1
1
2 -----------------------------------X
3 In the Matter of
4 The Trusteeship Proceeding
Of Local Union 1001
5 Chicago, Illinois.
6 Docket Number 03-21T
7 -----------------------------------X
8
Hilton Palmer House
9 17 East Monroe Street
Chicago, Illinois 60603
10
11 November 12, 2003
9:00 AM
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13
14
15 B e f o r e:
16 PETER F. VAIRA, ESQ.
Messrs. Vaira & Riley, P.C.
17 1600 Market Street - 2650
Philadelphia, Pennsylvania 19103
18
19 INDEPENDENT HEARING OFFICER.
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2
1 APPEARANCES:
2 Messrs. THOMAS & ASSOCIATES
Office of the GEB Attorney
3 LIUNA
Federal Reserve Building
4 600 Atlantic Avenue
12th Floor
5 Boston, Massachusetts 02210-2211
6 By: ROBERT M. THOMAS, JR., Esq., of Counsel
7
Messrs. WINSTON & STRAWN
8 Attorney for Local Union 1001
35 West Wacker Drive
9 Chicago, Illinois 60601-9703
10 BY: MATTHIAS A. LYDON, Esq., of Counsel
SAMUEL MENDENHALL, Esq., of Counsel
11
12 Messrs. FARACI & FARACI
Attorney for Local Union 1001
13 203 North LaSalle Street
Suite 2350
14 Chicago, Illinois 60601
15 BY: PETER S. FARACI, Esq., of Counsel
16
17 PRESENT:
18 KATHLEEN M. NAGLE, Esq., Messrs. Vaira & Riley
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3
1 THE INDEPENDENT HEARING OFFICER: Mr.
2 O'Rourke, you may take the stand here again.
3 THE WITNESS: Yes, sir. Thank you.
5 previously called as a witness on behalf of the
6 Petitioner, having been duly sworn, was examined and
7 testified as follows:
8 FURTHER DIRECT EXAMINATION
9 BY
10 MR. THOMAS:
11 Q. Good morning, Mr. O'Rourke.
12 A. Good morning, sir.
13 Q. Yesterday before we -- yesterday before we
14 interrupted your testimony we had covered your
15 background and qualifications and some history of
16 organized crime in Chicago, some of your prior
17 testimony in the Chicago District Council case and the
18 Bruno Caruso case, and then we talked at length about
19 the seven informants whose information is relevant
20 here.
21 So with that as background I want to pick up
22 where we left off and ask you on a name by name basis
23 to relate to us what the informants have told you about
24 specific individuals who have either officer positions
25 or some history with Local 1001.
4
1 So starting -- I think we started to touch on
2 Nick Gironda, the current Business Manager. And I
3 doubt any of us can remember the specifics of what you
4 started to say there, so why don't we start at the
5 beginning with Mr. Gironda.
6 How many of the seven informants had
7 something to say about Mr. Gironda?
8 A. Six.
9 Q. Okay. And which were they?
10 A. Informant Number 2, Informant Number 5, and
11 Informant Number 12, Joe Granata, Robert Cooley, and
12 Guy Bills.
13 Q. And what would be easiest for you in terms of
14 how to summarize that information, on a name by name
15 basis or simply summarizing the collective data.
16 A. Probably the collective data.
17 Q. Why don't you go ahead and tell us what
18 you've learned from these six people.
19 A. The six people all independently advised me
20 that they knew Nick Gironda, that he was a relative,
21 they believe a cousin of Bruno Caruso and Frank Caruso
22 and of the Roti, R-o-t-i, family and 26th Street. That
23 they knew that he had been involved as a Chicago -- LCN
24 associate. That he was brought into the Union and
25 given a paid job by Bruno Caruso, and that he was a
5
1 close friend and obviously relative of Bruno Caruso.
2 And when Caruso was ousted from the Union, that he was
3 the heir apparent to continue the influence of 26th
4 Street Chinatown in the Union.
5 Q. When you say 26th Street Chinatown, you mean
6 that crew?
7 A. That crew, yes, sir.
8 Q. Now in the Trusteeship complaint there's
9 reference to Mr. Gironda having served as a bagman,
10 accepting cash payments for jobs on behalf of Frank
11 "Tootsie Babe" Caruso and for Bruno Caruso and also
12 reference to his being investigated as part of a City
13 of Chicago no-show job investigation. Do your
14 informants have anything to say concerning those
15 matters?
16 A. Yes. Informants 2 and 5 indicated that they
17 knew Gironda from the old days and that he used to be
18 the individual who would collect money for jobs. If
19 you want to get a job in Streets and San and get into
20 the Union, then you had to pay money, and that it was
21 collected normally by Gironda and then delivered to the
22 Carusos.
23 Q. And concerning the City of Chicago no-show
24 job investigation, do you have any information on that?
25 A. Yes. The records reflected that Mr. Gironda
6
1 had been involved in a scandal in the City of Chicago
2 no-show jobs case. I don't have all the details of it.
3 I don't recall it now. But it was documented in the
4 record. And that he was in a non-paying position with
5 the Union at that time. And after he was suspended he
6 was brought in by Bruno Caruso and given a paying job.
7 Q. Suspended from his job with the City of
8 Chicago?
9 A. That's my understanding, yes, sir.
10 THE INDEPENDENT HEARING OFFICER: I want to
11 direct your attention to -- everybody here to the
12 opinion -- my opinion in the Bruno Caruso case. And as
13 it's referenced to that it was quite a bit of
14 discussion between me and all the lawyers about the
15 meaning of that, and there was an Inspector General's
16 investigation -- Inspector General of the City of
17 Chicago, and had to do with Nick Gironda and one of the
18 Carusos, not Bruno, I think put on a no-show -- I mean
19 put on no pay while they investigated no-show job. The
20 details are there. So if you want to read that, it's
21 in that opinion. It's coming back now. And I will
22 direct you to it.
23 MR. THOMAS: And that is in the record and I
24 don't plan on going into any further depth with Mr.
25 O'Rourke.
7
1 BY MR. THOMAS:
2 Q. All right. Anything else on Mr. Gironda, Mr.
3 O'Rourke, before we move on?
4 A. No, sir.
5 THE INDEPENDENT HEARING OFFICER: What's the
6 "old days"?
7 THE WITNESS: Before he was the Business
8 Manager in the 90's.
9 THE INDEPENDENT HEARING OFFICER: And your
10 informants, how did they deal with him? How do they
11 know this?
12 THE WITNESS: They know it from personal
13 experience and from talking with other members of
14 organized crime familiar with people in the 26th
15 Chinatown Crew. And according to the informants it was
16 common knowledge and discussed.
17 BY MR. THOMAS:
18 Q. What you just did, Mr. O'Rourke, is helpful.
19 And that is to the extent that you can specify where
20 information comes from, one of the particular sources
21 that obviously is helpful to all of us.
22 A. Yes, sir.
23 Q. Clearly you can't do that in every instance.
24 Moving on then to Mr. DeChristopher, the
25 current Secretary-Treasurer. Do any of the seven
8
1 informants, have any of them relayed any information to
2 you concerning Mr. DeChristopher?
3 A. Yes, sir.
4 Q. Which ones?
5 A. Informants Number 2, 5, 12, and 17.
6 Q. And what information, if any, have they
7 related to you?
8 A. They've indicated that Sam DeChristopher was
9 very close with Bruno Caruso and Frank Caruso and that
10 he was put into the position through their influence,
11 and that he was associated with not only the 26th
12 Street Chinatown Crew, but the North Side Crew as well.
13 That he was not an active participant in organized
14 crime activities but was -- according to the informants
15 would do favors and follow their directions and ensure
16 that things ran smoothly at the Union, help out
17 individuals who needed help on instructions of
18 organized crime, individuals such as Caruso.
19 Q. Now the North Side Crew, is that the same as
20 the Elmwood Park Crew?
21 A. Yes, sir.
22 Q. So the Trusteeship complaint references the
23 Elmwood Park Crew. That's the same thing as the North
24 Side Crew that you mentioned?
25 A. Yes, sir, that's correct.
9
1 Q. Robert Chianelli is the incumbent Recording
2 Secretary, if my information is correct. Do your
3 informants say anything about Mr. Chianelli?
4 A. Yes, sir.
5 Q. Which ones?
6 A. Informants 2, 5, and 12.
7 Q. And what information, if any, have they
8 related to you?
9 A. They indicated that they recognized Mr.
10 Chianelli. One informant, Number 5, referred to him as
11 "Bobby Chi". They said that he, in their opinion, was
12 an organized crime associate and had done favors for
13 organized crime and knew a lot of people, was
14 connected.
15 Q. Floyd Grogan is the current Vice President of
16 Local 1001. Have any of your informants said anything
17 about Mr. Grogan?
18 A. None of them knew Mr. Grogan except one who
19 said that -- Informant Number 5, who said that he
20 thought Mr. Grogan was friendly with the mobsters in
21 the Grand Avenue Crew, Joey Lombardo, Jr., a man named
22 Jimmy Martin, and another individual by the name of Sam
23 Cozzo. But they could provide no specific information
24 other than that.
25 THE INDEPENDENT HEARING OFFICER: That's the
10
1 extent of your information on that?
2 THE WITNESS: Yes.
3 BY MR. THOMAS:
4 Q. Victor Roa is a current member of the
5 Executive Board. Do any of your informants have any
6 information on Victor Roa?
7 A. Yes, sir. Informants Number 2, 5, and 12 all
8 indicated that they knew Mr. Victor Roa and that they
9 considered him part of the 26th Street Chinatown Crew
10 as an associate, and that he was again very close with
11 the Carusos and a number of other individuals from that
12 neighborhood. He formerly lived in the neighborhood.
13 MR. THOMAS: Now, Mr. Vaira, at this point
14 I'm going to shift from the current group of officers
15 to the list of names of people on whose behalf Pension
16 and Welfare contributions were made. And we won't
17 necessarily go exactly in this order, but those names
18 are listed on Exhibit Number 7 in your book.
19 THE INDEPENDENT HEARING OFFICER: Let me just
20 go back to -- now you inquired of your group of
21 informants and cooperating individuals. How recently
22 -- I think you testified earlier that it was in October
23 that you -- not visited but talked to them?
24 THE WITNESS: October and November, yes, sir.
25 THE INDEPENDENT HEARING OFFICER: Okay. And
11
1 what was the form of your question? What did you ask
2 them?
3 THE WITNESS: I asked them -- I presented
4 them with the names of the officers and then the list
5 of 33 people. And I went down the list and mentioned
6 each name and spelled it, and would indicate the
7 approximate location of the person's address and their
8 age, and asked them if that name meant anything to
9 them, if they knew that person.
10 THE INDEPENDENT HEARING OFFICER: And your
11 responses were, as you related to us, that they said
12 that they were -- as you've described earlier, the term
13 I've used as a layman is "connected".
14 THE WITNESS: Yes, sir. They'll say he's a
15 "connected guy" or "he knows a lot of people" or "he's
16 with those people". If they knew. A lot of them they
17 didn't know. Quite a few. Willie Bates they didn't
18 know. Gibson they didn't know. Quite a few they did
19 not know and they would say that. In some cases they
20 said the name sounded familiar, but they would need a
21 photograph. And so I didn't go any further than that
22 because we didn't have photographs.
23 THE INDEPENDENT HEARING OFFICER: Go ahead.
24 MR. THOMAS: All right. Mr. Vaira, I ask
25 that we all turn to Exhibit 7, which would help to
12
1 follow the names that I'm going to ask him about.
2 BY MR. THOMAS:
3 Q. All right. Let's start, Mr. O'Rourke, with
4 Bernard Spano who appears -- he's the third to last
5 entry on the second page of Exhibit 7.
6 What do you know -- before we talk about the
7 informants, what do you know about Mr. Spano, if
8 anything?
9 A. Bernard Spano was a member of Local 1001 for
10 many years and he was -- I can't recall his exact
11 position now. He had throat cancer and he committed
12 suicide after he had left and retired from the Union.
13 His brother, who is Michael Spano, Michael
14 Spano was a long time member of the Cicero Crew under
15 Joe Ferriola and Rocky Infelise, the two most recent
16 bosses. Mike Spano then became in effect a lieutenant
17 running Cicero. And he was the subject of this
18 indictment, which got a lot of press here in Chicago,
19 of corruption in Cicero where they involved the Mayor
20 of Cicero and several other individuals. They were all
21 tried and convicted in Federal Court. Michael Spano.
22 THE INDEPENDENT HEARING OFFICER: Including
23 Spano?
24 THE WITNESS: Yes, including Spano. He's now
25 in prison.
13
1 His other brother was Paul Spano. Paul Spano
2 was Grand Flash Cartage which was the -- in effect the
3 headquarters of the Mob in Cicero, and Paul Spano was
4 closely involved with Joe Ferriola and Rocky Infelise.
5 I believe he is now living in Florida.
6 And there was another brother who was
7 involved in the Projectioner's Union. And according to
8 the informants -- and that would be 2, 4, 12, 17, Joe
9 Granata. All indicated that they knew Bernard Spano is
10 an organized crime associate affiliated with the Cicero
11 Crew along with his brothers, but he was the individual
12 in the Union.
13 MR. THOMAS: For the record, Mr. Vaira, the
14 Union's records, as reflected on Exhibit 1, indicate
15 that Mr. Bernard Spano was an Auditor for Local 1001
16 from 1987 to 1999, approximately 12 years.
17 BY MR. THOMAS:
18 Q. All right. Anything else on Mr. Spano? I
19 think you said 2, 5, 12, 17 and Granata?
20 A. Yes, sir.
21 Q. Anything else on Mr. Spano?
22 A. No.
23 Q. Sam Caifa?
24 A. Yes, sir.
25 Q. C-a-i-a-f-a, if I'm not mistaken.
14
1 MR. LYDON: Wait a minute.
2 MR. THOMAS: It's C-a-i-f-a according to the
3 chart. That may be the correct spelling.
4 BY MR. THOMAS:
5 Q. And according to the Union's records he was
6 an E Board member from 1984 to 1992, is that your
7 understanding?
8 A. Yes, sir.
9 Q. Which of the informants had anything to say
10 about Mr. Caifa?
11 A. Informants 2, 5, 12, 17, and Joe Granata all
12 indicated they knew Sam Caifa very well. His nickname
13 was "Chink" Caifa. He resides in the Taylor Street
14 neighborhood near Taylor and Laflin. And one of the
15 informants -- two of the informants, 5 and 17,
16 indicated he often hung out or frequented a place
17 called Chicago Auto Sales -- Chicago Credit Auto Sales
18 located on the 1100 block of South Western Avenue where
19 he sometimes played cards with Joey Lombardo and other
20 old time mobsters. And it was also alleged that he ran
21 a small Italian social club someplace in the same
22 general vicinity which was frequented by bookmakers and
23 mobsters, old timers. That he was a Chicago Outfit
24 associate for many years.
25 Q. Anthony Caliva, C-a-l-i-v-a. And was Mr.
15
1 Caliva a member or an officer -- actually I can help
2 you out with the chart here.
3 According to the records he was the Vice
4 President from 1970 to 1982. Does that sound correct?
5 A. Yes, sir, I believe that's correct. I
6 believe he's deceased.
7 Q. All right. And what if anything have your
8 informants told you about Anthony Caliva?
9 A. Informant Number 5 and Joey Granata indicated
10 they knew Tony Caliva when he was alive, and that he
11 was known to them as a Chicago Outfit associate.
12 Q. We'll come back at the end to the names that
13 your informants don't know anything about. I just want
14 to make sure we get that on the record.
