Top Ten Union Corruption Stories of the Year

“We spent a fortune to elect Barack Obama – $60.7 million to be exact – and we’re proud of it,” Service Employees International Union (SEIU) President Andrew Stern proclaimed last year. Now he and other labor leaders want a full return on their investment. “A full return,” more than anything else, means getting Congress, the executive branch and the courts to transform labor law and policy into vehicles for a massive expansion of union membership and bargaining power. That goal surely would have been realized were it not for dogged and principled opposition. The 2008 presidential and congressional elections provided a rare opportunity for organized labor to lead a coalition for a radical economic and political shift. The Treasury Department’s strong-arming of General Motors and Chrysler into allowing the United Auto Workers to own a sizable stake in each company testifies to the power of organized labor with close friends in the White House.

Unions in 2009 could count on help from radical nonprofit groups, the most of visible and threatening being the Association of Community Organizations for Reform Now, or ACORN. This New Orleans-based nationwide network, implicated in a variety of illegal schemes including voter registration fraud, embezzlement and other offenses, is now under investigation by the federal government and at least a dozen states. In the case of the SEIU, support has been more than moral; the union’s Locals 100 and 880 from the start have been ACORN subsidiaries. Don’t expect the current administration to express too much concern – as a Chicago lawyer in the mid Nineties, Barack Obama represented ACORN in an Illinois case whose outcome ultimately enabled the group to engage in voter-registration fraud this decade. And as U.S. president, he made sure to hire a political director, Patrick Gaspard, who has a lengthy history of involvement with ACORN and SEIU.

The past year saw unions ramping up efforts to obtain passage of the misnamed and coercive Employee Free Choice Act (EFCA). The Democrats had shelved the bill following a successful Senate Republican filibuster in 2007, but revived it this year. A much smaller GOP opposition this time around thus far has blocked passage – barely. The measure would force employers to accept the results of union organizing drives generating signatures from at least 50 percent of nonunion workers indicating a willingness to join. Yet even with this “card check” feature deleted from the bill, EFCA’s forced-arbitration mechanisms would place the federal government in the role of union partisan in ways that defy economics and very likely the U.S. Constitution. Unions at the start of the year already had scored a key triumph, securing the nomination and approval of Hilda Solis as Secretary of Labor. Solis, who had been a four-term U.S. Representative from California, admitted when first elected in 2000, “I would not be here were it not for my friends in the labor movement.” As head of DOL she showed her loyalties early on, rolling back Bush-era rule changes requiring greater detail in union financial reporting. Thanks to her and top aides, corruption may be harder to detect and prosecute.

Even without government favoritism, unions on occasion went beyond the call of duty to consolidate their power. Here, too, the SEIU proved a leader, placing a 150,000-member health and home care affiliate in California under trusteeship and hiring a private security good squad to spy on opponents. The union also likely may have pressured the Obama administration into holding up nearly $7 billion in fiscal stimulus money to California in retaliation for that state’s failure to reverse a scheduled wage cut affecting unionized home care employees. The AFL-CIO also showed renewed aggression. At the labor federation’s convention in Pittsburgh this September, longtime President John Sweeney handed over his gavel to Richard Trumka, the ex-United Mine Workers president who had served as his secretary-treasurer for the previous 14 years. Trumka back in the Nineties, as UMW president and immediate past president, had displayed a disturbing willingness to excuse and even incite acts of union criminal violence.

