DOL Sues Trustees of 7 Union Pension & Health Plans Over Ore. Investment Scandal

The U.S. Dept. of Labor sued the trustees of 7 union sponsored pension and health plans in Ohio and Minnesota on Aug. 29 for imprudent investments with Capital Consultants LLC.  As a result of the investments, the plans suffered substantial losses that jeopardized the benefits of over 19,000 workers.

“The trustees’ actions are abominable. Hardworking men and women trusted these trustees to protect and preserve their union-sponsored pension and health benefits.  The trustees abused that trust and thousands of workers saw their retirement security put in jeopardy.  The Administration is suing on behalf of these workers to recover as much as possible for the plans and to establish new procedures and controls to ensure that workers’ pension and health plans will not be raided again,” says Secy. of Labor Elaine L. Chao.

The Labor Dept. filed five separate lawsuits alleging that the trustees violated the Employee Retirement Income Security Act (ERISA) by imprudently authorizing plan assets to be invested in a series of risky private placement investments managed by Capital Consultants  LLC (CCL), including loans to Wilshire Credit Corporation. The seven plans had approximately $793 million in assets as of April 30, 2000.

Between 1995 and 2000, the trustees allegedly authorized increasing investments of plan assets in private placement investments.  Trustees of five plans maintained the private investments with CCL despite warnings by the plans’ investment advisors about the illiquid nature, unacceptable collateral and risks associated with the investments.  For two of the plans, the trustees failed to adequately monitor or to retain experts qualified to monitor investments made in the private investments by CCL.  In addition, trustees Dennis P. Talbott, Greg Shafranski and Jerry Westerholm are charged with self-dealing for accepting substantial gratuities from CCL for payment of trips, services and other gratuities.

Named as defendants are current and former trustees of the: Tri-County Building Trades Health Fund of Austintown, Ohio; Intl. Bhd. of Electrical Workers Local 212 Pension Trust Fund of Cincinnati; Electrical Workers Local No. 292 Annuity and Pension Plans of St. Louis Park, Minn.; Sheet Metal Workers Local Pension Fund in Akron; and the International Brotherhood of Electrical Workers Local 38 Pension and Health and Welfare Funds of Valley View, Ohio. 

The dept. is seeking court orders to require that defendants restore to the plans any losses and illegal gratuities received by them and to institute new plan procedures and controls relating to plan investments.  The suits involving the Tri-County, Sheet Metal Workers and Electrical Workers 292 plans also ask the court to permanently bar defendant trustees Talbott, Shafranski and Westerholm from serving as plan fiduciaries.  The suits were filed in federal district court in Cleveland, Cincinnati and Minneapolis.  The cases resulted from investigations conducted by the Cincinnati and Kansas City regional offices of the department’s Employee Benefits Security Administration [EBSA, 8/29/03].

New Indictment Issued in Capital Consultants Case
Federal prosecutors in Oregon won a new indictment from a grand jury about 2 months after a federal judge dismissed the original indictment on technical grounds.  Reindicted were Dean Kirkland, head of Capital Consultants LLC, his son Gary and Robert Legino, both of whom were union pension trustees.  The two were charged in Aug. of 2002 with receiving gifts from Dean in exchange for funneling pension funds to Capital, Dean’s investment firm.

In July, U.S. Dist. Judge Ana Brown (OR, Clinton) threw out the charges on the ground that fed. prosecutors had not sufficiently identified the “motivational link” between Dean Kirkland’s gifts and the investment decisions of Gary Kirkland and Legino.  But she allowed prosecutors to file a new indictment that included detailed chronologies of the gifts and investment decisions. [The Oregonian, 9/9/03]