15 But sticking for the moment to the names that
16 your informants have something to say about. Briatta
17 -- there's three Briattas, B-r-i-a-t-t-a, Joseph,
18 Louis, and Michael Briatta. These were all members of
19 1001. What if anything did your informants relate to
20 you concerning these individuals?
21 MR. LYDON: I mean you're looking at three.
22 We're lumping three together.
23 BY MR. THOMAS:
24 Q. We'll do one at a time. Okay. Joseph
25 Briatta.
16
1 A. Joseph Briatta is also now deceased.
2 Informants Number 2, 5, and 12 indicated that they knew
3 him. He was from the Taylor Street neighborhood. He
4 was part of the Briatta family. And they were well
5 known in the area as organized crime associates for
6 many years.
7 Q. And how about Louis Briatta?
8 A. Louis Briatta, Informants 2, 5, and 12 knew
9 Louis Briatta. They called him "Louie the Barber". He
10 ran a barber shop, I believe, on Polk and Aberdeen, and
11 it was a hangout for mobsters -- old time mobsters for
12 many years. And I believe his daughter married Mayor
13 Daley's brother.
14 Q. Michael Briatta, Sr.?
15 A. Michael Briatta, Informants Number 2, 5, and
16 12 all indicated he was again part of the Briatta clan,
17 if you will, and that he was known to be an organized
18 crime associate.
19 Q. I know I'm going to mispronounce this name.
20 Neil Cacciottolo, former member of the Executive Board.
21 What if anything did your informants tell you about Mr.
22 Cacciottolo? C-a-c-c-i-o-t-t-o-l-o.
23 A. Yes. Informants Number 5 and 17 indicated
24 they knew Neil Cacciottolo to be an organized crime
25 associate. He's also an old timer, and I believe he's
17
1 dead now.
2 Q. Another deceased member is -- listed on the
3 list is Fred Colasanti, C-o-l-a-s-a-n-t-i.
4 A. Yes.
5 Q. Did your informants relate anything to you
6 concerning him?
7 A. Informant Number 5 and Joey Granata knew Fred
8 Colasanti, recalled him, and said he was an organized
9 crime associate, and the others did not.
10 Q. There are two people with this last name.
11 Ronald Crivellone and Thomas Crivellone,
12 C-r-i-v-e-l-l-o-n-e. Did your informants have anything
13 to say about either of those gentlemen.
14 A. Yes. Starting with Thomas Crivellone, who is
15 now deceased, Informants Number 2, 5, 12 and Joey
16 Granata recalled him as being an organized crime
17 member. He was the individual who was up for the job
18 and instead was aced out, if you will, by Joseph
19 Spingola on orders of Tony Accardo and Jackie Cerone.
20 And that was attested to by Joey Granata and testified
21 to in the other hearing.
22 THE INDEPENDENT HEARING OFFICER: That's a
23 couple of years ago here.
24 THE WITNESS: Yes, sir. But that's who he
25 is. He's now dead. And they indicated he was an
18
1 organized crime individual. Ronald Crivellone is a
2 relative of his. Some indicated it was his son. I'm
3 not sure about that. But Informants 2, 5, 12 and 17
4 all stated that they also knew him and that he was also
5 an organized crime associate.
6 BY MR. THOMAS:
7 Q. Thank you.
8 THE INDEPENDENT HEARING OFFICER: These
9 individuals that you have here, they all come from --
10 it seems they all come from the same neighborhood
11 around Taylor Street.
12 THE WITNESS: Not all of them do.
13 THE INDEPENDENT HEARING OFFICER: Not all of
14 them do. Okay.
15 THE WITNESS: Many of them do, but not all of
16 them.
17 BY MR. THOMAS:
18 Q. All right. Daniel DeLuca, D-e-L-u-c-a?
19 A. Yes.
20 Q. Is deceased. Former Auditor and E Board
21 member; is that right?
22 A. Yes, correct.
23 Q. What if anything have your informants said to
24 you about him?
25 A. Informant Number 5 was the only informant
19
1 that knew him, and he recalled him. He said he's
2 deceased. He's an old timer and he was known to that
3 Informant Number 5 as an organized crime associate.
4 Q. Alexander Maggi, M-a-g-g-i, also deceased,
5 and former E Board member?
6 A. Yes.
7 Q. What if anything did your informants say?
8 A. Informant Number 5 and Joey Granata recalled
9 Alexander Maggi, who is deceased. Indicated he was an
10 old timer and he was an organized crime associate known
11 to them.
12 Q. Frank Roti, Jr. -- the Frank Roti that's
13 listed on the color coded chart which is Exhibit 7, is
14 that the person you know as Frank Roti, Jr.?
15 A. Yes, sir.
16 Q. What relation is he or was he to the Alderman
17 Frank Roti?
18 MR. LYDON: There is no Alderman Frank Roti.
19 BY MR. THOMAS:
20 Q. Fred Roti?
21 A. Fred Roti, yes. He was a relative of Fred
22 Roti. I believe he was a cousin of Fred Roti, and he's
23 part of the Roti family from 26th Street. And the
24 Informants Number 2, 5, 12, 17, Joey Granata and Guy
25 Bills all knew him and identified him as a member of
20
1 the Chicago organized crime for many years along with
2 his other family members, including the Carusos and so
3 on.
4 Q. And he was a member of the E Board at Local
5 1001?
6 A. Yes, sir.
7 Q. According to the chart, Pension contributions
8 were made on his behalf from 1982 to 1998.
9 THE INDEPENDENT HEARING OFFICER: A question
10 about Guy Bills. Guy Bills has been dead about two
11 years.
12 THE WITNESS: Yes, sir.
13 THE INDEPENDENT HEARING OFFICER: When did
14 you speak to Guy Bills about Frank Roti?
15 THE WITNESS: Right before he died. About a
16 week before he died I spoke with him. But I had
17 debriefed him extensively about all these people at the
18 time. There's a report to that fact.
19 THE INDEPENDENT HEARING OFFICER: Any
20 particular reason why you would be asking Guy Bills
21 about Roti who is --
22 THE WITNESS: Yes, sir. At the time -- I
23 went back and reviewed it. At the time we had a
24 listing of all of the current and past officers and E
25 Board members, Auditors of Local 1001. So we went
21
1 through each one of them with Guy Bills as we started
2 our investigation back in 1996. And then repeatedly
3 thereafter I would go back over the list with him. And
4 at that time he identified Frank Roti, Jr., to be a
5 member of organized crime known to him. And he was
6 from the 26th Street Chinatown neighborhood and had
7 been part of that crew. So this -- that information is
8 old, but it follows along with what the other
9 informants have indicated.
10 BY MR. THOMAS:
11 Q. Next name is Michael Spignola?
12 THE INDEPENDENT HEARING OFFICER: I think
13 there's a problem. There's a misspelling. I think
14 it's S-p-i-n-g-o-l-a. I think it's Spingola.
15 MR. THOMAS: Then they're reversed on the
16 charts.
17 THE INDEPENDENT HEARING OFFICER: The rest of
18 the charts it's spelled. There's a history on the
19 front of who served what time and it's spelled
20 correctly there.
21 BY MR. THOMAS:
22 Q. And according to the --
23 THE INDEPENDENT HEARING OFFICER: Take a look
24 at the first chart that the GEB has put. He has a
25 history of the officers. And yes, it's the --
22
1 MR. THOMAS: It has it as N-G, Spingola.
2 THE INDEPENDENT HEARING OFFICER: That's what
3 it is.
4 MR. THOMAS: So both Exhibit 1 as well as
5 Exhibit 7 is S-p-i-n-g-o-l-a?
6 THE INDEPENDENT HEARING OFFICER: Yeah,
7 Spingola.
8 BY MR. THOMAS:
9 Q. O'Rourke, Mr. Michael Spingola was Recording
10 Secretary to the Union from '72 to '82, is that your
11 information?
12 A. Yes, sir.
13 Q. What if anything did the informants tell you
14 about Michael Spingola?
15 A. Michael Spingola was the son of Joseph
16 Spingola who was the President Business Manager of
17 Local 1001, after having been selected, according to
18 Joey Granata and the others, at the Galewood Funeral
19 Home over Thomas Crivellone.
20 Q. Selected by whom?
21 A. On the orders of Tony Accardo and Jackie
22 Cerone.
23 THE INDEPENDENT HEARING OFFICER: Which one
24 are we talking about?
25 THE WITNESS: This is the father, Joseph
23
1 Spingola.
2 THE INDEPENDENT HEARING OFFICER: The father
3 was, from the information I recall, and the -- is that
4 there was a big sit down at the funeral home.
5 THE WITNESS: Yes, sir.
6 THE INDEPENDENT HEARING OFFICER: And
7 somebody summoned Spingola. He sat upstairs while the
8 boys sat downstairs figuring out, and they called him
9 down and anointed him.
10 THE WITNESS: Yes, sir. Joe Granata went up
11 on orders and got him and brought him back down. And
12 then he became the President and Business Manager of
13 Local 1001 and also the Chicago District Council. This
14 is his son --
15 THE INDEPENDENT HEARING OFFICER: Okay.
16 THE WITNESS: -- Michael Spingola. And
17 Informants Number 2, 5, 12, 17, and Joey Granata all
18 indicated that he was also an organized crime
19 associate. He's been out of the Union for at least ten
20 years and is in private industry.
21 BY MR. THOMAS:
22 Q. A deceased member who served as an Auditor
23 for a period of time, Anthony Orrico, O-r-r-I-c-o. Did
24 your informants have anything to say about Mr. Orrico?
25 A. Yes, sir. Informants 2, 5, 12, 17 and Joey
24
1 Granata all indicated that they recalled him, knew him,
2 and that he was, in their view, an organized crime
3 associate.
4 Q. Michael Cardilli, C-a-r-d-i-l-l-i. I don't
5 have in my notes any reference to an officer position.
6 Do you know whether he was just a member of the Local
7 or an officer?
8 A. I'm not sure. He was in the Union for a
9 period of time and then he also became an official with
10 the Chicago Transit Authority.
11 Q. I beg your pardon. The chart does show that
12 he was an Auditor from 1972 to 1986.
13 A. Yes, sir.
14 Q. What if anything did your informants tell you
15 about Michael Cardilli?
16 A. Informants Number 2, 5, 12, 17, and Joe
17 Granata all recalled him and stated that they knew him
18 to be an organized crime associate.
19 Q. James Capasso is listed currently as an
20 Auditor and has been an Auditor for -- well since 1984
21 for Local 1001. Is that the same Capasso that was
22 testified about yesterday?
23 A. Yes, sir.
24 Q. And what's his full-time job?
25 A. James Capasso is the Executive Director of
25
1 the Laborers' City Pension Fund which handles the
2 Pensions and Welfare for Streets and San and workers
3 throughout the City of Chicago.
4 Q. And has he held that position at the same
5 time that he's been an Auditor at Local 1001?
6 A. Yes, sir.
7 Q. What if anything have your informants said
8 about James Capasso?
9 A. Informants 2, 5, 12 and Joey Granata all
10 indicated that they knew Jimmy Capasso and that he was
11 associated with the Elmwood Park Crew of the Chicago
12 Mob and that he was an organized crime associate.
13 Q. Current Auditor for Local 1001 is Nick
14 Cataudella, C-a-t-a-u-d-e-l-l-a according to this,
15 Cataudella. Do I have that name right?
16 A. Yes, sir.
17 Q. C-a-t-a-u-d-e-l-l-a. Current Auditor of
18 1001. What if anything have the informants said about
19 Mr. Cataudella?
20 A. Nick Cataudella, Informants Number 2, 5, 12,
21 17, Joey Granata and Guy Bills all identified Nick
22 Cataudella and knew him. He was the brother of
23 Salvatore Cataudella or "Salli" Cataudella, who was
24 part of the enforcement crew for the Cicero Mob under
25 Joe Ferriola and later Rocky Infelise. One of my
26
1 cooperating witnesses was James "Dukey" Basile,
2 B-a-s-i-l-e, who wore a wire targeting the Infelise
3 Crew. And he was a former fellow enforcement officer
4 with Nick -- with Salli Cataudella. Cataudella was a
5 member of organized crime, and this is his brother.
6 His brother, Nick Cataudella, was also in the
7 Cicero Crew. He operated for a time a business called
8 Body Shop on Grand, which was on Grand Avenue west of
9 Austin. And this was a meeting place for bookmakers
10 and mobsters, and he was under investigation by myself,
11 when I was an FBI agent, and other agents in the squad.
12 He also used to run a card game or have a card game in
13 the basement of his home on the north side, and they
14 would discuss various Mob activities and crimes. At
15 the time they had an informant that was invited to the
16 card crime and used to provide information. So Nick
17 Cataudella was very familiar to me and he was also
18 familiar to all these various informants who knew him
19 to be a member of organized crime.
20 Q. And he's currently serving as an Auditor for
21 Local 1001; is that correct?
22 A. Yes, sir, that's correct.
23 Q. We've talked about Robert Chianelli. We've
24 talked about Sam DeChristopher, Anthony Esposito,
25 former Recording Secretary. You don't need that
27
1 spelled, do you?
2 What if anything have your informants told
3 you about Anthony Esposito?
4 A. Informants 2, 5, 12, 17, Granata and Guy
5 Bills, when he was alive, all identified Anthony
6 Esposito as a relative of Frank Esposito or "Frankie X"
7 who was a well known top official in the Laborers'
8 Union who is now dead. Anthony Esposito, I believe, is
9 also dead. And they all knew him to be an organized
10 crime associate.
11 Q. William Pape was an Executive Board member
12 until 1993, going back as far as it looks like 1980.
13 What if anything have your informants told you about
14 Mr. Pape?
15 A. Informant Number 5 and Joey Granata recalled
16 Mr. Pape, and they indicated they knew him to be an
17 organized crime associate.
18 Q. So I just want to list the ones that your
19 informants don't have any information on so that we can
20 make sure the record is complete on that.
21 Starting with Exhibit Number 7, you have a
22 copy of it. Let's make sure you're looking at the --
23 if we go down Exhibit Number 7. We'll do this both for
24 this chart as well as for the officer chart in Exhibit
25 1.
28
1 If my notes are correct, Willie Bates was not
2 mentioned; is that right?
3 A. That's correct.
4 Q. Okay. Nicholas Cantone?
5 A. That's correct, no one knew him.
6 Q. Floyd Grogan?
7 A. None of the informants or cooperating
8 witnesses knew him except Informant Number 5 who
9 believed that he was associated with the Grand Avenue
10 Crew, knew Joey Lombardo and so on, but had no
11 specifics.
12 Q. Michael Larmon, L-a-r-m-o-n.
13 A. None of the informants knew anything about
14 him, didn't know his name.
15 Q. Sorry. I think I skipped one. Nick Cantone?
16 THE INDEPENDENT HEARING OFFICER: You
17 mentioned Nick Cantone.
18 MR. THOMAS: I did? I'm sorry. Thank you.
19 BY MR. THOMAS:
20 Q. James Pilas, P-i-l-a-s?
21 A. None of the informants knew anything about
22 him.
23 Q. Ramon Schaeffer?
24 A. Again, none of the informants knew the name
25 or knew anything about him.
29
1 Q. And Julius Battaglini.
2 A. Again, none of the informants knew anything
3 about him and could not comment.
4 MR. LYDON: Excuse me just a minute. Julius
5 who?
6 THE WITNESS: The second one on the list.
7 MR. LYDON: I'm sorry.
8 MR. THOMAS: I think it's two T's, although
9 on the chart it says -- B-a-t-t-a-g-l-i-n-i is correct.