Financial corruption was a major presence on the radar screen in 2009. Long-plagued unions such as Amalgamated Transit Union Local 1181 (Queens, N.Y.) and International Union of Operating Engineers Local 825 (Northern New Jersey) each witnessed a raft of guilty pleas by members and associates involved in scams. Michael Forde, the ethically-challenged chieftain of the New York City District Council of Carpenters and Joiners, was indicted for taking around $1 million in bribes from contractors in return for helping them avoid making contributions to union benefit funds. Benefit fraud, in fact, by far accounted for the biggest scandals. Union-run fiduciaries in Upstate New York are trying to figure out how to recover immense sums of labor funds stolen by now-imprisoned swindler extraordinaire Bernard Madoff via professionally-managed “feeder funds.” Carpenters Local 747 alone lost anywhere from $100 million to $150 million, while Plumbers and Steamfitters Local 267 found itself missing as much as $48 million. In a separate case, a Chicago-based money manager, John Orecchio, ripped off or otherwise mismanaged anywhere from $24 million to $60 million from union benefit plans, mainly in the Detroit area. And in perhaps the largest case of internal union fraud ever (and certainly in a solo capacity), benefits consultant Melissa King stole an alleged $42 million over some six years from accounts of New York City’s Laborers Local 147, the fabled “Sandhogs.” Due diligence by fiduciaries must have been on vacation.

Even in absence of fraud, union benefit funds would be in trouble. The year 2009 saw the release and/or publicity of several reports revealing major shortfalls in union-sponsored defined-benefit pension plans. Across a wide range of industries, these plans are unlikely to fully cover their long-term liabilities and might well fall into the hands of Pension Benefit Guaranty Corporation. While some of the problems were reversed during the recent stock market surge, the reality remains that pension underfunding long has been chronic. Lawmakers in Washington, D.C. have taken notice. Rep. Earl Pomeroy, D-N.D., has introduced a bill to subsidize failing multiemployer union plans and impose major burdens on employers. Some might call that a bailout; others might call it corruption. Whatever one’s definitions of corruption, here are the 10 cases that mattered most:

10) Reports conclude EFCA is gift to unions. Organized labor put passage of the Employee Free Choice Act at the top of its “to-do” list. It’s no small wonder. The measure’s “card check” and compulsory arbitration provisions could have been scripted by the unions themselves. The House, this past year as in 2007, passed the measure by a comfortable margin. The Senate, in a slow-motion GOP-led filibuster, is taking its time. Opponents might want to read a few studies released during the past year showing the bill’s unmistakable union tilt. One, authored by University of Chicago law professor Richard Epstein, argues that EFCA would not pass constitutional muster. Another, by California-based consultant Anne Layne-Farrar, estimated a loss of 1.5 million in new jobs. Yet another, prepared by the Workforce Fairness Institute, estimates the law would trigger an extra $1.75 billion in union political spending during its first decade.

9) New York City contractor, consultant sentenced for scams. During the Nineties and the early part of this decade, a Queens, N.Y. contracting firm, AFC Enterprises, defrauded two locals of the Operating Engineers International Union, various utility companies and the City of New York out of a combined $10 million. The principals in the case – Andrew Catapano, John Mikuszewski and John Ruggiero – received their belated just deserts in Brooklyn federal court this past summer.

8) Equity fund CEO in Chicago indicted in pension scams. John Orecchio is a Chicago-based investment manager whose accounts included benefit funds of major Michigan unions. Acting on behalf of his company, AA Capital, he put nearly $170 million in union funds into trust accounts. During 2002-06 he allegedly converted at least $24 million and possibly as much as $60 million of that money to his own use, financing personal travel, entertainment, and a startup sports-drink company. And you wonder why many union benefit plans seem to be coming up short these days.

7) SEIU browbeats California health and home care local. For the last few years, the Service Employees International Union under the leadership of Andrew Stern has been waging a nonstop campaign to centralize decision-making and suppress dissent. The biggest troublemaker, in Stern’s eyes, has been United Healthcare Workers-West, a 150,000-strong local representing health and home care workers throughout California. The SEIU campaign took a nasty turn when it replaced local leadership, and the local promptly seceded and formed a new organization. It got nastier still when the international union hired a renowned union-busting security firm, OSO Group Ltd., to conduct surveillance of UHW offices. That OSO months later sued SEIU for back payment for services is poetic justice.

