Screen Actors Guild Whistleblower Alleges $5-$10M Benefit Theft

It has the raw material for a movie. The plot, so far, is incomplete. Over the last few months the Screen Actors Guild (SAG) has been rocked by public allegations by a former benefits executive that top officials of SAG-sponsored benefit plans, including CEO Bruce Dow, looted between $5 million and $10 million. The whistleblower, Craig Simmons, who had been fired a half-year before, this September filed a complaint with the U.S. Department of Labor requesting that DOL conduct criminal and civil probes. Simmons also alleges that Dow instructed him to deceive trustees and authorities about the losses. The Labor Department has yet to comment on whether it has begun an investigation. Lawyers for the SAG, which controls about $2.5 billion in plan assets, are denying all charges. Yet significantly, the union hired an investigator to conduct a review, since completed.

Craig Simmons came aboard the Screen Actors Guild-Producers Pension and Health Plans (SAG-PPHP) in July 2008 as a consultant. He was hired on a full-time basis that October and eventually promoted to executive director of human resources, information technology and risk management in January 2011. It was a short run. In March, he was invited to a supposed “budget meeting” at which he was given his walking papers. Simmons insists the real reason for the firing was his refusal to cover for criminal activity. After contacting the plan’s board of trustees on separate occasions in March and August, and receiving no responses, he filed a complaint with the U.S. Department of Labor on September 14, requesting that the department conduct a civil and criminal investigation into malfeasance by Bruce Dow and other SAG-PPHP officials. He wrote: “As of this date, no action has been taken by the Trustees (of the plans) to either investigate or address the serious breach of duty. As a result, I have informed the Trustees that, lacking any specific response or action, I will notify the DOL and other appropriate regulators so that a proper investigation can be commenced.”

The complaint by Simmons charges that Dow and/or his lieutenants engaged in various criminal offenses and conflicts of interest at the expense of enrollees in SAG-PPHP, which is formally separate from the Screen Actors Guild. Most of the alleged losses resulted from an embezzlement scheme hatched by former chief information officer Nader Karimi. According to the complaint, Karimi set up contracts with several companies with whom SAG-PPHP did business and then siphoned money from plan assets for his own use. Trustees for the fund eventually sued two vendors allegedly involved in the scheme following an audit by PricewaterhouseCoopers in early 2009. In one case, the plaintiffs obtained a court-approved $2.5 million insurance payment to replenish their stolen assets. The other suit, filed this June, is pending. Karimi left his post in 2009 and reached a settlement for an undisclosed sum. Simmons also alleges that Dow, along with SAG-PPHP Executive Director Michael Estrada, used plan assets to buy stocks through insider information and used the profits for their own personal benefit.

Simmons’ complaint to DOL further alleges that Bruce Dow steered business or paid unwarranted compensation to family members, in violation of Employee Retirement Income Security Act (ERISA) rules. For one thing, Dow paid $700,000 to a brother-in-law, Michael Bugbee, for his work as a “statutory employee.” Yet Bugbee’s responsibilities appeared to extend no further than writing a newsletter three times a year whose content was assembled by SAG-PPHP staff. In addition, Dow’s wife, Sharman, and her company, USI Insurance Services, allegedly received generous commissions and fees for work as insurance account executive for the plans. If true, this was a clear case of self-dealing. Were that not enough, Simmons accuses Mr. Dow of paying for his wife’s breast enhancement surgery out of SAG-PPHP funds and cooking the books after the fact.

The complaint to DOL additionally alleges that Dow told Simmons to stonewall any and all outside investigations. Simmons alleges that after it became known that the California Department of Labor had launched a probe, Dow instructed him not to share information with investigators. Shortly after Simmons openly refused to mislead the board of trustees or state investigators, he was fired. This was anything but a coincidence, he insists. Dow eventually assigned the task of working with state officials to another, presumably more loyal SAG-PPHP staffer.