10 BY MR. THOMAS:
11 Q. So of the 33 recipients that are listed on
12 Exhibit Number 7 -- to be more precise. The 33 people
13 on whose behalf contributions were made, your
14 informants had relevant information -- organized crime
15 information concerning approximately how many of these
16 33?
17 A. I'm sorry. I haven't added them up, but I
18 think -- I'm not sure.
19 Q. Well if we counted up the ones that they
20 didn't have anything to say about.
21 MR. LYDON: What about Commissioner John
22 Wilkin?
23 MR. THOMAS: I thought I did, but I'll put it
24 on.
25 THE WITNESS: 22.
30
1 BY MR. THOMAS:
2 Q. 22 of the 33 --
3 A. Yes, sir.
4 Q. -- they had substantive information?
5 A. Yes, sir.
6 Q. I may have neglected -- thank, Mr. Lydon, for
7 pointing this out. If I did neglect to mention John
8 Wilkin, was he one of the ones that your informants had
9 no information on?
10 A. That's correct, yes, sir.
11 Q. So roughly, maybe even exactly, two-thirds of
12 the names listed on this chart, according to your
13 informants, are connected.
14 A. Yes, sir.
15 Q. Then turning to Exhibit Number 1 in the first
16 volume. If we just look at the current 2003 officers,
17 Auditors, E Board members, District Council members,
18 District Council Representatives. Could you give us a
19 rough breakdown of how -- what percentage of these
20 people your informants have indicated are connected and
21 what percentage roughly are -- that they didn't have
22 any information on.
23 A. Well they didn't have any information on
24 Nathaniel Gibson, Paul Reed, Debbie Pucillo-Ferraris.
25 Q. But she just came in replacing Victor Roa,
31
1 correct?
2 A. I believe so, yes. Willie Bates, Robert
3 Gibson.
4 Q. So even in the current 2003 slated officers,
5 I mean would you say --
6 MR. LYDON: Object. Argumentative.
7 MR. THOMAS: I haven't asked the question
8 yet.
9 MR. LYDON: I'm sorry.
10 BY MR. THOMAS:
11 Q. What allocation would you say, according to
12 your informants that we're talking, half, third,
13 quarter?
14 THE INDEPENDENT HEARING OFFICER: You can
15 answer it, but I can make the calculation myself.
16 MR. THOMAS: Let me rephrase it if I could.
17 BY MR. THOMAS:
18 Q. Mr. O'Rourke, in terms of positions of power
19 in the Local, do you have an opinion as to whether the
20 positions of power are today under the influence of --
21 MR. LYDON: I object to that.
22 MR. THOMAS: -- the Outfit?
23 THE INDEPENDENT HEARING OFFICER: I sustain
24 it.
25 BY MR. THOMAS:
32
1 Q. Mr. O'Rourke, as an expert in organized
2 crime, have you reached any conclusions concerning any
3 Mob influence on Local 1001?
4 A. Yes, sir, I have.
5 Q. What are those conclusions?
6 A. Going back starting with Joseph Spingola,
7 Ernie Kumerow, Bruno Caruso, who was ousted from the
8 Union, to Nick Gironda, who is Caruso's cousin. And at
9 the present time the Chicago Organized Crime Syndicate
10 has been able to influence organized crime through the
11 President and Business Manager, and then according to
12 the informants through Sam DeChristopher and James
13 Capasso, Robert Chianelli, all of whom have positions
14 as officers in the Union.
15 Q. And in addition to the specific names that
16 you've run by the informants, did the informants tell
17 you anything about the Local as a whole, as an entity?
18 A. Yes, sir.
19 Q. What is that?
20 A. All of the informants advised me in almost --
21 would almost lecture me that I had to understand that
22 it was common knowledge amongst the organized crime
23 members and associates on the street that Local 1001
24 belonged to organized crime, that they were able to
25 influence the officers over the years, influence the
33
1 conduct of the Union. That it was extremely important
2 to organized crime, this particular Local, because it
3 had influence and control over Department of Streets
4 and Sanitation which was able to supply jobs to
5 organized crime members and relatives and friends.
6 That it also put them in a position of power with the
7 City of Chicago, and that they worked closely with the
8 1st Ward, when it was in existence, Pat Marcy and Fred
9 Roti and John D'Arco, when he was alive, Pat Marcy when
10 he was alive. And this was a power base for organized
11 crime. And that was commonly understood by all of
12 these informants who reported to me that was their take
13 on it, their information.
14 Q. What time frame are we talking about?
15 A. Time frame would be -- probably predates
16 Spingola, but from '68 to the present time.
17 Q. And in terms of the recent years, have you
18 detected any change in tone or commitment to that
19 statement that this is a controlled Local?
20 A. No, sir.
21 THE INDEPENDENT HEARING OFFICER: Let me
22 question that. I mean is this his opinion or is this
23 what he's -- let's talk about the last three years
24 let's say. Are you asking him is it his opinion under
25 control of the last three years or is it his relation
34
1 of statements from these individuals.
2 MR. THOMAS: It's really both. And I'll
3 break this down if that would be helpful.
4 BY MR. THOMAS:
5 Q. In the last three years, Mr. O'Rourke, has
6 your opinion changed at all concerning organized
7 crime's influence over Local 1001?
8 A. No, sir, it has not.
9 Q. And when you debriefed the informants
10 concerning these issues, have they indicated any
11 lessening or backing off of organized crime control
12 over 1001?
13 A. No, they have not.
14 Q. And have you specifically asked them in your
15 recent conversations about that issue whether it's
16 still a controlled Local?
17 A. Yes, I have.
18 Q. Have you seen any evidence in the last two to
19 three years of efforts on the part of the Local to
20 eradicate corruption in the form of organized crime
21 influence after the findings of the CDC and the Bruno
22 Caruso opinions.
23 A. No. It was widely publicized, the hearings,
24 and some press accounts about Bruno Caruso and the
25 influence of organized crime, and there's been no
35
1 activity at all to -- while he was in office was --
2 after the Chicago District Council hearings it was
3 widely publicized, and especially within the Union, of
4 organized crime influence in the Chicago District
5 Council which was put into Trusteeship. John Matassa,
6 who had been on the Chicago District Council, was
7 ousted and others, and Local 1001 made no effort to
8 take any action against Bruno Caruso or any of the
9 other individuals.
10 Q. Have you ever seen --
11 THE INDEPENDENT HEARING OFFICER: Matassa was
12 not a member of --
13 THE WITNESS: No, sir, but he was a part of
14 the Chicago District Council.
15 THE INDEPENDENT HEARING OFFICER: He's a
16 member of Local 2.
17 THE WITNESS: That's correct.
18 THE INDEPENDENT HEARING OFFICER: Business
19 Manager.
20 BY MR. THOMAS:
21 Q. Mr. O'Rourke, in recent years, let's say from
22 1997 forward, have you seen any evidence of contestable
23 actions at 1001 in the form of opposition slates of
24 candidates or dissent in the ranks against the Union's
25 leadership.
36
1 A. No, sir, I have not.
2 Q. How far back does the pattern of uncontested
3 elections go at 1001?
4 A. It's my understanding it goes back 20 or 25
5 years, back to the time of Joseph Spingola.
6 Q. Have you had experience, Mr. O'Rourke, in
7 interacting with representatives of Local 1001
8 concerning ongoing investigative needs.
9 A. Yes, sir.
10 Q. Could you comment please on the extent to
11 which Local 1001 has cooperated with your investigative
12 efforts.
13 MR. LYDON: I object and ask that this be
14 more particularized. I mean this question is pretty
15 vague.
16 THE INDEPENDENT HEARING OFFICER: Give me
17 some idea what we're talking about. Mr. O'Rourke has
18 been in this business and working on this general
19 subject of Laborers in Chicago for some time, and as
20 the witness testified many times. So I think Mr.
21 Lydon's point is well taken. Particularize this issue.
22 MR. THOMAS: Okay.
23 THE INDEPENDENT HEARING OFFICER: What do you
24 mean by cooperation? Did they welcome him? Did they
25 hide the books? Or they talk to him --
37
1 MR. THOMAS: I'll try to break it down.
2 MR. FARACI: Can we go off the record for a
3 couple seconds here?
4 THE INDEPENDENT HEARING OFFICER: Yeah.
5 MR. FARACI: I would like to have a little
6 conversation and then we can discuss where he's going
7 with this.
8 MR. THOMAS: The floor is yours.
9 MR. FARACI: Can we have a little discussion
10 about it?
11 THE INDEPENDENT HEARING OFFICER: Mr. Lydon,
12 what do you say?
13 MR. LYDON: Fine.
14 MR. THOMAS: We're off the record.
15 (Whereupon a discussion was had
16 off the record after which the
17 following proceedings were had:)
18 THE INDEPENDENT HEARING OFFICER: Let's go on
19 the record.
20 MR. FARACI: Over the last couple of days I
21 have received a couple of different letters from Mr.
22 Luskin with regards to whether or not individuals from
23 the Local were fully cooperating. All along my advice
24 has been to the members of Local 1001 and employees
25 that they're to cooperate with anyone, and that if they
38
1 needed to be presented for interviews, we would present
2 them for interviews as officers and employees of the
3 Local. I think that's where he's trying to go with
4 this, that they weren't cooperating, and going to talk
5 about different advice that I may have given them to
6 not cooperate. I don't know.
7 MR. THOMAS: I'm not going to get necessarily
8 into Mr. Faraci's advice. But if Mr. Faraci is going
9 to tell you that he's been advising these people to
10 cooperate with investigators, then there's a real
11 serious miscommunication here, because the record is
12 that all the people who are on my witness list who I
13 want to appear tomorrow were -- I asked the
14 investigators to A, deliver subpoenas, and B, ask them
15 substantive questions prior to their testimony about
16 this. To a man they said, "On the advice of our
17 attorney we refuse to talk to you." To a person they
18 said that. That is not cooperation.
19 There is in fact an exchange of letters
20 between Bob Luskin and Peter Faraci. Mr. Faraci says
21 to Mr. O'Rourke, "Please don't talk to any of these
22 people without going through me first." Mr. Luskin
23 then sends a letter saying, "Sorry, Mr. Faraci, you
24 don't represent them individually, you represent the
25 Local, and there is an affirmative duty to cooperate.
39
1 You can't give them this advice."
2 I don't necessarily need to bring Mr. Faraci
3 into the record through Mr. O'Rourke's testimony, but
4 if the Local is going to say that they're cooperating
5 and that they're trying in good faith to eradicate
6 organized crime, there would be no reason to withhold
7 documents or refuse to accept subpoenas or refuse to be
8 interviewed by the Inspector General when in fact there
9 is a specified express duty for them to cooperate in
10 the EDP.
11 MR. FARACI: If I could be addressed. The
12 letter he's making reference to from Mr. Luskin was
13 sent to my office yesterday when we were in these
14 proceedings, the most recent one. And I think it's
15 also important to note that we've -- there's been an
16 ongoing investigation of Local 1001 for six or seven
17 years. From the beginning when Judge Leighton and I
18 got involved in this matter, we have cooperated
19 completely with the Inspector General's Office in
20 providing documents. Had anyone needed -- had they
21 wanted to take the deposition of any of these
22 individuals or interview them, we've been clear in the
23 past, "Just give us a call and we'll set that up."
24 THE INDEPENDENT HEARING OFFICER: I think we
25 might be getting distracted here, gentlemen. As far
40
1 back as these investigations have gone, I remember a
2 very fine lawyer, Sherman Carmel, represented the
3 Unions, and I think Sherman sometimes -- I think
4 Sherman may have had the same rule, "You want to talk
5 to them, I want to be there," or something like that.
6 MR. THOMAS: But that's not proper. It may
7 have been his position. It's not proper.
8 THE INDEPENDENT HEARING OFFICER: And I don't
9 know what to say about the position of advocacy here
10 and what the attorneys are allowed to do. I think we
11 can make too much of this. The evidence as it is, and
12 if they're coming in and turning books over to you or
13 their lawyer wants to be with them, I don't make too
14 much of that. I don't make too much --
15 MR. THOMAS: What the lawyer says and what
16 the witnesses say are two different things, very
17 different things. And we'll -- some of these people
18 are going to be on the stand tomorrow and we can get
19 into it. And I can also call Mr. O'Rourke and Mr.
20 Scigalski who can talk about what these people have said
21 to them recently and over the years, which is highly
22 indicative of lack of cooperation.
23 THE INDEPENDENT HEARING OFFICER: I don't
24 want to get too far off the track of this. By their
25 nature it's sort of us against them usually, and
41
1 there's some reluctance of -- I'm looking for what this
2 means. You have a bunch of fellows you represent here
3 who are getting pensions and supposedly they don't have
4 jobs, or there's some allegations to that effect, and
5 what their real jobs are is the question. I think we
6 can get -- I know your position about whether or not
7 their cooperation or dragging their feet and so forth.
8 But I realize there's a duty to cooperate under EDP,
9 you're supposed to come in and so forth. And if it
10 turned on that I would be glad to hear it. I don't
11 want to make too much of this. Gentlemen, I'm not
12 moved either way as to what's going on.
13 MR. THOMAS: I do understand with respect to
14 Trusteeship proceedings there's perhaps a different
15 standard, but the sole point I'm trying to make here is
16 that to the extent that the Union is saying that, "Well
17 if we were ever Mobbed up in the past we're not Mobbed
18 up now. We've turned a new leaf. We're getting rid of
19 the bad guys," et cetera, et cetera. There's a lot of
20 behavior that is inconsistent with that.
21 THE INDEPENDENT HEARING OFFICER: And some of
22 that may be lawyering and --
23 MR. LYDON: In light of the charges I think
24 it is lawyering. When you look at what's going on here
25 at the moment and the accusations that are made, I mean
42
1 seeking the advice of a lawyer almost seems to be the
2 prudent thing to do.
3 MR. THOMAS: Mr. Lydon doesn't know the
4 facts. And I appreciate your position, but the
5 evidence of what Mr. Faraci is saying and the evidence
6 that these agents would put on is distinctly different.
7 MR. FARACI: It's not different in the sense
8 that these people are all members of the Local. They
9 are all officers of the Local or employees of the
10 Local. And with that regard they're entitled to have
11 counsel and to talk with us. In the past it's been the
12 procedure. And I think Mr. O'Rourke could also say,
13 "This only happened a day or two ago when these took
14 place." But I think it's not even the proper time to
15 bring these up. If these were things that you're
16 talking about bringing allegations against these
17 individuals for individual charges, that would be at
18 another time and another place.
19 MR. THOMAS: And it may be. And Mr. Luskin
20 has asked me, you know, very clearly to make it known
21 that this could be the grounds for discipline. In
22 fact, that's part of what his letter to Mr. Faraci
23 said. But for purpose of Trusteeship the limited point
24 I'm trying to make is that to the extent that the Local
25 is making the claim that there's no evidence of recent
43
1 Mob activity or recent Mob control, the refusal to talk
2 to investigators across the board -- and these are not
3 people who are saying, "I would like to talk to my
4 attorney." These are people saying, "I will not talk
5 to you on the advice of my attorney."
6 THE INDEPENDENT HEARING OFFICER: The
7 attorney being Mr. Faraci.
8 MR. THOMAS: Mr. Faraci. And that's not what
9 Mr. Faraci is saying he's advised them.
10 THE INDEPENDENT HEARING OFFICER: Here's what
11 I don't want to get into. And sometimes we run into
12 this when we have -- when there's a corporation. The
13 corporate counsel say "We can't talk to my -- ten
14 thousand of my workers," but they gather them up and
15 say, "You don't represent them all." And then there's
16 some question whether you can or cannot and whether
17 somebody should have given them separate counsel.
