Anyone who believes corruption in Detroit dissipated after the multiple convictions several years ago of former Mayor Kwame Kilpatrick should take a hard look at International Union of Operating Engineers Local 324. On December 16, John Hamilton, business manager-general vice president of the Detroit union during 2003-12, was indicted by a federal grand jury on nine counts relating to various schemes of self-enrichment at the expense of rank and file. The indictment, the result of a multi-agency probe, accuses Hamilton of extortion, structuring, money-laundering, embezzlement and honest services fraud. The charges shed light not only on Hamilton’s relationship with Mayor Kilpatrick, but at least as importantly, his relationship with convicted financial manager John Orecchio, no stranger to these pages.
John M. Hamilton, now 61, moved to Riviera Beach (Palm Beach County), Florida after the end of his tenure as the top official of IUOE Local 324. Given the bad publicity surrounding him by then, it was a smart move. Back in October 2009, the Detroit News had reported that Hamilton had received multiple illegal kickbacks for investing millions of dollars in union pension funds with John Orecchio, founder and CEO of a Chicago-based equity fund, AA Capital Partners. Orecchio told FBI and Department of Labor investigators at the time that in December 2003 he had arranged for Hamilton to buy a home at an inflated price through a straw buyer in return for the union investing $65 million of its pension funds with AA Capital. He spent a lot of money “wining and dining” Hamilton to steer that money. Orecchio also admitted that back in 2005 he had written out a $10,000 check to the Kirkpatrick Civic Fund, a nonprofit corporation controlled by then-Mayor Kwame Kilpatrick. In return, the mayor successfully convinced city officials to invest $20 million with Orecchio. In fact, Orecchio won pension accounts with several Michigan unions in this manner.
The schemes, in the end, didn’t fly. As Union Corruption Update had reported in 2009, Orecchio as early as 2006 had been on the Securities and Exchange Commission radar screen. In September of that year, the SEC filed suit alleging he had defrauded clients of $10.7 million. After replacing the management team of AA Capital with a court-appointed receiver, the feds discovered that a good deal more money was missing. In July 2009, Orecchio was charged in an information count in U.S. District Court for the Northern District of Illinois with embezzling $24 million of client money. And even that figure likely was well on the low side. Orecchio acknowledged that his decisions caused about $60 million in losses. What money he didn’t mismanage, he diverted for his personal use. This included $2.5 million for sporting events; $1.5 million for first-class plane tickets, hotel stays and “client events”; and $1 million on jewelry for his mistress. These sums paled before the $32 million he invested in the sports drink Xyience that eventually went bankrupt – the court receiver at least managed to recover about $9 million. In July 2010 Orecchio was handed a nine-year, four-month prison sentence and a $26 million restitution order, a sum not including a $50 million civil judgment against him and a $7.8 million DOL-arranged global settlement.
John Hamilton’s corruption, unfortunately, went well beyond his relationship with Orecchio. And the 18,000 members of Operating Engineers Local 324, which represents heavy equipment and crane operators throughout Michigan, bore the brunt of this activity. According to the indictment, Hamilton used his position as a union official to order all local business agents and office employees to contribute $5,000 from their salaries toward a “Team Hamilton Slate Fund.” That Hamilton had exacted these “contributions” (i.e., acts of extortion) was troubling enough. But to add insult to injury, he used a significant portion of that money for his personal benefit, threatening to terminate anyone who complained about it. In the case of one business agent, he made good on his threat. Even Hamilton’s exit proved lucrative. After losing his re-election bid in August 2012, he withdrew $71,000 from the Slate Fund and distributed the money evenly to two Local 324 officials, President Steven Minella and Chief of Staff David Hart. Hamilton structured and laundered the money by distributing it in a series of 17 checks with false dates, all in amounts of under $10,000. Minella and Hart each pleaded guilty in 2015 to concealing this scheme.
This was not the end of Hamilton’s illegal activity. Prosecutors also charge that in October 2009 he embezzled union funds to give himself a $97,000 per year raise. When the then-president of Local 324 objected to his salary increase, Hamilton fired him. To conceal the embezzlement, Hamilton also allegedly had logged nonexistent minutes of a union executive board meeting to create the appearance of the board’s “approval.” Hamilton enriched his income in other ways. According to the indictment, he embezzled from the local general and pension funds in order to buy over $50,000 worth of special wheel rims for his union-issued Cadillac DTS, not to mention food and drink at high-end restaurants. In addition, he allegedly engaged in honest services fraud conspiracy, accepting thousands of dollars of free labor for the purpose of upgrading his personal residence in exchange for diverting more than $300,000 in Local 324 business to the contractor.
The odds favor Hamilton copping a plea over risking a conviction at trial. The evidence appears convincing. And the potential punishment is severe; the two extortion counts alone each carry a prison sentence of up to 20 years and a fine of up to $250,000. The case was made possible by a joint investigation by the FBI, the IRS and the U.S. Labor Department’s Office of Labor-Management Standards, Office of Inspector General and Employee Benefits Security Administration. U.S. Attorney Barbara McQuade, lead prosecutor in the case, summarized the government’s position: “Labor unions exist for the benefit of their members, not to line the pockets of the union leaders. Hard-working union members deserve honest representation, and leaders who exploit their positions for personal gain will be brought to justice.”
Related:
Former Detroit Police Union Vice President Sentenced for Fraud
Ex-Detroit Police Union Official, Two Others Convicted in City Pension Bribery Scheme
Chicago Money Manager Sentenced; Liable for Union Pension Scams