Union’s pension plan targeted for criminal probe

McClatchy NewspapersMay 13, 2012 

— Federal authorities have launched a criminal investigation into the International Brotherhood of Boilermakers’ pension and benefit plans, McClatchy Newspapers has learned.

The investigation began after federal agencies received anonymous complaints about mismanagement of the plans, according to court filings. The complaints included allegations that family members of some trustees received bonuses from companies that managed investments for the three funds, which total $8.5 billion. A grand jury investigation followed.

The agencies include two Department of Labor offices, one of which conducts criminal labor racketeering investigations into employee benefit plans.

“I can understand why the Department of Labor might think there’s a cause for concern,” said Gus Fields, a former attorney with the Internal Revenue Service and a leading pension fund expert. “There could be an issue here.”

The court filings do not provide much detail on the issues and people the grand jury is investigating.

But a recently settled lawsuit by a former official with the Boilermakers funds made detailed claims about unorthodox investment schemes and questionable ties between the funds and a trustee’s daughter.

Indeed, The Kansas City Star, a McClatchy newspaper, has found that the daughter of a former trustee and union executive works for a company that has been paid millions to manage investments for the three Boilermakers funds.

An attorney whose firm represents the employee benefit plans said they are under strict supervision by the Department of Labor.

Trustees “administer the fund in accordance with the trust documents and federal laws,” said Michael Stapp, of the law firm Blake and Uhlig. Stapp said he was not aware of any grand jury investigation.

A spokesman for the U.S. attorney for Kansas said he could not confirm the possible existence of a federal investigation into the union’s funds. But a March 27 legal motion obtained by The Star asks a judge to enforce grand jury subpoenas issued in the case.

The motion says the Kansas City Regional Office of the Employee Benefits Security Administration launched the investigation of the union’s employee benefit plans after receiving several anonymous complaints.

The complaints alleged “waste and mismanagement” of the funds by trustees, said the 23-page motion, which also included exhibits and copies of subpoenas.

The document said it also was alleged that some of the investment managers for the Boilermakers employee benefit plans “were hired because of familial relationships of the trustees and the investments managers, as well as gifts provided to the trustees from the investment companies.”

According to the filing, the Employee Benefits Security Administration opened a joint investigation with the U.S. Department of Labor’s inspector general, who has authority to conduct criminal investigations into employee benefit plans.

Spokesmen for the two federal offices said they could neither confirm nor deny any investigation.

The three employee benefit plans are known together as the Boilermakers National Funds. The plans: The Boilermakers National Health and Welfare Fund; the Boilermaker-Blacksmith National Pension Trust; and the Boilermakers National Annuity Trust.

The funds are administered by trustees, some appointed by the Boilermakers and some by employers who do business with the union.

The investigation apparently goes back several years.

One subpoena was issued in 2010 to the records custodian of the Boilermakers funds seeking notes and minutes of meetings, the court filing said. Two other subpoenas were issued to funds officials even earlier — one in 2008 and another in 2009.

One of those officials subpoenaed later filed a lawsuit claiming that the funds were jeopardized by executive schemes and cozy family relationships.

Curtis G. Barnhill, former executive administrator of the Boilermakers National Funds, filed the lawsuit in 2010 in U.S. District Court, alleging that he was fired because he was cooperating with the federal investigation.

Barnhill, who was executive administrator from July 1, 2005, through Nov. 15, 2008, alleged in the lawsuit that his termination violated his rights under the whistleblower law. He sued the funds, their new executive administrator and 11 current or former trustees.

According to the lawsuit, the pension fund lost more than $1 billion in investments because of worsening financial markets in the summer and fall of 2008. Boilermakers International President Newton B. Jones told Barnhill and others that Jones’ re-election could be at risk because possible cuts in pension benefits may be needed, the lawsuit alleged.

Jones is not a trustee of the funds, but the union’s trustees serve at his pleasure.

