state regulation, Spitzer said. He pointed to four offshore companies that Marsh Mac had helped create.

There is a subplot that Forbes says is "worthy of a private-eye novel." After Marsh Mac bought Kroll, it ousted its chief executive and put Kroll's top exec, Michael Cherkasky, in the top job at the parent. Cherkasky was formerly Spitzer's boss in the Manhattan district attorney's office, is his tennis pal, and has contributed to his campaigns. "Did Marsh Mac buy Kroll thinking it was an insurance policy against an impending crackdown by New York attorney general Spitzer?" asks Forbes.

Will Kroll's sleuths look into that?

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