LIUNA Takes Over Milwaukee Local after $1M+ Investment Loss; Local Sues Developer

liuna logoSteven Bako thought he could create wealth for Laborers International Union of North America (LIUNA) Local 113. Somehow he lacked the appropriate tools. On or shortly before January 24, Laborers international headquarters announced it had taken control of the local following allegations that Bako, formerly local secretary-treasurer of the 2,600-member Milwaukee construction union, had blown through more than $1 million in union funds in unauthorized investments. An internal LIUNA investigation recently concluded the largest part of that sum, a $600,000 loan, was uncollectible. Sources say the U.S. Department of Labor in the ensuing three months has been conducting its own probe, although in accordance with standard procedure the department will neither confirm nor deny the fact of the investigation. Meanwhile, the local, only days after the LIUNA takeover, filed suit against the development company and two principal investors related to the loan.

Affiliates of the Washington, D.C.-based LIUNA are no strangers to investment wipeouts. The Portland, Ore.-based Capital Consultants LLC, for example, managed to lose about $350 million in assets, much of which consisted of Laborers and other union benefits funds until federal agents seized its assets in September 2000. Capital Consultants’ late founder Jeffrey Grayson and 10 other defendants eventually settled a $110 million civil suit, and he and son Barclay Grayson were convicted for fraud. The international union since has become more proactive. A few years ago Local 113 Secretary-Treasurer Steven Bako allegedly transferred more than $1 million from the union to various investments without executive board permission. About $600,000 of the money consisted of a loan to  a developer to put up a hotel-apartment-retail mixed-use project in Milwaukee known as Rivianna. That venture, which has yet to break ground, is currently in default. International President Terry O’Sullivan decided a takeover was necessary, saying that not only had Bako acted recklessly, but that the executive board itself “breached its fiduciary obligation” by failing to review appropriate documents.

The local executive board has cooperated with LIUNA’s investigation and takeover. Criminal charges may or may not lie down the road. “I wouldn’t want to predict that,” remarked local attorney Matt Robbins. “That’s something for the Department of Labor (to) investigate. They can make a recommendation to the U.S. Attorney’s Office, and the U.S. Attorney’s Office makes that decision. At this point, there is no evidence of any theft or receiving a kickback or anything like that.” Union lawyers are paid to talk like that.

The problem may be less what is illegal, however, than what is legal. Only days after Local 113 came under control of the parent union, it filed a civil suit in Milwaukee County Circuit Court demanding that sponsors of the aforementioned Rivianna project pay the union $660,000 plus interest on the original $600,000 union loan. Rivianna along with investors Robert Schultz and Harry Drea allegedly failed to comply with repayment terms of the promissary note. The $80 million Rivianna project, located in Milwaukee’s Walker’s Point area, was approved by the Milwaukee Common Council in July 2009. Unfortunately, ground has yet to be broken.

The local laid out its money in return for a promise that Rivianna would use union labor. The union also claims the agreement called for the $600,000 to be used for supplementary funding should initial funds run out. The suit also claims that none of the defendants had repaid any principal, interest or fees. In a sense, the union’s desire to gain a monopoly over hiring mattered more to Bako, and possibly to the local executive board, than did the financial viability of the project. Rivianna remains up in the air. If it eventually gets built, that happy outcome may be more despite than because of Local 113.