The lawsuit said Jones began taking actions “that were outside of the normal and established investment procedures and policies of the Pension Fund.”

In October 2008, the lawsuit alleged, Barnhill told pension fund trustees that Jones’ plan “appeared to be financially and legally unsound,” violated policies and involved a broker “of questionable background.”

In another allegation, the lawsuit claims that George Rogers, then a union vice president, appeared to steer between $500 million and $1 billion worth of contracts to his daughter’s company. At the time, Rogers was a trustee on all three employee benefit plans.

At least one trustee resigned in protest over what the trustee said was Rogers’ improper influence in giving contracts to his daughter’s company, the suit said.

According to the lawsuit, Barnhill expressed his concerns about nepotism and Jones’ investment practices to other trustees.

In November 2008, the lawsuit alleged, Barnhill received a subpoena ordering him to appear before a federal grand jury in Kansas City, Kan.

Barnhill told trustees that he planned to fully cooperate with authorities. But two days before he was to appear, the lawsuit said, Barnhill was fired. He was told he was being terminated because of an alleged “romantic overture” to a female independent contractor working in the office and an overly friendly comment to another, the lawsuit said.

The lawsuit said he was fired in order “to damage Barnhill’s credibility, to deter him from testifying fully and freely before the grand jury, to separate him from his records which had been subpoenaed, and to punish him for his stated intent to cooperate with a federal grand jury investigation.”

The lawsuit said Barnhill cooperated with the federal investigation throughout much of 2009.

The defendants denied Barnhill’s allegations in court filings.

They acknowledged that some trustees were aware that Barnhill had been subpoenaed as part of a federal investigation, but denied that they did anything to try to prevent his testimony.

They also denied any unorthodox investment schemes, that Rogers steered contracts to his daughter’s company or that a trustee resigned in protest.

The actions by the funds officers were “at all times justified,” according to their motion asking a judge to dismiss the lawsuit.

Court records show that the lawsuit was settled and dismissed on March 15. Barnhill declined to comment on his lawsuit.

Stapp, the union’s general counsel, said, “The Boilermaker organization views Mr. Barnhill’s assertions as the product of a self-serving imagination.”

In an interview, Rogers said he did nothing wrong.

“Yes, my daughter works for an asset management company that invests funds for the BNF,” Rogers said. “Every time their name came up — not by my doings, but by our consultant — I disclosed to the board, to whatever committee was involved, that my daughter worked for that company and I recused myself from all the voting and discussion. I was gone, out of the room.

“It’s all in the minutes.”

Rogers said he was a trustee of the funds from 1991 to 1999 and again from 2003 until the end of 2008.

But Fields, the pension attorney, said that Rogers’ recusing himself may not matter in the big picture.

“This pension system apparently knew about this relationship and they did engage her,” he said.

Although the lawsuit did not name Rogers’ daughter or her company, The Star found that the Boilermaker funds hired HGK Asset Management Inc., where Rogers’ daughter works.

The daughter, B.K. Power, is vice president of sales and marketing at HGK, according to the company’s website.

Annual reports filed with the U.S. Department of Labor and the IRS show that HGK was paid $8 million by the Boilermakers National Funds from 2004 through 2010 to manage investments.

Power formerly was married to another Boilermakers vice president.

She has worked at HGK since August 2001 and is “responsible for developing and managing client relationships,” the company’s website says.

Previously, Power was an internal auditor for the Boilermakers, her website bio says.

Neither Power nor HGK responded to requests for comment.

Stapp said the funds are governed in strict accordance with conflict of interest policies “and are constantly vetted to scrupulously avoid any conflicts of interest.”

But Nathan Mehrens, a former Labor Department attorney who now is general counsel for Americans for Limited Government, said the hiring of a firm where Rogers’ daughter was a key employee raises an important question:

“Did this plan engage in this service because it was best for their members, or did personal considerations play into that decision-making process?”

Thomas reports for The Kansas City Star.

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