18 In this particular situation here I don't
19 think we have to get into that, and I'm not going to be
20 moved one way or another about are they turning records
21 over, are they dragging their feet at this point
22 because you could have some substantive issues here,
23 and there's some things that we have to deal with to
24 meet head on. If there's any -- there may be -- there
25 is no reflection on Mr. Faraci, but if he's acting as a
44
1 lawyer or is doing -- I don't want to have to rule on
2 that right now.
3 MR. THOMAS: I'm not asking you to rule.
4 THE INDEPENDENT HEARING OFFICER: I'm going
5 -- if I have to I will, and those are some dicey
6 issues. You've been in corporations investigations
7 where that comes up often. So -- I'm referring to Mr.
8 Lydon.
9 MR. THOMAS: Well --
10 THE INDEPENDENT HEARING OFFICER: So my
11 ruling is -- tell me what you want to say. Just give
12 me an offer of proof.
13 MR. THOMAS: My offer of proof -- well, let
14 me back up.
15 The statement that I'm conveying specifically
16 on behalf of Mr. Luskin, which is embodied in his
17 letter, is that the GEB Attorney is not going to accept
18 the representations that it is acceptable for attorneys
19 for individual recipients of subpoenas to refuse to
20 talk to investigators whether -- you know, if the
21 Local's attorney -- even if you take Mr. Faraci at his
22 word that he's merely saying, "Come through me first,"
23 that's not what the witnesses say. But even if you do
24 take that position, the investigators have a right to
25 talk to Union members when they're doing their
45
1 investigations, and that's the principle that we want
2 to articulate. In terms of the relevance of this point
3 to this particular proceeding --
4 THE INDEPENDENT HEARING OFFICER: This
5 particular witness too.
6 MR. THOMAS: -- it is limited to the notion
7 that nothing has changed here. That if the Local is
8 saying that, "We've turned over a new leaf since Mr.
9 Caruso's been gone, there would be no reason for them
10 to refuse to talk to investigators, refuse to cooperate
11 with the investigation. We've had people who literally
12 would put their hands behind their back when subpoenas
13 were being delivered because they wouldn't touch it and
14 so forth.
15 THE INDEPENDENT HEARING OFFICER: All right.
16 I can see where this could lead us. It could lead us
17 for hours on discussion on an evidentiary point that's
18 not going to tip the scale here. So I would suggest --
19 I have your offer of proof. I'm declining, just as a
20 matter of organizational and discretion, that I don't
21 need to hear it, especially with the wrong witness. If
22 you want to make a big thing of it, you've got to make
23 sort of a big presentation. And Mr. O'Rourke here is
24 just testifying that he's talked to -- he went to talk
25 to some people. They weren't interested to talk to
46
1 him.
2 MR. THOMAS: That's fine. I think to the
3 extent that I need to get into this point at all, these
4 people are going to be on the stand tomorrow, so we'll
5 have a chance to --
6 THE INDEPENDENT HEARING OFFICER: Gentlemen,
7 how long I've been doing this with Unions. Generally
8 if you go into the Union Hall and if you look -- even
9 look or smell like you're from the government,
10 everybody runs out the door. Nobody wants to talk to
11 you. They hide under the table or whatever. I know
12 that it's sort of us against them. It's not good, but
13 it's a philosophy. If we have to particularize it and
14 show us purpose for, so forth, you can, but I don't
15 think we need to do it here, okay?
16 MR. THOMAS: I understand you and I'm
17 certainly willing to abide by that. And I want to be
18 fair to the Local and say that, you know, to the extent
19 that this persists, this -- Mr. Luskin has written them
20 a letter saying this could be grounds for individual
21 disciplinary cases.
22 THE INDEPENDENT HEARING OFFICER: There is an
23 issue as to who can -- who should represent individuals
24 and can be the counsel for the Union, represent the
25 individuals, and what sort of advice that counsel can
47
1 give them, and you can get into some dicey areas there,
2 but I don't think we need to do that here.
3 MR. THOMAS: Let me check my notes. I think
4 we're done.
5 BY MR. THOMAS:
6 Q. Mr. O'Rourke, is there anything else you
7 wanted to add to your testimony?
8 MR. LYDON: I object to that. I don't know
9 what that means. I would like a more definite
10 question.
11 THE INDEPENDENT HEARING OFFICER: Mr.
12 O'Rourke, I have a question to ask you. How many of
13 these individuals who are subjects, how many of them
14 were described by -- what's the lawyer who flipped,
15 what's his name?
16 THE WITNESS: Cooley.
17 THE INDEPENDENT HEARING OFFICER: Cooley.
18 Did Cooley describe any of them -- I think you said one
19 or two.
20 THE WITNESS: Yes, I believe.
21 THE INDEPENDENT HEARING OFFICER: I heard
22 once I think.
23 THE WITNESS: Yeah, I believe it's just one.
24 THE INDEPENDENT HEARING OFFICER: Okay.
25 That's all. Thank you.
48
1 MR. THOMAS: Nothing further.
2 THE INDEPENDENT HEARING OFFICER: Now I
3 understand, Matt, you're going to cross examine him at
4 a later time.
5 (Witness excused.)
6 MR. LYDON: Yes, sir.
7 MR. THOMAS: Mr. Vaira, this would be a good
8 time to take a break. We have Mr. Levinson on deck.
9 He's in San Diego. He's going to testify by phone. It
10 may make -- he's expecting our call at 11:00 Chicago
11 time.
12 THE INDEPENDENT HEARING OFFICER: It's 7:30
13 out there now.
14 MR. THOMAS: So he's expecting our call in a
15 half hour, but we could call him and tell him we're
16 ready sooner. I think if we could have fifteen minutes
17 now that would be helpful.
18 THE INDEPENDENT HEARING OFFICER: Absolutely.
19 (Whereupon a break was taken
20 in the proceedings after which
21 the following proceedings were
22 had:)
23 THE INDEPENDENT HEARING OFFICER: Good
24 morning, Mr. Levinson. Mr. Levinson, you're coming in
25 here over a speaker box, and logistically I think the
49
1 lawyers are going to have to crowd around the speaker
2 box like it's the old radios in the 1920's. Everybody
3 sat around and listened to the Lone Ranger.
4 So you are being called by Mr. Robert Thomas,
5 the GEB Attorney, who I'm sure you're familiar with.
6 Let me tell you who the attorneys in the room
7 are. Representing Local 1001 is Matt Lydon, from
8 Winston & Strawn, and Mr. Sam Mendenhall from the same
9 firm, and Peter Faraci from his own firm Faraci &
10 Faraci. And you have me and my associate Kathy Nagle,
11 and you spoke to Mr. Maria who is assisting Mr. Thomas.
12 So I'm going to turn it over to Mr. Thomas -- and
13 there's some members of the Union in the audience.
14 Okay? So it's a public hearing.
15 So Mr. Thomas, you come over here. We're
16 going to end up sitting all around here I think with
17 our chairs.
18 Since you are not here in person, we can't
19 have the court reporter swear you in. The GEB Attorney
20 will send you the transcript and we'll ask you to have
21 a notary to notarize it and verify it, okay?
22 THE WITNESS: Yes.
23 THE INDEPENDENT HEARING OFFICER: So keep
24 that in mind.
25 I have a group of lawyers here all standing
50
1 around with their tablets in their hand here. And
2 gentlemen, you might as well get a chair. No use
3 standing around here.
5 called as a witness on behalf of the Petitioner, was
6 examined and testified as follows:
7 DIRECT EXAMINATION
8 BY
9 MR. THOMAS:
10 Q. Mr. Levinson, this is Bob Thomas. How are
11 you?
12 A. Very good.
13 Q. For purposes of this testimony, even though
14 the court reporter hasn't administered an oath, we will
15 assume that you will be given the oath at the end of
16 the testimony. So let me advise you that you should
17 treat this with the same amount of seriousness as if
18 you were in the room and having been just given an
19 oath, okay?
20 A. Yes.
21 Q. Mr. Levinson, how are you employed?
22 A. I am the principal partner of the firm of
24 Q. How long have you been the principal of that
25 firm?
51
1 A. It was about 14 years ago. Before that there
2 was a successor firm.
3 Q. What is your field?
4 A. Accounting. I'm a certified public
5 accountant.
6 THE INDEPENDENT HEARING OFFICER: You're a
7 certified public accountant?
8 THE WITNESS: Yes, I am.
9 THE INDEPENDENT HEARING OFFICER: And you're
10 licensed in Illinois?
11 THE WITNESS: Yes, I am.
12 BY MR. THOMAS:
13 Q. Prior to your forming that firm, what other
14 companies or firms did you work for?
15 A. I was a partner with Kupferberg, Goldberg,
16 and Mimon for one year.
17 Q. You may have to spell that for the court
18 reporter.
19 A. They call it KGM.
20 Q. And let's go back to -- when did you complete
21 college?
22 A. I completed college in 1966.
23 Q. And did you get any advanced degrees?
24 A. Yes. I have an MBA from the University of
25 Chicago in 1980.
52
1 Q. An MBA from the University of Chicago.
2 A. Concentrating in finance, yes.
3 Q. And how about with respect to your accounting
4 credentials.
5 A. My accounting credentials, I have been an IRS
6 Agent, and for the last almost 30 years I have been in
7 accounting. Of those about 25 of them have been as a
8 principal or a sole proprietor.
9 THE INDEPENDENT HEARING OFFICER: A Special
10 Agent -- this is Mr. Vaira. Special Agent or Revenue
11 Agent.
12 THE WITNESS: I was a Revenue Agent. That
13 was in the late 1960's.
14 BY MR. THOMAS:
15 Q. When did you get your CPA license?
16 A. In 1971.
17 Q. Focusing on the last, I think you said, 14
18 years when you've been with this firm.
19 A. Yes.
20 Q. Generally speaking, what types of clients
21 employ your firm?
22 A. About 80 per cent of our clients are related
23 to the Taft-Hartley field. They would be Labor Unions
24 and organizations, usually collectively bargained, that
25 are set up by the Unions and the contractors. And they
53
1 may include Welfare Funds, Pension Funds,
2 Apprenticeship Funds, LMCC's, Vacation Funds, ERISA
3 Funds and non-ERISA Funds related to Labor Unions.
4 Q. And has that 80 per cent ratio been
5 approximately the balance from the inception of your
6 firm?
7 A. Yes.
8 Q. So to what extent do you have to familiarize
9 yourself with the legal landscape governing these Funds
10 and these Taft-Hartley entities.
11 A. To the extent I chose to -- actually I'm in
12 the field and I have to be fully aware -- I'm not an
13 attorney, but I have to be fully aware of the laws
14 relating to the field totally, and I could do that in
15 working in a very narrow area and I've chosen that
16 narrow area to practice.
17 Q. When you are asked by a Pension Fund, let's
18 say, to do an audit of an entity that you -- turns out
19 you already represent or have already done auditing
20 work for, what is your standard practice of how you
21 handle that?
22 A. As a standard practice I have a series of
23 people and a series of work programs that are kept to
24 and adhered to. It's somewhat different per groups of
25 Funds that I may handle, but within a group of Funds we
54
1 follow certain directions, and those directions are
2 provided to us by the Administrator for the Trustees.
3 Q. Well I guess before you get to those details,
4 do you notify the prospective client that you've done
5 auditing work for the entity that's to be looked at?
6 A. I'm not sure what you mean by that, but it --
7 maybe if I just told you the way it works. We are
8 provided the, usually contractors, the signatory to
9 perform the audit, and our procedure then is to contact
10 the signatory entity to let them know they're being
11 audited.
12 Q. Suppose that signatory entity that you're
13 going to audit is one that you've just done an audit
14 for.
15 A. You mean a certified audit?
16 Q. Yes.
17 A. As opposed to a payroll audit.
18 Q. What I'm getting at is the potential conflict
19 situation. Are there circumstances where you notify
20 the client that's hiring you to do an audit that you
21 may have a conflict?
22 A. Immediately I would do that in all cases.
23 THE INDEPENDENT HEARING OFFICER: Mr.
24 Levinson, the facts and situations would be like this:
25 Local 8 of the Plumbers' Union, you have just audited a
55
1 certified audit, and then along comes the District
2 Council of the Plumbers' Union and wants you to do an
3 additional audit of that particular Union. Do you have
4 -- you probably have a conflict doing an audit of a
5 client. What do you do with that?
6 THE WITNESS: Certainly if it isn't
7 disclosed, immediately I would disclose it. Let's say
8 I am the certified auditor. If you're hiring me for
9 something specific, you have to realize that I've
10 already performed a certified audit. Although a
11 certified audit allows me to be independent, I would
12 never -- I guess I could go further. I would never
13 have the same staff if it was known that I did both. I
14 would never have the same staff do the payroll audit.
15 BY MR. THOMAS:
16 Q. Mr. Levinson, directing your attention to the
17 summer of 2002.
18 A. Yes.
19 Q. Were you approached by the Laborers' Pension
20 and Welfare Fund here in Chicago to undertake any
21 assignments?
22 A. Our firm was, yes.
23 Q. What was the assignment?
24 A. The assignment was to audit 1001 for the
25 period beginning, I believe, in May of '02.
56
1 Q. For the period beginning May of '02?
2 A. Excuse me. I don't know if I remember all
3 the dates because I don't have the file here in front
4 of me.
5 Q. Understood. As you -- I'm jumping ahead a
6 little bit. But did this project take on several
7 different phases?
8 A. By the way, it was May of '02. Yes, it did.
9 It did take on several different phases.
10 Q. So the initial was more limited and then it
11 grew from there?
12 A. Yes.
13 Q. Okay. We're going to go through the paper
14 with your colleague who will be here in person, so I'm
15 not going to try to do all the exhibits with you on the
16 other end of the phone line. But let me ask you to put
17 in your own words what the initial assignment, as you
18 understood it, was.
19 A. The initial assignment was to examine the
20 previous three years of records ending in May of '02 to
21 determine whether certain individuals who appear on the
22 reports also appeared in the payroll of the Union.
23 Q. All right. So in other words, compare the
24 Pension records to the Union's payroll records?
25 A. Yeah. Not just the Pension records, to the
57
1 Union's payroll records to determine whether there was
2 proper reporting, yes.
3 Q. And what information, if any, did the client,
4 the Pension and Welfare Fund, give you about the nature
5 of their concerns?
6 A. They indicated there may be an individual or
7 more who were contributed upon who may not appear on
8 the payroll of the Local.
9 Q. And as a CPA having practiced in this field
10 for a number of years, does that hypothetical fact
11 pattern raise any -- would that raise any concerns? In
12 other words, if there's someone who doesn't appear on
13 the payroll records but who -- where the employer has
14 made contributions to the Funds, does that raise any
15 issues?
16 A. Yes.
17 Q. Could you explain?
18 A. The issues would be the contract itself and
19 the ERISA law, as I've learned it over the years, that
20 the contract assigns how contributions are to be made
21 and on what basis. And if -- as in the Laborers', the
22 basis is hours worked and paid, then any contributions
23 made for hours that were not worked and paid should not
24 be contributed upon.
25 Q. Okay. And hours worked and paid could be two
58
1 different things, right?
2 A. Yes.
3 Q. But it has to be one or the other or both?
4 A. Again we have to look exactly at the
5 contract, but my -- the contract and all contracts that
6 I've seen, not just that are -- that if someone is not
7 paid, then contributions can't be made on their behalf
8 unless they work the hours.
9 Q. So what did you do when you got this initial
10 assignment?