6) Labor Department rescinds Bush-era union transparency rules. One of the best ways of identifying union corruption is investigating unexplained discrepancies on financial reporting forms submitted by union officials to the U.S. Department of Labor. The new DOL secretary, Hilda Solis, did her union supporters a major turn by rolling back rules finalized under Bush-era Secretary Elaine Chao to increase the level of detail in Forms LM-2 and LM-30. The unions always knew that Solis, a congresswoman from California, was one of their own.

5) Studies conclude union pension assets lag behind liabilities. The possibility that union members might not be able to fully collect their pension and other benefits isn’t fear-mongering. Beginning last December a raft of studies came out showing that defined-benefit pension shortfalls at more than a few national and local unions are very real and vulnerable to stock market downturns. Reports from St. Louis University, the Hudson Institute, Moody’s Investor’s Service and even the SEIU all concluded that various union pension funds were in trouble and in some cases in “critical” status. It’s going to take more than a stock market rally to ensure rank and file members receive all their promised benefits.

4) Service Employees union becomes an adjunct of the federal government. Several former key SEIU operatives found employment with the Obama administration, including the president’s own political director Patrick Gaspard. Union President Andrew Stern is counting on his allies to deliver the goods, lobbying the White House frequently to deliver victories on EFCA, universal health insurance and other legislation to socialize the U.S. economy. Stern also may well have pulled strings to withhold stimulus funds to California in retaliation for failing to rescind a scheduled wage cut of home care employees in that state. The union, the White House and ACORN form a virtual tripartate of hard-Left community activist political hardball gone national. Were Saul Alinsky still around, he would be smiling.

3) Benefits administrator in siphons off $42 million from NYC Sandhogs.
Melissa King until recently wasn’t a name that popped up on the union corruption radar screen. It is now. The longtime time benefits administrator for Laborers International Union of North America Local 147, the “Sandhogs” who dig New York City water, sewer and subway tunnels, was charged late in the year with systematically ripping off the employer funded union health plan to the tune of $42 million. Ms. King had very expensive tastes. If indirectly, union members will foot the bill.

2) Upstate New York unions lose hundreds of millions to Madoff feeder funds. Bernard Madoff, now spending what probably will be the rest of his years in federal prison, stole anywhere from $50 billion to $65 billion from investors over the course of two or more decades. As much as $250 million of the missing money came from union benefit plans handled by professionally-managed “feeder” investment brokers. It may take years for the unions to get their money back – assuming they get it back. Fiduciaries appear less concerned with safety and soundness than with making a killing. If anyone dies young, it will be rank and file.

1) Obama Treasury Department arranges union stake in GM, Chrysler. This past spring, the Obama administration, acting through the Treasury Department, managed to pull off a coup unprecedented in American industry, forcing troubled General Motors and Chrysler into bankruptcy and swinging a deal granting the United Auto Workers respective 17.5 percent and 55 percent stakes in GM and Chrysler. Barack Obama during the 2008 campaign spoke of the need to form new partnerships. Organized labor, like it or not, is a lead partner.

(Dis)honorable mention. Atlanta federal jury rules that Carpenters regional union engaged in illegal secondary boycott; Richard Trumka, a man with a past, takes over as AFL-CIO president and vows new era of aggressive organizing; Chicago local police sergeants union president charged with stealing at least $600,000 and possibly $1 million; unsealed grand jury transcripts show supporters of late Teamster President Jimmy Hoffa plotted to kill federal agents in Nashville in 1962; scheme by former officials of Amalgamated Transit Union Local 1181 in Queens, N.Y. results in guilty pleas; Locomotive Engineers national chieftain steps down following arrest for accepting bribes from lawyer; New York City Carpenters District President Michael Forde, several others indicted for racketeering; Brooklyn, N.Y. contractor Constantine Vafias, local Elevator Constructors and Operating Engineers members sentenced in federal court for massive kickbacks and money-laundering related to construction scams; AFSCME puts Local 2054 in New York City under trusteeship following losses of more than $1 million on bad investments and profligate spending; St. Louis-area Machinists official rips off $341,000 from union pension accounts; New Jersey Carpenters regional business agent with taste for strip joints indicted for embezzlement.