Union Pension Funds Linked to Mafia Securities Fraud

On June 15, federal authorities began arresting 120 defendants across the country in a far-reaching securities racket involving three unions and five La Cosa Nostra families: Bananno, Colombo, Gambino, Genovese and Luchese.  The suit filed in U.S. Dist. Court in Manhattan included charges of racketeering, conspiracy, wire fraud, securities fraud, mail fraud, pension fund fraud, bribery, illegal kickbacks, money laundering, witness tampering, extortion, physical intimidation and the solicitation of murder. A year-long probe, Operation Uptick, uncovered the racket.

It included defrauding three N.Y.-based union pension funds: the Detectives’ Endowment Ass’n (DEA), which serves NYPD detectives, Production Workers Local 400 and Int’l Union of Operating Engineers Local 137. Defendants allegedly used corrupt securities professionals to manage union pension funds and craft investments in a way that allowed for a secret diversion of money as kickbacks.

Defendants Stephen E. Gardell, who recently retired as a NYPD detective and is treasurer of DEA, allegedly conspired with a mob-controlled investment firm to divert money from the union — a scam that was reportedly thwarted by the arrests.  The indictment charged that he “corruptly agreed to defraud the DEA union pension plan for the benefit of the enterprise and for personal profit.” The indictment also charge that he “corruptly leaked confidential information” concerning federal investigations of the mob to alleged mob associates James Labate (Gambino) and Salvatore Piazza (Bonanno), from 1997 to 2000.  Gardell also allegedly used his position to help to drop assault charges against alleged Colombo associate Michael Grecco. Gardell also allegedly obtained pistol-carry permits and NYPD parking permits for Labate and Piazza.

Gardell allegedly received $8,000 from the mob to build a swimming pool at his Staten Island home, as well as free or reduced-rate visits to Atlantic City and Las Vegas casinos and a fur coat. He was released on $500,000 bail. His attorney, Joseph Tacopina, acknowledged that his client knew Piazza and Labate but denied wrongdoing.

On the day of Gardell’s indictment, he was granted a tax-free, disability pension. He retired June 1 and his pension was approved June 14. The pension gives him three-quarters of his salary, tax-free, for the rest of his life, regardless of the outcome of his indictment. A high-ranking NYPD official said, “The department was unaware of any investigation or indictment when he retired.” Gardell was also reportedly reelected DEA’s treasurer last month.

The indictment also charges that Production Workers Local 400 pension fund treasurer and alleged Colombo crime family associate, Frank “Frankie” A. Persico, was integral to the attempted union scam. Persico, also a registered stockbroker, also allegedly ran a group of stock brokers who were bribed to “put away” stocks: to get clients to buy and hold instead of selling in order to inflate the price of mob-control stocks. Brokers who reneged or who refused to promote specific stocks at Persico’s instructions were threatened, and some suffered violence at the hands of associates of the enterprise, according to the indictment.

Also indicted was William M. Stephens, chief investment officer of Husic Capital Mgmt., a S.F.-based investment adviser. Reportedly, he deliberately set up the investments of union funds to appear legitimate to avoid detection. He allegedly agreed to manage up to $300 million in union pension funds, knowing that a portion would be invested in corrupt deals to fund kickbacks. These unions’ identities were not released. According to prosecutors, $2 million of every $10 million invested was to be kicked back.  Additionally, Chicago hedge fund manger, Glenn B. Laken of the TradeVentureFund, was another defendant alleged to be involved in a deal designed to defraud union pension funds. Laken was charged with making illegal kickbacks to union bosses. [Chi. Trib., Daily News, N.Y. Times, Newsday, S.F. Chronicle, USA Today, Wash. Post 6/15/00]