Union Fund Manager Admits to Kickbacks

A N.Y. union pension fund consultant admitted Feb 6. that he paid kickbacks to a fund trustee. George W. Philipps, ex-president and owner of Pension Fund Evaluations, Inc., a consulting firm in Centerreach, N.Y., pled guilty before U.S. Dist, Judge Nancy Gertner (D. Mass., Clinton) in Boston to a charge of paying kickbacks to William V. Close, who was then a trustee of the pension funds of Int’l Bhd. of Teamsters Local 710 and Auto. and Int’l Ass’n of Machinists Local 701 (a.k.a., Auto. Mechanics Union Local 701), both of which are in Chicago.

At the plea hearing, Asst. U.S. Atty. Jeanne M. Kempthorne told Gertner that Philipps caused three cash payments totaling $55,000 to be paid to Close between Sept. and Nov. 1997, in return for Close’s using his influence to cause Fiduciary Mgmt. Associates, Inc., an investment manager to the union pension funds, to direct trades for the benefit of Philipps’ firm. Clearing brokers with commission-splitting arrangements with Pension Fund Evaluations, paid the firm a portion of the commission earned on trades.  Philipps, in turn, paid Close the kickbacks.  As a result of the deal, Philipps’ firm received hundreds of thousands of dollars in commissions without providing any services to the union pension funds, a practice known as “free business.” Philipps, while admitting to the essential elements of the crime charged, denied that the payments were a bribe he agreed to pay as a condition of his receiving the union pension fund business.

“Union pension funds and other institutional investors are poorly served when investment managers and consultants put their own interests first in distributing commissions.  When commission-splitting involves kickbacks to fiduciaries, a questionable practice becomes clearly criminal,” said U.S. Atty. for the Dist. of Mass. Michael J. Sullivan.

Gertner scheduled sentencing for May 23. Philipps faces a maximum sentence of three years in prison and a $250,000 fine.  Close, of Chicago, pled guilty on June 2, 2000 to receiving kickbacks and to money laundering.  He is scheduled to be sentenced in U.S. Dist. Court Chicago on Mar. 12.  [USAO D. Mass. 2/7/02]