11 A. It was done through the procedures that our
12 firm normally does. We have an individual whose sole
13 job it is to facilitate the scheduling and the tracking
14 of the audit itself.
15 Q. Who did you assign that to?
16 A. The person who does that is Judy Arvey,
17 A-r-v-e-y, who works in my firm. Her job is to
18 facilitate our clients and the audits that we're doing.
19 Q. Okay. Who actually did the audit work?
20 A. The audit was done by Marie Smith.
21 Q. Under your direction and supervision?
22 A. At all times.
23 Q. Okay. So in terms of the actual looking at
24 the paper, was that you or Miss Smith?
25 A. Miss Smith.
59
1 Q. Okay. What's your understanding of what she
2 looked at at Local 1001?
3 A. The previous three years worth of payroll and
4 the other records the Union provided.
5 Q. And what did she compare those to?
6 A. To the actual filing and paying of reports
7 through the Benefit Funds.
8 Q. Again we're going to go through the paper in
9 some detail with Miss Smith, but what did she report to
10 you her preliminary findings to be?
11 A. She called me actually from the job at the
12 time and said that she's finding certain individuals
13 who are not -- who are on the report but who are not
14 included in the payroll, and she also indicated that
15 reporting -- the actual reporting itself was not
16 according to the plan.
17 Q. And what did you understand her to mean when
18 she said the actual reporting was not according to the
19 plan?
20 A. People were being -- contributions were being
21 made on fewer hours than had actually been worked and
22 paid by certain secretaries and other Union officials.
23 Q. So I want to make sure I understand that.
24 The preliminary call from Miss Smith identified two
25 separate types of problems?
60
1 A. Exactly.
2 Q. Again let's just be clear what the two
3 different problems were.
4 A. One of the problems was people who were being
5 paid on who did not appear on the payroll or in any
6 other disbursement area -- in any of the disbursements
7 at all. In the other areas those people who were
8 working, those secretaries and Union officials, who
9 should have been paid based on a participation
10 agreement of 40 hours per week, but they were not.
11 They were paid at 30 or 32 for secretaries, and in the
12 case of officials, they were paid at 160 hours a month
13 which is less than 40 hours per week.
14 Q. What did you do with this information when
15 Miss Smith called you with it?
16 A. I asked her to come into the office. We
17 summarized it and put it into the form of a report --
18 two reports actually, one report indicating names of
19 individuals who were never on the payroll but who were
20 included in filed reports, and the second report which
21 indicated what hours were due based on the actual
22 agreement on how payments should be made for
23 participants.
24 Q. And that was in letter form?
25 A. Yes, it was. In a report form actually. It
61
1 was in a -- one was in a letter form and one was in a
2 report form.
3 Q. Did you send that to Mr. Jorgensen?
4 A. We sent it to the Benefit Funds, yes.
5 Q. As a result of that preliminary report, did
6 the Funds ask you to undertake any additional work?
7 A. Yes. They asked us to extend the audit
8 period back for a full ten years. So that's seven
9 years in addition to the original three.
10 Q. So the first one was 2002 back to 1999?
11 A. That's correct.
12 Q. And then this was 2002 back to '92?
13 A. That is correct.
14 Q. All right. And let's go through the same
15 series of questions with respect to the second round.
16 Did you delegate that to Miss Smith?
17 A. Yes.
18 Q. And to the extent that she was under your
19 supervision, what did you understand her to do at that
20 point?
21 A. Again there was some difficulty. It took
22 quite a period of time. I don't believe it was -- it
23 took several months, but we did contact the Union and
24 they provided us with information that we needed going
25 back. It took them awhile to get it understandably.
62
1 Q. And this was -- so this would have been later
2 in 2002?
3 A. Correct. I believe -- again, memory is
4 difficult, but it was in September or October, I
5 believe, that we finished the audit.
6 Q. What did -- did Miss Smith relate to you her
7 findings?
8 A. Yes. And I made sure she would contact me
9 during the audit. And it was similar to the findings
10 we had found for the three -- first three year period
11 that similar people were appearing. Other people
12 appeared who did not appear on the payroll but did
13 appear in the reports. And again reporting of the
14 hours was not accurate.
15 Q. And were there -- were they the same names or
16 more names?
17 A. More names and the same names.
18 Q. At that point did your firm make a
19 supplemental report to the Funds?
20 A. We did contact the Funds and we were
21 instructed to go back to 1963.
22 Q. When the Funds were first established?
23 A. Right. And that took several more months.
24 Q. So if I'm understanding you correctly, that
25 was a third phase?
63
1 A. That was a third phase. Sometime in early --
2 in the first quarter of 2003 that was completed.
3 Q. Okay. So the work from the fall of 2002 to
4 the spring of 2003 was to take it even further back
5 from 1992 to 1963?
6 A. Right. And there were actually three
7 separate reports issued each updating the previous.
8 Q. Okay. Now with respect to the two different
9 problems, the issue of contributions made for people
10 who may not have had compensation or hours worked,
11 that's the Local's money that's going to the Funds and
12 either staying there or being paid out in different
13 ways, right? Am I describing --
14 A. I think I can describe it as the Local -- the
15 Local paying for benefits it did not -- for individuals
16 who did not appear on their payroll.
17 Q. And the money then stays with the Funds until
18 someone makes a claim on it, right?
19 A. Yes, that's correct.
20 Q. Either a Pension Benefit claim or Health
21 Insurance claim, right?
22 A. That is correct.
23 Q. Okay. With respect to the underreporting of
24 the individuals identified, in that instance is there
25 an impact on the Local and the Funds' financial
64
1 position as a result of the underreporting?
2 A. Yes. The impact of the Union is that they
3 have not paid their full obligations and liabilities.
4 The impact on the Benefit Funds, depending on when it
5 takes -- I'll go back. Most Benefit Funds, especially
6 Welfare Funds, have a minimum number of hours that
7 would make an individual eligible to be covered for
8 their health insurance. If you report the minimum
9 hours, you're still covered. That's meant so that
10 everybody who is in the Fund can get the most benefits.
11 Some people will be overpaying. Some people will be
12 underpaying. That is why they create the minimum hours
13 to be paid in an under participation agreement so that
14 the full cost of the benefit is actually being covered
15 by -- by reporting the minimum hours you're not
16 necessarily paying the full cost of the benefit.
17 MR. MENDENHALL: Mr. Vaira, I have an
18 objection to that last line of questioning in that Mr.
19 Jorgensen from the Fund was here yesterday to testify.
20 I don't understand. This witness -- no foundation has
21 been laid that he's qualified to testify about the
22 harm to the Fund when Mr. Jorgensen was here yesterday
23 and could have specifically addressed this issue.
24 THE INDEPENDENT HEARING OFFICER: Denied. Go
25 ahead.
65
1 BY MR. THOMAS:
2 Q. So I just want to make sure I understand that
3 answer, Mr. Levinson. If there's an employee who's
4 worked 40 hours but the Union is reporting 30, which is
5 still sufficient to be eligible for pension, is the
6 Union still in a position then to -- or under that fact
7 pattern would the Union be paying less to the Funds as
8 a result of the ten hour discrepancy?
9 MR. MENDENHALL: Let me just enter a
10 continuing objection.
11 THE INDEPENDENT HEARING OFFICER: Okay.
12 MR. THOMAS: You're cross examining, aren't
13 you?
14 MR. FARACI: Go on. Proceed.
15 BY MR. THOMAS:
16 Q. Did you hear that, Mr. Levinson?
17 A. I heard it. Please ask me the question
18 again.
19 Q. I just want to make sure I understand this.
20 If the nature of the underreporting problem was instead
21 of 40 hours, 30 hours was reported per week, or instead
22 of 160 per month, 120 was reported per month, if I
23 understood you correctly, that person would still be
24 eligible. They would have the minimum number of hours
25 to get some pension benefits, right?
66
1 A. Yes, that's true.
2 Q. But what would the actual savings to the
3 Local that would result from that be? Is it the ten
4 hour differential?
5 A. Absolutely, yes. Correct.
6 Q. Okay. As a result of that fact pattern did
7 your firm undertake any efforts to ascertain the
8 specific dollar amount that the Local owed the Funds?
9 A. Yes.
10 Q. And again, you don't have the paperwork in
11 front of you, but do you have a sense of how much money
12 that was?
13 A. Well for the first audit it was just under
14 $40,000. By the time the audits were completed it was
15 in excess of $80,000. Now that includes all Funds, not
16 just the Pension Fund.
17 Q. Pension and Welfare and other --
18 A. And other including -- there were other
19 Funds, yes.
20 Q. Was -- did anyone, either your firm or the
21 Funds, contact Local 1001 to notify them of this
22 underpayment?
23 A. During the audit period we do try to discuss
24 it with the people who are work -- we were working
25 with. The actual reporting goes directly to the Funds
67
1 who hire us, and it is their job to pass it on.
2 Q. So your firm was not involved in the actual
3 collection of any money from 1001?
4 A. We do not do that.
5 Q. Okay. Mr. Levinson, in connection with these
6 audits and also in connection with your preparation for
7 testifying, did you have occasion to look at Thomas
8 Havey's work product from November of 1998? What I'll
9 describe as the --
10 A. This is their report. I have seen the
11 report.
12 Q. And let me represent to you that the report,
13 which is in evidence here, indicates that they looked
14 at a period from 1994 to 1998 comparing payroll records
15 to remittance reports and indicated no discrepencies.
16 Do you recall that?
17 A. Yes, I do.
18 Q. As a CPA whose firm did audit work covering
19 that period in question, do you have an opinion as to
20 the -- well I'm trying to find a neutral word. An
21 opinion as to the Havey firm's work?
22 MR. FARACI: I object.
23 THE INDEPENDENT HEARING OFFICER: Let me
24 intercede myself here. I don't think this is a case of
25 trying to determine the malpractice of Havey. Whatever
68
1 the facts are the facts are. Aren't we trying to find
2 out what the Local did? And if Havey maybe didn't do
3 the best job, how does that figure in here?
4 MR. THOMAS: Well, let me ask a different
5 question without giving you a long-winded explanation
6 of what the connection may be with the witness on the
7 phone.
8 THE INDEPENDENT HEARING OFFICER: Because we
9 all know that Havey missed it, all right? And whatever
10 the cause of it was the cause of it. It's not going to
11 affect us unless somebody tells me something different
12 here. The issue is what is going on at the Fund and
13 what is the cause of it and what was the intent of the
14 Fund to do this. But to determine -- to go through the
15 accounting niceties as to what the Havey firm should
16 have done and what lead to it, I don't think we have to
17 go into that unless -- you have -- you may address
18 that, but I don't think so.
19 MR. FARACI: If I could just add one thing
20 real quick.
21 THE INDEPENDENT HEARING OFFICER: Don't tell
22 me I've ruled right, okay?
23 MR. FARACI: They did present a document that
24 showed that the Havey firm sent a letter at some point
25 with regards to this --
69
1 THE INDEPENDENT HEARING OFFICER: I don't
2 particularly care what they did. The Havey firm did
3 whatever they did, and if you guys want to go sue them
4 for malpractice, that's up to you.
5 MR. THOMAS: Just to be clear. We're never
6 going to agree on that correspondence if what you're
7 saying is that was sent in --
8 MR. FARACI: I'm just saying it's in the
9 record. You introduced it --
10 THE INDEPENDENT HEARING OFFICER: Let's move
11 forward.
12 MR. FARACI: -- with a date on it.
13 THE INDEPENDENT HEARING OFFICER: Gentlemen,
14 let's move forward. Ask your next question.
15 MR. THOMAS: I will.
16 BY MR. THOMAS:
17 Q. Mr. Levinson, the letter from Thomas Havey
18 indicated that they had actually looked at payroll
19 records and compared them to remittance reports. Based
20 on your firm's work and the reports from Miss Smith, do
21 you believe that Havey actually looked at that payroll?
22 MR. FARACI: Objection again.
23 MR. LYDON: No basis.
24 THE INDEPENDENT HEARING OFFICER: Let me hear
25 the question.
70
1 MR. THOMAS: I'm asking him based on the work
2 that his firm did, comparing payroll records to
3 remittance reports, which is the exact same thing
4 that Havey was asked to do, does he believe that Havey
5 actually did that work or not. In other words, did
6 they do it and make a mistake or did they not do it.
7 Does he have a view --
8 MR. LYDON: Unless he were able to say that
9 he saw exactly what Havey saw, he couldn't render an
10 opinion.
11 THE INDEPENDENT HEARING OFFICER: I have
12 trouble going into this because unless you are making
13 some sort of allegation that there's something --
14 somebody at the Union was slipping them something or
15 causing it to happen, unless you have that, I'm --
16 we're going to leave this subject.
17 MR. THOMAS: I guess my only response -- I
18 would be happy to move on. My response would be, there
19 are plenty inferences for a finder of fact to make on
20 this fact pattern.
21 THE INDEPENDENT HEARING OFFICER: I can make
22 them, if that's the case, on what we have already. I
23 don't think I need the opinion of Mr. Levinson. We can
24 pretty much understand what happened here. One outfit
25 did it and missed it, and the second outfit picked it
71
1 up. And whatever you can draw from that if it's
2 necessary.
3 MR. THOMAS: Understood.
4 BY MR. THOMAS:
5 Q. Mr. Levinson, the magnitude of this problem,
6 again, you don't have the numbers in front of you, but
7 is it -- what is your understanding of how much money
8 was paid into the Funds for these ineligible
9 participants over that 40 year period.
10 A. Rather than numbers -- I couldn't even tell
11 you. I don't know if we've even calculated it. But it
12 was in excess of 30 individuals who did not appear on
13 reports. At one time or another some would be reported
14 at some time and -- as being on the payroll and some
15 would not be reported and not be on the payroll. There
16 were in excess of 30 individuals. The numbers are
17 high, very large.
18 Q. In terms of the -- both the fiduciary
19 responsibilities at issue as well as the integrity of
20 the Funds, does this fact pattern raise any issues?
21 A. Can you repeat that again?
22 Q. What concerns, if any, does this fact pattern
23 raise for either the Local or for the Funds?
24 MR. FARACI: I'm going to object.
25 THE WITNESS: The Local has liability.
72
1 MR. FARACI: I'm objecting with regards to
2 his testifying with regards to fiduciary duties of the
3 Local. There has been no foundation whatsoever that he
4 can testify or that he's reviewed any of that.
5 THE INDEPENDENT HEARING OFFICER: Denied. He
6 can do that. Go ahead.
7 BY MR. THOMAS:
8 Q. Mr. Levinson, let's start with the Local.
9 Does the Local have any obligations here concerning the
10 accuracy of its reporting to the Funds and the accuracy
11 of the payments it makes?
12 A. Yes.
13 Q. And to what extent is it important that that
14 work be done properly?
15 A. The Local's no different than any other
16 contractor or someone who has an obligation to the
17 Fund.
18 Q. And why is it significant from the Fund's
19 perspective?
20 A. It's contractual.
21 Q. And what issues, if any, are raised by the
22 fact that in one instance the Fund may have received
23 money that it shouldn't have received and in another
24 instance the Fund may have not received all that it was
25 due.
73
1 A. Just as it says. They have obligations that
2 they wouldn't otherwise contractually have, and they
3 have contractual obligations to collect funds that have
4 not been collected. Those are federal laws.
5 Q. Is there any government oversight of a Fund
6 that would be triggered by this type of problem?
7 A. The laws -- the laws are ERISA laws, and
8 they're governed by the Department of Labor and
9 Internal Revenue Service.
10 Q. And would this -- are there circumstances
11 where either -- let me phrase it differently.
12 Are there circumstances where Funds run into
13 regulatory problems with the government because of this
14 type of issue?
