Grand Jury Probing Boston Director

The U.S. Atty.’s Office in Boston has reportedly begun presenting evidence to a federal grand jury in the probe of apparent kickbacks from a racketeer to Mass. Bay Trans. Auth. Retirement Fund executive director John J. Gallahue, Jr. MBTA’s Fund covers some two dozen different unions, including the Boston Carmen’s Union, of which Gallahue formerly served as president. Prosecutors are reportedly examining possible wire and mail fraud charges against Gallahue for allegedly helping Francis K. Fraine, an arsonist with links to fugitive and reputed mob boss James J. “Whitey” Bulger, get $7 million in loans from the pension fund between 1998 and 2000.

Fund board member, Janice Loux, who is also president of Hotel Employees & Restaurant Employees Int’l Union Local 26 and one of Gallahue’s strongest supporters on the board, reportedly appeared before the grand jury, and at least one other board member has reportedly testified. Others are expected to be subpoenaed soon.

Gallahue’s 18-year tenure of the $2 billion pension fund is already in jeopardy, with the board scheduled to deliberate this week about an outside law firm’s review of Gallahue’s dealings with Fraine. The FBI began investigating Gallahue last fall after the Boston Herald ran stories detailing Fraine’s background as mastermind of several arsons in the 1970s, a felon convicted on a racketeering charge in Ohio in 1979, and a longtime operative for Bulger’s organization: a highly unusual profile for the recipient of $7 million in loans from a public employees’ pension fund. Those loans took place at a time when Gallahue was conducting personal financial dealings with Fraine which were not disclosed to the board.

For example, the Herald reported that within days of Gallahue’s Oct. 1998 purchase of a house on Lyman Road in Milton, Fraine began working on it. Records reviewed by the Herald indicate Fraine used money from MBTA Retirement Fund loans to pay for at least $ 8,000 in costs of renovating and expanding Gallahue’s home. The architect who last year designed the second-floor addition, for example, sent the bill to Adam Corp., a firm controlled by Fraine. Prior to that, in 1998, Fraine returned a disputed $100,000 downpayment to Gallahue’s then-girlfriend, Anne F. Holloran, three weeks after Gallahue arranged the first loan from the MBTA Retirement Fund for $ 1.9 million.

The Herald also reported that internal MBTA Retirement Fund records indicate Gallahue misled and in some cases lied to his board in order to steer the loans to Fraine. Within days of the first Herald stories, the board voted to hire the law firm Foley, Hoag to review all aspects of the Fraine loans and Gallahue’s conduct. The man who led Foley, Hoag’s review, Nicholas Theodorou, a former federal prosecutor, reported his findings to the board Aug. 1 at a meeting that lasted about eight hours. Gallahue’s attorney, Richard Gargiulo, made his own presentation to the board the following day. MBTA Retirement Fund meetings are closed to the public. But according to sources, Theodorou reported that he corroborated much of what the Herald reported last fall about Gallahue.

However, Theodorou’s findings reportedly exonerated board chairman Edward F. Sheckleton of any wrongdoing. The Herald reported last fall that Fraine had also been involved in and paid for thousands of dollars in construction work at two homes owned by Sheckleton. In a recent Herald interview, Robert Jubinville, Sheckleton’s attorney, said the board chairman believes he was billed for all the work done at his two homes and has produced checks to show he paid those contractors.

For example, Sheckleton paid $3,500 for the central air conditioning work done at his Plymouth home, a figure he believes covers the entire job, Jubinville said. Jubinville said other contractors identified in Herald stories as being paid by Fraine for work on Sheckleton’s houses have either denied it or refused to respond to his inquiries. [Boston Herald 8/13/01]