Lawyers for the accused are firing back. SAG-PPHP co-counsel Robert Bush in September called Simmons’ charges “completely without merit,” adding, “Bruce Dow…continues to have the full and unqualified support of the trustees.” SAG’s senior legal counsel, Duncan Crabtree-Ireland, stated: “The statements attributed to me in the letter are completely inaccurate. Beyond that, this is a personal matter for the plans, and it would not be appropriate to comment further.” And Karimi’s attorney, Jeffrey Thomas, insists his client did not embezzle funds. “The allegations concerning Nader Karimi set forth in Mr. Simmons’ letters are denied,” wrote Thomas in a letter to The Wrap, an industry publication. “There are to my knowledge no criminal charges of any kind pending against Mr. Karimi and no civil suit pending against him by anyone.” The board of trustees, for its part, said Dow would continue to have its “full support.” It further noted, “Bruce Dow has a nearly 30-year unblemished record of running this organization.”

If the case proceeds, guild attorneys are also likely to point out that Simmons himself is not beyond reproach. The October 17 edition of the Los Angeles Times reported that Simmons, who is gay, transferred $25,000 in benefit funds to his domestic partner’s marketing company, Fortress Communications, as part of a campaign to mark the 50th anniversary of the plans. Invoices and e-mails obtain by Times reporters indicate Simmons personally instructed the SAG-PPHP accounting department to set up Fortress as a vendor. “In retrospect, maybe I should have stood up earlier and said this whole thing was wrong, but it was the culture of this organization,” he admitted in an interview. “We were encouraged to hire people we knew well.”

Yet despite Simmons’ shortcomings, the evidence of wrongdoing by Dow and other Screen Actors Guild bosses is too compelling to ignore. It’s compelling enough, at any rate, for certain among rank and file to seek answers. Last week, an ad hoc group of SAG members describing itself as “sick and tired of the corruption” hand-delivered a letter to the SAG Board of Trustees, including Mr. Crabtree-Ireland and SAG National Executive Director and chief negotiator David White. It is now a petition that has generated hundreds of signatures. The letter, dated December 11, 2011 and reprinted in the industry tip sheet, Deadline Hollywood, questions the sincerity of the recently-completed “independent” probe of SAG-PPHP. It notes that the investigator, attorney Nancy Solomon, is a friend of White and that the two previously had worked together at the Los Angeles blue chip law firm of O’Melveny & Myers. The letter of protest states:

Due to these close associations, we have serious concerns that Ms. Solomon’s objectivity and due diligence may have been compromised, resulting in the cherry-picking of certain people to interview while overlooking others who may not have been as supportive of Mr. Dow.

Merely returning the money is not sufficient to right this wrong. At what threshold of wrongdoing is punitive action taken?

We strongly feel that someone who had no relationship whatsoever with any of the players involved in this case should have been hired to conduct this investigation.

The letter also accuses the Board of Trustees of being less than transparent about the nature of the $2.5 million insurance settlement to compensate for the kickback scheme engineered by Nader Karimi:

The insurance settlement implies that SOME millions of dollars were errantly spent. Did the 2.5 million dollar insurance settlement approved by the courts restore to the Plan half of 5 million dollars or one quarter of 10 million dollars? The LA Times reported that Mr. Karimi left his post in 2009 and reached a settlement with the Plans for “an undisclosed amount.” Why are we…just hearing about this now? Any by the way, does “settlement” mean that we paid him or that he paid us?

And why is that we are learning about it only because further allegations of mismanagement are being leveled against the fund?

The letter, finally, takes the plans’ Board of Trustees to task:

Your fiduciary responsibility is to protect this fund which, after all, is the members’ money. We feel you have not properly addressed these wrongs nor have you been forthright in communicating with us…

Why was this not reported to the members? Why are we actors, the owners of the fund, forced to come to you to find out what is going on with our money?

The U.S. Department of Labor may be conducting its own investigation – as is standard procedure, DOL officials won’t confirm one way or another. It likely will be months before any civil or criminal charges are brought forth. The Screen Actors Guild is hoping to resolve this issue soon, especially given its pending merger with the American Federation of Television and Radio Artists (AFTRA), many of whose members already belong to SAG as well. The guild’s benefit plans are legally separate from the guild, but the latter does appoint half of all plan trustees. The last thing SAG President Ken Howard (“The White Shadow”) and other advocates of the merger want is this scandal hanging over their heads.