15 A. Yes.
16 Q. Do you have personal experience with that?
17 A. Yes.
18 MR. THOMAS: Nothing else at this time, Mr.
19 Vaira.
20 THE INDEPENDENT HEARING OFFICER: Mr.
21 Levinson --
22 THE WITNESS: Who am I speaking with?
23 THE INDEPENDENT HEARING OFFICER: This is Mr.
24 Vaira, once again, appearing on the stage. Here is I
25 think Mr. Faraci.
74
1 MR. FARACI: Yes, if we could have about one
2 minute.
3 THE INDEPENDENT HEARING OFFICER: Mr. Faraci
4 will be talking to you in about one minute, sir.
5 THE WITNESS: Thank you very much.
6 (Whereupon a discussion was had
7 off the record after which the
8 following proceedings were had:)
9 MR. FARACI: We are ready when you were.
10 THE INDEPENDENT HEARING OFFICER: I'm ready
11 to go.
13 BY
14 MR. FARACI:
15 Q. Mr. Levinson, this is Peter Faraci. I
16 represent Local 1001.
17 A. Yes, sir.
18 Q. Okay. First off, Mr. Levinson, several times
19 Mr. Thomas had referenced that you have no documents in
20 front of you. Do you have in fact any documents in
21 front of you today or are you testifying just off your
22 memory?
23 A. From memory.
24 Q. Okay. Now earlier you had testified with
25 regards to these contributions not being proper, and
75
1 you mentioned contracts. At that point were you making
2 reference to Fund documents that may be reviewed?
3 A. I'm not sure what you mean by Fund documents.
4 Q. Let me ask you this question: Did you --
5 when you were performing your audit, you were retained
6 by the Fund to do specifically what?
7 A. To examine the payroll records to determine
8 accurate reporting.
9 Q. What did you do in performing this audit?
10 A. It was done by my staff. In general we will
11 review documents that are provided from the Benefit
12 Funds indicating what has been reported, and usually
13 there will be either a contract or some kind of
14 agreement between the Fund and the signatory, in this
15 case the Union.
16 Q. So the documents that you would be reviewing
17 would be documents provided to you from the Fund, am I
18 correct?
19 A. That is correct.
20 Q. And also you would be reviewing documents
21 provided to you from the employer which would be Local
22 1001.
23 A. When we perform the audit, that's correct.
24 Q. What documents did you review or were
25 provided to you from the Fund?
76
1 A. I think you would have to look -- I would
2 have to have the actual files here so that I wouldn't
3 be in error in indicating that.
4 Q. And who is in possession of that file?
5 A. Marie Smith is currently in possession of
6 that file.
7 Q. And he has your entire file?
8 A. It's a woman. Yes, she does.
9 Q. I'm sorry. She has your entire file.
10 A. Yes, she does.
11 Q. So she would be able to tell us what
12 documents your firm reviewed with regards to this
13 audit, correct?
14 A. Yes, that's correct.
15 Q. And she would also be able to tell us what
16 documents were provided to your firm from the Fund.
17 A. Yes, that's correct.
18 Q. Now you had mentioned earlier that in the
19 summer of 2002 you were retained to do this work for
20 the Fund. Had you ever performed any other work for
21 the Fund?
22 A. Yes.
23 Q. Can you tell us what work you had performed
24 in the past.
25 A. Payroll audit functions, several others. I
77
1 mean this was towards the beginning of our firm being
2 hired to perform audits, but we had performed other
3 payroll audits.
4 Q. Do you recall when you were retained by the
5 Fund to conduct any audits whatsoever?
6 A. I'm not sure what you mean.
7 Q. When was the first time you were retained by
8 the Fund to perform any work on their behalf?
9 A. Within -- it was sometime in 2002 I believe.
10 I don't have the exact dates, but we were hired last
11 year, and I would have to look at my files to determine
12 exactly when.
13 Q. Now have you performed any other similar
14 audits on any other Locals under the Fund, in
15 particular any Labor Locals, from the time you began
16 doing work for the Fund which would be in 2002 to the
17 present?
18 A. Can you rephrase that? I'm not sure what you
19 mean.
20 Q. From when you first began doing work --
21 A. Yes.
22 Q. -- for this particular Fund --
23 A. Yes.
24 Q. -- did they ask you to do any other work,
25 perform any other audits for any of the other Local
78
1 Unions that fall under that Fund.
2 A. I do work for the Fox Valley Laborers' which
3 -- but I have -- and I do believe that it's several
4 years ago, quite a few years ago we did do some work
5 for the Chicago Laborers' Benefit Funds, but we had not
6 done any for at least a five year period before we were
7 hired at this point.
8 Q. So that would have been five years earlier
9 you had performed work for this same Fund?
10 A. Yes. Yes, we had.
11 Q. And do you know how far back that work may
12 have gone?
13 A. No, I do not.
14 Q. Now you had also testified with regards to
15 certain fiduciary responsibilities. I believe you
16 talked in particular about fiduciary responsibilities
17 for the Local. Can you explain to us what the
18 fiduciary responsibilities would be for the Fund if
19 they had not conducted proper audits and uncovered this
20 material.
21 A. Their fiduciary personal liability is to
22 properly collect the benefits, pay the benefits and
23 operate the Funds and -- for the benefit of all
24 participants.
25 Q. Would that mean that if the Fund had missed
79
1 this, they had breached their fiduciary duty then?
2 MR. THOMAS: Objection. It assumes a fact
3 not in evidence. The Fund doesn't do the auditing.
4 The Fund hires a professional firm to do the audit.
5 BY MR. FARACI:
6 Q. Let me rephrase my question. If the Fund
7 hadn't hired an accounting firm to do the audit, would
8 they have breached their fiduciary responsibilities?
9 THE INDEPENDENT HEARING OFFICER: Let me
10 intercede here. This is Mr. Vaira. I'm not too sure
11 that he's in a position to answer. I'll let him answer
12 if he feels he's able to do that.
13 THE WITNESS: Could you rephrase the question
14 because I don't think I can answer it as you asked it.
15 BY MR. FARACI:
16 Q. If the Fund had not retained an accounting
17 firm to provide audits, which ultimately -- if the Fund
18 had not retained an accounting firm to do these audits,
19 would they be breaching their fiduciary duty?
20 A. My answer to this -- I'm sorry. I'm going to
21 have to go outside your question because it isn't a
22 proper question. The answer is the Fund does not have
23 to hire an accountant. The Fund can do it itself.
24 Q. So the Fund could also handle these audits
25 internally then.
80
1 A. Exactly. Yes, that is true.
2 Q. Now if the Fund did not hire an outside
3 accounting firm and also did not conduct any internal
4 audits on this -- on these Locals, would they then be
5 breaching their fiduciary responsibilities.
6 A. In my professional opinion the answer is yes.
7 Q. Thank you.
8 Now earlier you had also testified with
9 regards to contributions being made on behalf of
10 individuals who you said were not employees?
11 A. That do not appear on the payroll.
12 Q. Explain to me what you mean by "do not appear
13 on the payroll".
14 A. They were not paid a wage or they were not
15 paid any other -- by any other means such as an outside
16 contractor.
17 Q. And you've mentioned that you do -- you
18 represent many different Funds, correct?
19 A. Many different trades, yes. The Funds of
20 many different trades, yes.
21 Q. Have you ever encountered where you have an
22 employer not paying an employee salary, however, there
23 is a -- there is a deferred compensation that's paid to
24 them which would be in the form of pension
25 contributions.
81
1 MR. THOMAS: Objection to the term "deferred
2 compensation". That's not what we're dealing with
3 here.
4 BY MR. FARACI:
5 Q. Let's say contribution in lieu of payments
6 then.
7 THE INDEPENDENT HEARING OFFICER: Do you
8 understand that question?
9 THE WITNESS: I understand the question, and
10 I'll have to answer it the way it was asked. But the
11 answer to that is no, I have not.
12 BY MR. FARACI:
13 Q. So in your career you've never seen it where
14 someone would receive contributions in lieu of
15 payments.
16 A. That is not legal.
17 Q. What's not legal about it?
18 A. It's a violation of ERISA, as I understand
19 it, and the IRS rules as I understand them.
20 Q. And also you had mentioned that you have
21 knowledge of Havey & Associates, correct?
22 A. I do know the firm, yes, that's correct.
23 Q. And in the documents that were given to you,
24 you were informed that Havey & Associates did not --
25 let me rephrase that.
82
1 The documents that you received, if you know
2 this or maybe it would be Miss Marie who knows this,
3 was there any mention whatsoever in any of those
4 documents that your firm reviewed with regards to a
5 letter in 1999 sent to Mr. Jorgensen after they had
6 conducted their audit of 1998.
7 A. I never looked at their records. I looked at
8 a report. But I do not -- I did not see the letter you
9 just discussed.
10 MR. FARACI: Okay. No more.
11 MR. THOMAS: Just one.
12 REDIRECT EXAMINATION
13 BY
14 THE ATTORNEY:
15 Q. Mr. Levinson, in response to Mr. Faraci's
16 question you said, "It's not legal. It's a violation
17 of ERISA and the IRS rules." How is it a violation of
18 ERISA and the IRS rules?
19 A. It's -- any compensation that an individual
20 receives has to be subject to income taxes. And the
21 contract calls for work and contributions to be paid.
22 So the contract itself would have required wages to be
23 paid, and that I have seen in the past where it wasn't
24 -- where wages were not properly paid and therefore --
25 and also, since the individuals did not receive taxable
83
1 compensation, they have not properly reported the
2 information to the Internal Revenue Service on the
3 Union side and on the individual side.
4 Q. Just to make sure I'm understanding it. The
5 ERISA issue has to do with wages must be paid; is that
6 right?
7 A. ERISA issues is related to contributions for
8 work performed. IRS issue is a tax issue that you
9 cannot receive compensation that is in the form of
10 nontaxable benefits.
11 Q. And the work performed, how does ERISA
12 require that work performed be measured?
13 A. It's defined in the contract and/or in the
14 participation agreement which is what a Union official
15 would be under.
16 Q. Are you familiar with that in this instance?
17 A. Familiar -- it's the same in all Funds.
18 Q. Which is what?
19 A. That if there is a participation agreement,
20 the number of hours -- the proper reporting to the
21 Funds is based on earnings and hours worked.
22 Q. Earnings and hours worked.
23 A. Right.
24 MR. THOMAS: Thank you. Nothing further.
25 THE INDEPENDENT HEARING OFFICER: Thank you.
84
1 THE WITNESS: Thank you very much.
2 MR. FARACI: Thank you, Mr. Levinson.
3 (Witness excused.)
4 (Whereupon a break was taken in
5 the proceedings after which the
6 following proceedings were had:)
7 THE INDEPENDENT HEARING OFFICER: Okay.
8 We're ready to go?
9 MR. THOMAS: At this time we call Marie Smith
10 to the stand, who is already on the stand.
11 THE INDEPENDENT HEARING OFFICER: Miss Smith,
12 the court reporter will administer an oath.
13 (Witness duly sworn.)
14 MARIE SMITH,
15 called as a witness on behalf of the Petitioner, having
16 been first duly sworn, was examined and testified as
17 follows:
18 DIRECT EXAMINATION
19 BY
20 MR. THOMAS:
21 Q. Miss Smith, how are you employed?
22 A. I'm an auditor with Levinson, Simon & Sprung.
23 Q. How long have you been so employed?
24 A. For about five and three quarters years.
25 Q. Five and three quarters years?
85
1 A. Yes.
2 Q. Could you summarize for us your educational
3 background.
4 A. I have a couple of Associates from a
5 university. I have a Bachelor's in Organizational
6 Management from North Park University. I have a
7 paralegal certificate from the University of Illinois,
8 and I'm right now getting two Masters from Loyola from
9 the Institute of Industrial Relations.
10 Q. Thank you.
11 And how about with respect to your
12 professional career.
13 A. I was in the restaurant industry in
14 management for about 20 years or so, and then I changed
15 professions and basically started working with
16 Levinson, Simon & Sprung.
17 Q. Do you have a CPA license?
18 A. No.
19 Q. So what is your actual title there.
20 A. Senior Compliance Auditor.
21 Q. What types of work are you typically assigned
22 to do there?
23 A. I do compliance audits for the different
24 funds that we work for, basically payroll compliance
25 audits.
86
1 Q. So is that a hundred per cent of your work?
2 A. Yes.
3 Q. Payroll compliance?
4 A. No -- well we do different types of payroll
5 compliance audits. Those are all under payroll
6 compliance audits.
7 Q. And is it all Taft-Hartley entities that
8 you're looking at?
9 A. Yes, I believe so.
10 Q. Who supervises your work?
11 A. I have an immediate supervisor Lea Betar,
12 B-e-t-a-r, and the owner Howard Levinson.
13 Q. Directing your attention to the spring -- or
14 rather the summer of 2002, did one of your supervisors
15 ask you to conduct some work on behalf of the Laborers'
16 Pension and Welfare Fund?
17 A. Yes. I was scheduled to complete an audit
18 for Laborers' 1001.
19 Q. And what background were you given on this
20 matter?
21 A. When I was given the file, we usually have
22 set up notes in the file, and the file reads, "We are
23 to specifically look for people being reported but not
24 on payroll."
25 Q. Okay. Those were your instructions?
87
1 A. Yes.
2 Q. So as you went to undertake this audit --
3 this compliance audit -- is that the right term?
4 A. Yes.
5 Q. What types of records were you intending to
6 look at when you went to 1001?
7 A. We were intending to look at payroll, payroll
8 tax records and cash disbursement records. We were to
9 do a regular audit as well as to look at the people
10 that were not on payroll.
11 Q. And at least with respect to this initial
12 phase of the work, how far back were you asked to look
13 in approximate terms.
14 A. The first part of the audit was three years,
15 the first phase.
16 Q. So this was the summer of 2002 back to '99?
17 A. Yes. The exact dates were July 1, 1998
18 through May 31, 2002.
19 Q. Okay. So what did you do with that
20 assignment?
21 A. We reviewed the payroll, the payroll tax
22 records, and the cash disbursement records, and based
23 on that there were some discrepencies in the payroll
24 versus what was reported, and there were some
25 individuals on payroll that were -- there were some
88
1 individuals on the contribution reports that were not
2 on the payroll.
3 Q. So when you said you compared the payroll
4 records to the Fund records, did you have with you a
5 set of records from the Fund about what had been
6 reported from 2001?
7 A. Right. The Fund always gives us -- tries to
8 give us the reports as current as possible for what was
9 reported for wages or for what hours were reported.
10 Q. Okay. Either remittance report or their data
11 reflecting the remittance reports?
12 A. Yes.
13 Q. So when you say you found discrepencies, let
14 me ask you, how difficult was it to find this?
15 A. It wasn't difficult. I mean you look at the
16 payroll. You look at what was reported and see if
17 there was an error.
18 Q. How many -- as you -- just describing the
19 physical process. You looked at this at a month by
20 month basis?
21 A. Yes -- or a week by week basis.
22 Q. So how many actual errors are we talking
23 about?
24 A. Many. I mean I would have to count them all.
25 There may be -- there was like sometimes a week missed
89
1 out of the -- if it was a five week month. So if there
2 was six or seven people reported, then all their hours
3 were not reported for one week that was missed.
4 Q. With respect to people for whom contributions
5 were made who were not actually receiving compensation,
6 was this a pattern each month or was it an isolated
7 incident?
8 A. It was a pattern each month.
9 Q. So as a result of comparing the payroll to
10 the remittance records, did you do a report either for
11 your boss or for the client?
