The consultants' due

Speaking with uncharacteristic indignation before the City Council last Tuesday, Mayor Jerry Sanders drew a line in the financial quicksand that threatens to swallow San Diego whole.

Sanders threatened to use his bully pulpit to sully the names of Kroll Inc., a risk-management consulting firm, unless its employees-former Securities and Exchange Commission Chairman Arthur Levitt and his associates Lynn Turner and Troy Dahlberg-deliver the long-awaited results of their investigation of City Hall.

It remains to be seen whether the mayor's threat will motivate Kroll, a company that's known in some circles as a private CIA of sorts.

Hired in February of 2005 for $250,000, the gang from Kroll, who make up to $900 an hour, were supposed to reconcile the findings of two competing investigations into the city's financial woes. They've since charged the city more than $20 million for a much-anticipated, oft-delayed and yet-to-be-finished reinvestigation.

In the meantime, they've racked up hundreds of thousands of dollars worth of “out-of-pocket disbursements,” including stays at posh hotels, airfare and limo rides.

Without Kroll's report, the city can't access the public markets and borrow the money it needs to fund a variety of projects, like badly needed water and sewer improvements.

Asserting that Kroll was “holding our city hostage” and had “taken advantage of a bad situation,” Sanders' speech came after Kroll announced it would miss its self-imposed June deadline and may not produce a report until August-not an altogether surprising development considering Kroll's already missed four deadlines since December.

But what also got Sanders' blood boiling, according to a spokesperson in the mayor's office, was the news that, while the city flounders on the brink of bankruptcy, Levitt and Turner are on vacation.

By now, Sanders probably isn't the only person wondering just who these Kroll guys think they are.

Founded in 1972 by its namesake, Jules Kroll, a former assistant district attorney in Manhattan, Kroll Inc. initially specialized in internal fraud probes but found its niche providing corporate-takeover intelligence during the rough-and-tumble 1980s. Working for companies like Ford, Pfizer and CitiBank and the U.S. government, the company earned a reputation as one of America's leading corporate detective agencies.

Recruiting top talent from elite military outfits, law enforcement and clandestine government agencies, Kroll expanded around the globe. Along the way, it acquired smaller firms specializing in data recovery, forensic accounting and corporate restructuring-establishing itself as the company to call when a particularly difficult situation needed fixing.

In 1990, the Kuwaiti government hired Kroll to sniff out Saddam Hussein's hidden assets. Two years later, the Kremlin asked Kroll to help nab government officials who were looting millions from the Russian treasury.

In 1997, Kroll expanded the security side of its operations, merging with an armored-car manufacturer before gobbling up a drug-testing firm and a surveillance-camera manufacturer. The company began providing bodyguards to executives and conducting ransom negotiation services around the world.

“Our mission is to make the world safer,” Jules Kroll told investors at the time.

When terrorists attacked the United States in 2001, the world became a much more dangerous place, and Kroll has flourished. The company has since landed contracts providing security services to potential terrorist targets and performing background checks for various businesses and government agencies, including the Department of Homeland Security. Kroll also provides protection to private and government workers in Iraq, monitors the reorganization of the Los Angeles and Detroit police forces and is currently marketing a program to help prepare businesses for a possible avian flu pandemic.

While Kroll has continued to expand its scope of services over the years, it hasn't managed to avoid controversy.

In 1996, the Washington Post reported that the French authorities bugged Kroll's Paris headquarters, which they thought was a CIA front, and created a minor international incident when they accused an American attorney and Kroll associate of espionage and working to undermine the economic interests of France.

In 2003, a group of plaintiffs in an asbestos case accused Kroll, appointed by a court to oversee the restructuring of a bankrupt British asbestos manufacturer, of overcharging for its services and depleting funds meant to benefit widows and victims.

In 2004, several top Kroll executives were arrested in Brazil. According to the Sydney Morning Herald, they were charged with violating data-privacy laws and paying public officials to obtain information as part of an imbroglio involving competing telephone companies.

The same year, Kroll was purchased for $1.9 billion by Marsh & McLennan, the world's largest insurance broker. At the time of the buyout, the financial-services powerhouse, was under attack from Eliot Spitzer, New York State's hard-charging attorney general, who accused Marsh & McLennan of price fixing and bid rigging in an effort to boost profits.

By purchasing Kroll, Marsh & McLennan gained its own in-house corporate fixer and also picked up Michael Cherkasky, Kroll's president and CEO, who also happened to be Spitzer's friend and former boss at the New York District Attorney's office.

Shortly after the merger, the CEO of Marsh & McLennan resigned and Cherkasky took the helm. He instituted a number of reforms and axed many high-level executives, helping the company avoid criminal charges. Spitzer dropped the civil charges altogether in early 2005, after Marsh & McLennan agreed to pay $850 million to those it had defrauded.

As for the city of San Diego, which has paid Kroll more than $20 million for information it hasn't delivered, is there any chance that Mayor Sanders' threats to besmirch Kroll's reputation will actually force the corporate spies to roll over?

It seems possible if you buy into BusinessWeek magazine's assessment that Kroll “bases its entire identity on upholding integrity and security while ferreting out wrongdoing.” Yet, it's difficult to imagine that anything Sanders has to say will matter to a prospective Kroll client that's drowning in fraud or trying to get its CEO back in one piece from third-world captors.

If Sanders has any real leverage over Kroll, it likely stems from San Diego's status as a guinea pig under the 2002 Sarbanes-Oxley Act-post-Enron reforms that changed the way publicly traded companies do business and raised the stakes for fraud and corruption-and the company's desire to cash in on that experiment.

Although municipalities aren't subject to Sarbanes-Oxley, last September the city adopted some of its reforms, making it the first local government in the country to do so. It also hired Levitt, Turner and Dahlberg to serve as its audit committee, a sort of independent middleman between auditors and an entity under scrutiny, as envisioned under the federal legislation.

With government officials in Washington D.C. considering imposing similar regulations on local governments, the ever-expanding Kroll could walk away from its San Diego experience as the only corporation in the world with related experience, positioning it to dominate in a market worth many millions.

With that in mind, Sanders' stepped up to the podium Tuesday, but it wasn't his comments about holding the city hostage or taking advantage of a bad situation that will likely turn heads at Kroll. Instead it was his comments about Sarbanes-Oxley, which you don't have to be a corporate detective to decipher.

“The Sarbanes-Oxley Act must be changed, or new legislation must be enacted by Congress to specifically address municipal entities,” Sanders said. “As the current legislation exists, this has the potential to become a cottage industry where troubled municipalities can be easily exploited.”