City of San Diego sues Vinson & Elkins

Vinson & Elkins is facing a $10m lawsuit from former client the City of San Diego over claims it failed to properly conduct an independent inquiry into allegations of financial wrongdoing by City Hall officials.

The case is reminiscent of the Enron debacle in which Vinson is still a defendant in a multi-billon dollar lawsuit brought by shareholders. In that situation Vinson was Enron’s chief corporate counsel, and was alleged to have failed to properly conduct a thorough investigation of wrongdoing preceding the energy giant’s spectacular collapse.

Vinson was retained by San Diego’s City Hall in February 2004 to defend allegations by the US Securities and Exchange Commission (SEC) of financial mismanagement after errors and omissions were found in the city’s financial disclosures to investors. The city had its credit rating suspended.

The firm was then hired by City Hall to internally investigate the city officials it was already engaged to be defending.

The firm prepared two reports, charging the city $6.3m in fees, which were both rejected by SEC and the city’s outside auditor for a lack of independence. Vinson was replaced by Morgan Lewis & Bockius in September 2005, as first reported by The Lawyer (12 September 2005).

San Diego city attorney Mike Aguirre is expected to file suit today (27 July) against Vinson after releasing an interim report claiming Vinson failed to do its job.

Aguirre’s report alleges the firm compromised its independence and failed to complete a proper investigation under accounting standards.

His report contains internal emails between then-city attorney Casey Gwinn and Vinson corporate partner Paul Maco, who chairs the firm’s corporate governance and compliance group from Washington DC.

In his report he claims Vinson failed to properly analyse all the evidence, breached its independence, failed to be objective and over charged.

A Vinson spokesperson responded: “Mr Aguirre’s Interim Report No. 9 contains many inaccuracies and misstatements regarding the firm’s work for the City, and we strongly disagree with his conclusions. The firm competently and professionally performed the work for which it was engaged and none of its work harmed the City in any way. In fact, the City benefited from the the firm’s work. None of the claims made by Mr Aguirre can be justified. “