12 A. We did a report for the client and Levinson
13 reviewed it.
14 Q. And what were your -- could you put in your
15 own words what your findings were at least on this
16 initial phase of the work.
17 A. The findings were discrepencies for hours
18 worked and wages not contributed on, and there were
19 findings for people that were not on payroll but were
20 contributed on. They were not findings. We just gave
21 the Local the Fund's information about people that were
22 on the contribution reporting forms that were not on
23 payroll.
24 Q. And why don't I start showing you some of the
25 relevant paperwork here.
90
1 MR. MENDENHALL: If I can just put one thing
2 on the record. Mr. Thomas did hand us some exhibits
3 for the first time about maybe half an hour ago that we
4 have not had a chance to review yet that he's now
5 showing to the witness. We would ask -- we just would
6 like that noted for the record.
7 THE INDEPENDENT HEARING OFFICER: This is --
8 I understand you may not have been shown it. There is
9 not much of a contention here that somebody wasn't on
10 the payroll and -- this is -- you've pretty much
11 established that. I don't think there's any dispute.
12 There may be the effect of it, but please show her.
13 MR. THOMAS: I gave a set to Miss Nagle.
14 I'm simply trying to make the record
15 complete. I realize, particularly given the comments
16 yesterday, to the extent that this is going to become a
17 central issue. I want to make sure the record is
18 complete.
19 What I'm introducing now and what was not in
20 the original set of books was the initial
21 correspondence and the first phase of three. What is
22 in the books is the actually second and third report.
23 THE INDEPENDENT HEARING OFFICER: So maybe
24 this -- Mr. Mendenhall, this can't be a shock to you as
25 to what these records reflect.
91
1 MR. THOMAS: Report number two and report
2 number three, which have been in the exhibit books,
3 make reference to the earlier work.
4 THE INDEPENDENT HEARING OFFICER: Work
5 papers, am I right?
6 MR. THOMAS: Correspondence and work papers,
7 yes.
8 BY MR. THOMAS:
9 Q. Okay. I'm showing you what's been marked as
10 Exhibit Number 33. It's a letter dated June 27th,
11 2002?
12 A. Yes.
13 Q. It looks like you have your own copy of it.
14 Is this a letter that you or Mr. Levinson wrote?
15 A. This is a letter I wrote.
16 Q. For his signature?
17 A. Yes.
18 Q. And was this -- let me ask you to describe
19 this in your own words. What was this letter -- what
20 does this letter represent?
21 A. This letter is a summary of the findings for
22 the audit period for the Laborers' 1001 from July 1,
23 1998 through May 31, 2002.
24 Q. And the bottom line here is that there is an
25 amount that's indicated that is actually owed to the
92
1 Funds of $38,000 plus?
2 A. Yes.
3 Q. Showing you Exhibit 34. Does this relate to
4 the previous bit of correspondence, this chart? It's a
5 one page chart.
6 A. Yes, it has the total findings on there.
7 This is not our document.
8 Q. Is this -- whose document is this?
9 A. I don't know. That was not created by us.
10 Q. Okay. Do you know who created this?
11 A. No.
12 Q. Okay.
13 A. No, I don't.
14 Q. Let me ask you this: Do you recognize the
15 numbers in the lower right-hand quadrant?
16 A. I recognize the subtotal of $38,455.50 that
17 is owed from our audit report.
18 Q. And do you know what the other entries are
19 that cause it to total $43,750?
20 A. Yes. I recognize the ten per cent penalties,
21 and the audit costs are the same.
22 Q. All right. Thank you.
23 Now Miss Smith, as a result of that initial
24 bit of work, did the client give you any additional
25 instructions?
93
1 A. The client contacted our office and asked us
2 to extend the audit for an additional seven years.
3 Q. Seven years going back to 1992?
4 A. Correct.
5 Q. And that would have been approximately in the
6 late summer or early fall of 2002?
7 A. Yeah, the early fall of 2002.
8 Q. Okay. And again, what were your procedures
9 in conducting this second phase of the audit?
10 A. They were the same as I did in the first
11 audit.
12 Q. With respect to the first phase,
13 approximately how many names had you uncovered where
14 there were discrepencies. And we don't have to be
15 exact, but just give us an approximation.
16 A. There were two different types of
17 discrepencies. I don't know which one --
18 Q. Let's start with the people for whom
19 contributions had been made where there was no
20 compensation reflected.
21 A. There were probably anywhere from eight to
22 ten people for the whole audit period.
23 Q. And how about people for whom the Local had
24 underfunded their contributions.
25 A. I don't understand your question.
94
1 Q. Well with respect to the $38,000 that was
2 indicated that was owed in your first phase --
3 A. Right.
4 Q. -- that represented money that the Union owed
5 to the Funds. Why?
6 A. Because there are people that were reported
7 on payroll -- reported to the Fund and they were on
8 payroll. So there was discrepencies from payroll to
9 what they actually submitted to the Fund.
10 Q. In other words, what was submitted to the
11 Fund was less than what should have been submitted to
12 the Fund?
13 A. Correct.
14 Q. Approximately how many people are we talking
15 about in that category?
16 A. About eight to ten.
17 Q. And different people, right?
18 A. Correct.
19 Q. So --
20 A. Or the same. They could have been some of
21 the same people.
22 Q. Okay. So you undertook a second phase of the
23 work now going back ten years.
24 A. Correct.
25 Q. Directing your attention to Exhibit 31 in
95
1 these books, and I'll get it for you. So you have
2 Exhibit 31 in front of you, do you not?
3 A. Yes.
4 Q. Could you identify this for us please.
5 A. That's the audit report that we sent the
6 Laborers' for the audit period June 1, 1992 through May
7 31, 2002.
8 MS. NAGLE: Which exhibit are we on?
9 MR. THOMAS: 31.
10 BY MR. THOMAS:
11 Q. And after that initial cover page there's a
12 two page letter signed by Mr. Levinson. Do you see
13 that?
14 A. Yes.
15 Q. Have you seen that before?
16 A. Yes. I created it.
17 Q. And at this point there was an $80,000 figure
18 at the bottom of page one. Do you see that?
19 A. Yes.
20 Q. Could you tell the Hearing Officer what that
21 $80,000 figure represents?
22 A. The $80,000 is discrepencies for individuals
23 that were submitted to the Funds versus the payroll
24 that was reviewed.
25 Q. So the number went up when you went further
96
1 years back.
2 A. Correct.
3 Q. Then there are attachments to this report,
4 are there not?
5 A. Yes.
6 Q. Could you walk us through those pages and
7 explain what these are and what they represent?
8 A. After the first two pages of the letter there
9 is a summary report that summarizes each year and what
10 the findings are for each Fund. And those are three
11 pages. Then if you look at the page that says
12 "Levinson, Simon & Sprung Detail Report," it says "Page
13 1." That first page shows the summary for that fiscal
14 year for each Fund, and then page two shows the
15 individuals that are in the findings for that year.
16 Q. Okay. Let's make sure we are looking at the
17 same page. After the two page letter --
18 A. Yes.
19 Q. -- there's a back-up sheet that says "Page 1,
20 Employees" in the upper right-hand corner, right?
21 A. Right. There's a summary report. There's
22 three pages of the summary report.
23 Q. The first two pages show the breakdown of the
24 underpayment by fund, right?
25 A. Correct.
97
1 Q. So particularly noted is the Pension Fund and
2 then on page two is the Welfare Fund. That's the great
3 bulk of the money; is that correct?
4 A. Yes.
5 Q. On page three those totals have been broken
6 down on a yearly basis; is that correct?
7 A. Correct.
8 Q. So now we're moving on and then there's
9 another differently formatted document that says,
10 "Detailed Report, Page 1, Employees" and so forth?
11 A. Correct.
12 Q. Can you walk us through what this is, what
13 are we looking at?
14 A. On page one this is the fiscal year --
15 MR. MENDENHALL: Can we catch up? Do you
16 have a page number you can cite for us, Mr. Thomas?
17 MR. THOMAS: It's Exhibit 31, and you got the
18 two page letter, and then we just walked through the
19 three pages of the -- what's called the "Summary
20 Report."
21 THE INDEPENDENT HEARING OFFICER: The
22 Summary Report has numbers on it -- the Detailed Report
23 has numbers and it.
24 MR. MENDENHALL: The bate number?
25 THE INDEPENDENT HEARING OFFICER: It says
98
1 page one.
2 MS. NAGLE: We're not using the bates.
3 MR. THOMAS: And the following page says
4 "Levinson, Simon & Sprung Detailed Report, Page 1."
5 MR. MENDENHALL: 10-31-02?
6 MR. THOMAS: Yes.
7 MR. MENDENHALL: Thank you, sir.
8 BY MR. THOMAS:
9 Q. What are we looking at here, Miss Smith?
10 A. For the fiscal year 2000 -- fiscal year
11 ending 2002, these are the contributions that are owed
12 per month for the Funds on the left side.
13 Q. Okay. So broken down by Fund.
14 A. Right.
15 Q. And then as we turn the page to page two --
16 A. Right. Page two shows the detail for hours
17 that were not contributed on per individual per month
18 and a summary total for the year.
19 Q. So these individuals are 1001 employees where
20 the Local didn't pay enough in.
21 A. Right. The first half is the hours. The
22 second half is the contributions that are owed.
23 Q. I see. So if we look at the first vertical
24 column, this 1500 hours that are underreported for
25 $10,000 are shortage?
99
1 A. Yes -- wait -- no. It's 1500 hours that were
2 underreported.
3 Q. 1590.
4 A. Right. And based on those hours that were
5 underreported, $10,000 are owed to the Funds for that.
6 Q. That's what we said. Okay.
7 A. Okay. Sorry.
8 Q. Then the columns to the right are those
9 figures broken down by month, correct?
10 A. Correct.
11 Q. For those individuals. Thank you.
12 All right. And then as we go on to page
13 three?
14 A. That would be fiscal year ending 2001. And
15 then page four would be the individuals in detail.
16 Q. I see. And then --
17 A. Page five would be fiscal year 2000.
18 Q. And so on back through time.
19 A. Yes.
20 Q. We won't go through each page.
21 Okay. As a result of that work being
22 provided to the client on or about October 31st, what
23 if anything happened next?
24 A. Then the Funds asked us to do an audit
25 starting January -- to go back and start the audit in
100
1 January, 1963.
2 Q. From the inception of the Funds?
3 A. Correct.
4 Q. I neglected to ask you. The report here, as
5 best I can tell, does not mention the other problem of
6 contributions being made for individuals who didn't
7 have compensation. Am I right about that?
8 A. No. The -- this report is the findings what
9 is due the Funds. We included in a side letter to the
10 Funds what -- the individuals that were on payroll but
11 not -- the individuals that were contributed on but not
12 on payroll. That was in a side letter.
13 Q. Let me show you the data, showing you Exhibit
14 Number 7. Have you seen a document similar to that in
15 breakdown?
16 A. No.
17 Q. I'm sorry. Showing you an exhibit which I
18 won't introduce, but just for identification purposes,
19 is this a list generated by your firm?
20 MR. LYDON: Can we just take a look?
21 MR. THOMAS: It's in Exhibit 32. I'll be
22 happy to show you.
23 BY MR. THOMAS:
24 Q. Do you recognize this list?
25 A. Yes.
101
1 THE INDEPENDENT HEARING OFFICER: Where are
2 we here?
3 MR. THOMAS: Let me just make sure counsel
4 sees it and then we'll -- and this list goes all the
5 way back to 1963, correct?
6 THE WITNESS: Correct.
7 BY MR. THOMAS:
8 Q. So this is part of Exhibit 32. So Miss
9 Smith, the question is: At what point in these three
10 phases of the audit did you come to understand that
11 there were people for whom contributions had been made
12 where there was no compensation.
13 A. In the first phase.
14 Q. And then the pattern continued in the
15 successive two?
16 A. Yes.
17 Q. When did you actually give the client the
18 full breakdown of all the names?
19 A. We gave a full breakdown with each phase.
20 The phase -- the list just grew.
21 Q. I see. Okay.
22 Directing your attention then to Exhibit
23 Number 32. Now we're in the March 31st, 2003 time
24 frame, right?
25 A. Yes.
102
1 Q. Your instructions from the Funds were then to
2 go back from 1992 all the way back to 1963?
3 A. Correct.
4 Q. And did they explain why they wanted you to
5 go back that far?
6 A. They didn't explain it to me. They may have
7 explained it to Mr. Levinson.
8 Q. So what procedures did you employ to go back
9 that far?
10 A. We did the same procedures. We looked at
11 payroll and payroll tax records. We did not receive
12 any tax disbursement records that far back.
13 Q. Did you find any additional findings from the
14 '63 to '92 period?
15 A. Yes, there were new findings for -- back from
16 '63 to '92.
17 Q. And those were reflected in Exhibit 32, which
18 is your work product; is that correct?
19 A. Yes.
20 Q. So dealing just with the issue of
21 underpayment for employees who were working full-time,
22 what did the final tally come to according to your
23 March 31 letter?
24 A. The total findings were $80,872.82 for
25 January 1, 1963 through May 31st, 2002.
103
1 Q. Okay. And then after that two page letter
2 there is a list, is there not?
3 A. Yes. After the initial two page letter, yes.
4 Q. And that is what we were just looking at a
5 minute ago separately which is a list of individuals
6 for whom there are contribution reports and
7 contribution credits but who show no payroll records;
8 is that right?
9 A. Correct.
10 Q. And this list was generated by you?
11 A. Yes.
12 Q. And of significance, the middle column there
13 indicates what? The one with the dates.
14 A. The middle column shows a period for which
15 they were on the contribution reports but not on
16 payroll.
17 MR. THOMAS: And Mr. Vaira, this list
18 corresponds to Exhibit 7.
19 THE INDEPENDENT HEARING OFFICER: Something I
20 saw before.
21 MR. THOMAS: Yes.
22 BY MR. THOMAS:
23 Q. And just if we could -- could you explain --
24 I think I see here the -- there's a comparable letter
25 after that list also dated March 31.
104
1 A. Yes.
2 Q. Is that because it went to the separate Fund?
3 A. No. The first letter is to Jean Mashos,
4 which is one of the Fund Administrators, giving her
5 some information that is not included in the audit
6 report. The second letter dated March 31st is the
7 actual audit report.
8 Q. So a slightly different document indicating
9 in bold what dates are covered and so forth.
10 A. Yes.
11 Q. Still with the same number of amount of money
12 owed though, right?
13 A. Correct.
14 Q. And then the back-up pages from there on out
15 are essentially reconciliation documents supporting
16 those numbers; is that right?
17 A. Correct.
18 Q. Were you involved, Miss Smith, in any way in
19 the collection of any monies on behalf of the Funds
20 from the Local?
21 A. No.
22 MR. THOMAS: Nothing further, Mr. Vaira.
23 Just to avoid any confusion. The packet of
24 new exhibits that I gave everyone, the last one of
25 those is Exhibit 38. I would like to withdraw that
105
1 because it's already in 32. It's the letter she just
2 described.
3 MR. LYDON: That just might confuse things
4 more, right?
5 MR. THOMAS: If you want to leave it in,
6 that's fine. I didn't want you to think that it's
7 something different from what's already there.
8 THE INDEPENDENT HEARING OFFICER: Let me ask
9 you a question, ma'am. I'm going to walk over here.
10 I'm referring to the March 31st, 2003 letter
11 that she authored for Mr. Levinson to make sure --
12 MS. NAGLE: Just to clarify the first letter
13 to Jean --
14 THE INDEPENDENT HEARING OFFICER: The first
15 letter to Mashos, you submitted that?
16 THE WITNESS: Yes.
17 THE INDEPENDENT HEARING OFFICER: You see
18 what I'm referring to?
19 THE WITNESS: Yes.
20 THE INDEPENDENT HEARING OFFICER: And you
21 talked about the individuals for whom contributions
22 were made but they weren't on the payroll, right?
23 THE WITNESS: Correct.
24 THE INDEPENDENT HEARING OFFICER: This
25 paragraph -- this verified, if this is true, this
106
1 paragraph, "Furthermore, working dues was not paid for
2 any of these individuals from June, '98 to May 2002;"
3 is that correct?
4 THE WITNESS: I don't believe working dues
5 were not paid for any of these individuals when they
6 were not on payroll.
7 BY MR. THOMAS:
8 Q. There were several negatives there. I want
9 to make sure -- tell us what you saw with respect to
10 dues.
11 A. Working dues were not paid during that period
12 for those individuals -- let's see. Working dues were
13 not paid on those individuals during that period.
14 Q. As far back as you looked?
15 A. Yes. Because they only had to pay working
16 dues starting June of '98. There were no working dues
17 before June of '98.
18 Q. So from '98 forward when you checked the
19 payroll records, there were no working dues on these
20 people.
21 A. Correct.
22 THE INDEPENDENT HEARING OFFICER: So they
23 were --
24 MS. NAGLE: On the underreported people or
25 the --
107
1 MR. THOMAS: On the people for whom
2 contributions were made who weren't on payroll.
3 THE WITNESS: Correct.
4 THE INDEPENDENT HEARING OFFICER: I have
5 another question, but she's not the one to ask. Thank
6 you.
7 MR. THOMAS: Can I follow-up on one -- on
8 that one point before cross.
9 BY MR. THOMAS:
10 Q. Miss Smith, I'm showing you what's been
11 introduced as Exhibit Number 26, which is a report of
12 Thomas Havey. Bear with me for one second -- I'll
13 withdraw that question.
14 Thank you. Nothing further at this time.
15 THE INDEPENDENT HEARING OFFICER: Thank you.
16 MR. MENDENHALL: I would ask -- I noticed
17 throughout her direct testimony the witness referred to
18 a file that she brought with her today. We have never
19 had an opportunity to review that file. I was hoping
20 we could either do it during lunch or take a brief ten,
21 fifteen minutes now before --
22 MR. THOMAS: My response is --
23 MR. MENDENHALL: Can I finish making my
24 record?
25 If we can simply either have a few minutes
108
1 now and we can do cross, or it's 12:30 now. I can look
2 at it during lunch. I want to do whatever is
3 convenient for you.
4 THE INDEPENDENT HEARING OFFICER: You may
5 look at it now and come back after lunch. I think it's
6 the same thing we're talking about here, aren't we?
7 MR. THOMAS: Those are her work papers.
8 That's her internal file of her notes and what she did
9 during the audits. I guess I don't have a particular
10 objection. I think in fairness to the witness we ought
11 to see whether that's really something Mr. Mendenhall
12 needs. I mean --
13 THE INDEPENDENT HEARING OFFICER: Let's put
14 it this way. If she brought something in and is
15 looking at it, all counsel get somewhat upset of
16 someone looking at their notes there. He may look at
17 it, and to the extent of cross examination only goes to
18 the extent that she referred to it.
19 MR. MENDENHALL: Thank you, your Honor.
20 THE INDEPENDENT HEARING OFFICER: In other
21 words, if there's pages there and she referred to it
22 for three pages, you got three pages to look at.
23 MR. THOMAS: That actually, I think, is an
24 important distinction. Her file is about three inches
25 thick and she looked at it once or twice a couple of
109
1 pages.
2 THE INDEPENDENT HEARING OFFICER: Miss Smith,
3 would you indicate to the gentleman just with a paper
4 clip or something which pieces of paper you looked at.
5 THE WITNESS: I looked at these three reports
6 which are all exhibits, and I looked at this last page
7 when we set up the file.
8 THE INDEPENDENT HEARING OFFICER: And that's
9 what you get.
10 MR. MENDENHALL: If we're going to separate
11 it like that, I would like to voir dire the witness on
12 what she used in preparation for coming here to testify
13 today.
14 THE INDEPENDENT HEARING OFFICER: No. This
15 is not a deposition. You can look at that document and
16 the paper she looked at.
17 MR. LYDON: If I may complete the record then
18 and ask some questions of this witness with respect to
19 what she used or what she reviewed before coming in to
20 testify today.
21 MR. THOMAS: I again ask that we have a one
22 lawyer rule.
23 THE INDEPENDENT HEARING OFFICER: Time out.
24 Gentlemen, this is not like normally in a deposition
25 where you get to do that. I'll relax it a bit and let
110
1 you do that. She seems to be testifying from documents
2 today here, and everything they handed her she looked
3 at it and testified. I don't recall her testimony --
4 MR. LYDON: She testified from her
5 recollection as to what she did.
6 THE INDEPENDENT HEARING OFFICER: I don't
7 think -- okay. You might --
8 MR. LYDON: Of course she did.
9 THE INDEPENDENT HEARING OFFICER: You may ask
10 her that.
11 MR. LYDON: And didn't her boss, who
12 testified a little earlier, say that the entire file
13 was in the hands of Miss Smith?
14 THE INDEPENDENT HEARING OFFICER: Yeah.
15 MR. LYDON: Okay. Just -- is this the same
16 file we're talking about?
17 THE INDEPENDENT HEARING OFFICER: Gentlemen,
18 I've been very cautious about this. This is not going
19 to become a deposition.
20 MR. LYDON: No one is suggesting it is a
21 deposition. No one is suggesting that we need to go
22 through document by document. That's not the purpose
23 of this. Just to understand what we're looking at it.
24 THE INDEPENDENT HEARING OFFICER: Whatever
25 documents she refreshed her recollection with you get
111
1 to see, which was the three reports and her one page.
2 All right? And then afterwards you may ask her what
3 she used to refresh her recollection before coming.
4 MR. LYDON: We can ask her that right now.
5 THE INDEPENDENT HEARING OFFICER: Ask her
6 that right now.
7 MR. LYDON: Prior to your being deposed
8 today--
9 MR. THOMAS: I'm sorry. Are we going to
10 switch back and forth with lawyers?
11 THE INDEPENDENT HEARING OFFICER: I think it
12 is fair.
13 MR. MENDENHALL: I will.
14 Miss Smith, would you please tell us what you
15 did, how you prepared for your testimony here today?
16 THE WITNESS: I reviewed the notes that I
17 made and the reports that we sent.
18 MR. MENDENHALL: Okay. And the yellow notes
19 that you have there in your file, would those be the
20 notes you referred to earlier?
21 THE WITNESS: Yes.
22 MR. MENDENHALL: And you reviewed those in
23 preparation for today?
24 THE WITNESS: Yes.
25 MR. MENDENHALL: And can you please tell us
112
1 what other documents you reviewed in preparation for
2 today.
3 THE WITNESS: That's it.
4 MR. MENDENHALL: And so can you tell us the
5 yellow -- the notes that are under the yellow notes
6 what's contained in your file?
7 THE WITNESS: The yellow notes usually
8 contain the process of while we're at the audit what
9 actually records we looked at or any conversations that
10 we had either with the Funds or when I was at either
11 the contractors or the Local.
12 MR. MENDENHALL: And at some point you also
13 reviewed that -- and you knew you were coming to
14 testify today, correct?
15 THE WITNESS: Correct.
16 MR. MENDENHALL: And you also reviewed that
17 information and refreshed your recollection, am I
18 correct?
19 THE WITNESS: Yes.
20 MR. MENDENHALL: So again, Mr. Vaira, I would
21 renew my request during my lunch hour -- I will
22 forsake lunch, but in an effort to properly defend my
23 client I would like to have the opportunity to review
24 the material.
25 THE INDEPENDENT HEARING OFFICER: Denied.
113
1 Denied. You get the three pieces she looked at.
2 MR. MENDENHALL: Okay. Thank you for your
3 consideration, Mr. Vaira.
4 MR. LYDON: For the record, we're talking
5 about a file before her which is more than an inch
6 thick. And that file is before her, which she brought
7 with her today, to which the earlier reference was made
8 by Mr. Levinson. And can we at least inquire as to
9 what that file concerns, the entire file?
10 THE INDEPENDENT HEARING OFFICER: I think she
11 probably -- go ahead.
12 THE WITNESS: One, the entire file is not
13 here. The entire file is also -- which is this thick
14 (Indicating) full of contract -- which Laborers' 1001
15 gave us tax documents from 1963 to 1992.
16 MR. LYDON: You're indicating something
17 that's about a foot high?
18 THE WITNESS: Yes.
19 MR. LYDON: In front of you you have
20 something that looks like a little more than an inch
21 high?
22 THE WITNESS: Correct.
23 MR. LYDON: What's that?
24 THE WITNESS: That's our work papers and
25 notes and contribution reports from the Local to
114
1 complete the audit.
2 MR. LYDON: And we're being denied the
3 opportunity to look at the work papers that underlie
4 the statements and the testimony that she gave today.
5 THE INDEPENDENT HEARING OFFICER: Yes.
6 Gentlemen, it seems to me that this witness
7 -- the issue here is that somebody looked at the files
8 and found out that there were payments made --
9 contributions made that the files reflect that there
10 was no hours. That's pretty much all that Levinson did
11 except --
12 MR. LYDON: Well that's your view of it.
13 THE INDEPENDENT HEARING OFFICER: What else
14 are we talking about here? I mean -- in fact I think
15 we could probably have proven this -- when I say "we",
16 I think Mr. Thomas could have probably proven it with
17 his first 20 minutes he spent with us handing these
18 documents, and after that it was all icing on the cake.
19 Is there any dispute that anybody -- that the --
20 MR. THOMAS: Well I don't know --
21 MR. LYDON: Mr. Vaira, I think that in fact
22 there is a difference in the opinion as to what it is
23 we're looking for. That's one view. The view that
24 you've just described is one view of what the issue is
25 in the case. There's another view, and you've heard it
115
1 in the course of some of the questioning asking about
2 whether there's an agreement, whether there's a letter
3 in place, what did they see. Because another view of
4 the case is that there was indeed an understanding that
5 it was appropriate to make the contributions for these
6 individuals who were in effect getting deferred
7 compensation. I don't know what's in those files. I
8 don't know what she saw, but I would like to see what's
9 in the work papers and if indeed there is any reference
10 to such an arrangement.
11 MR. THOMAS: Mr. Vaira, if I may be heard?
12 THE INDEPENDENT HEARING OFFICER: Yes, Mr.
13 Thomas.
14 MR. THOMAS: That is -- this is clearly not
15 the right witness to be looking for that type of
16 document. What he's talking about is whether the Local
17 has some agreement with the Fund. This is the auditor
18 who is -- whose role is limited to what she described.
19 She compared payroll records to remittance reports.
20 That's it. She's not going to look at the Fund records
21 beyond that. She's not going to look at anything else
22 at the Local beyond that. And the relevance of that,
23 if that document were to exist, which no one has ever
24 found described or even been able to articulate, is to
25 the legal conclusions of whether or not these
116
1 contributions were illegal. That's not what this
2 witness was asked to do. She's just simply comparing A
3 to B.
4 MR. LYDON: But she did an audit.
5 THE INDEPENDENT HEARING OFFICER: This is
6 simply the auditor. I recall Mr. Faraci's questions to
7 Mr. Levinson, who was the overall engagement partner,
8 and asked him any agreements, any side deal, and he
9 said, "No."
10 MR. THOMAS: And just to remind us where we
11 are in this process, the objection was, "She seemed to
12 be referring to some papers in front of her." That's
13 certainly not the first time a witness has ever done
14 that. There's some reports that she referred to which
15 actually happen to be duplicative to what's already in
16 evidence. And then one time she referred back to a
17 yellow piece of paper that talked about how the file
18 was initially set up. I think it's unnecessary and
19 unfair to the witness to say, "Well just turn over the
20 whole file so we can rummage through it." There is no
21 basis for that. There is no need for it.
22 THE INDEPENDENT HEARING OFFICER: I already
23 ruled on it. Okay. Gentlemen, you have my ruling.
24 MR. THOMAS: Are we breaking?
25 THE INDEPENDENT HEARING OFFICER: How much
117
1 time do you want?
2 MR. THOMAS: I'm done with direct.
3 THE INDEPENDENT HEARING OFFICER: And Miss
4 Smith, I want you to -- whatever that file you have in
5 there I want you to preserve that file.
6 THE WITNESS: Okay. That's fine.
7 THE INDEPENDENT HEARING OFFICER: In case
8 there's a motion or something -- forget the three
9 things -- the yellow file which I've said that no one
10 can look at except for one document, I want you to
11 preserve that as it is in case we have to ask you to
12 bring it back or it becomes an issue otherwise.
13 THE WITNESS: Okay.
14 MR. MENDENHALL: Mr. Vaira, can I look at the
15 material during lunch that you let her pull?
16 THE INDEPENDENT HEARING OFFICER: Yes. You
17 show that to Mr. Mendenhall.
18 THE WITNESS: Sure. Do you want me to take
19 it out of the file?
20 MR. MENDENHALL: I think you would have to
21 take it out of the file.
22 MS. NAGLE: I'm going to have it copied. Mr.
23 Vaira, I'm going have the last page copied for
24 everyone.
25 THE INDEPENDENT HEARING OFFICER: Okay.
118
1 THE WITNESS: Okay.
2 THE INDEPENDENT HEARING OFFICER: Gentlemen,
3 here we are. Where are we? We're at quarter to 1:00.
4 MR. THOMAS: I assume this would be a logical
5 time for a lunch break, but I also think -- if the
6 cross is going to be short --
7 THE INDEPENDENT HEARING OFFICER: We'll come
8 back. He wants to look at that.
9 Now, who do you have this afternoon?
10 MR. THOMAS: Mr. Maria. I don't know how
11 long that will go. It's conceivable -- or I certainly
12 can't speak for the cross, but the rest of the
13 witnesses on my witness list are the people that I'm
14 waiting to hear from the lawyers on the other side
15 about their availability.
16 THE INDEPENDENT HEARING OFFICER: Some
17 individuals are here, some are in California.
18 MR. THOMAS: The only person that has been
19 here is Mr. DeChristopher. They're all in Chicago.
20 They're all members of Local 1001.
21 THE INDEPENDENT HEARING OFFICER: I was under
22 the impression someone is in LA.
23 MR. THOMAS: No. Mr. Levinson was in San
24 Diego. You already heard from him by phone. All the
25 rest are Local 1001 members. But I am anxious to hear
119
1 when we're going to see them because that's -- they are
2 on my witness list, but I haven't heard who is coming
3 or when or anything like that.
4 MR. FARACI: We had agreed to produce them
5 tomorrow, and we told them we would give them the
6 schedule later on today. So we'll do that.
7 THE INDEPENDENT HEARING OFFICER: Let me look
8 at the file in camera if I may do that.
9 THE WITNESS: Sure.
10 THE INDEPENDENT HEARING OFFICER: Okay. What
11 time are we coming back, gentlemen?
12 MR. THOMAS: You tell us.
13 THE INDEPENDENT HEARING OFFICER: You need
14 about an hour. About a quarter to 2:00?
15 MR. THOMAS: That's fine, your Honor.
16 (Whereupon a lunch break was taken
17 after which the following
18 proceedings were had:)
19 THE INDEPENDENT HEARING OFFICER: On the
20 record. Let's go. Ladies and gentlemen, we're going
21 to go on the record. Miss Smith, Mr. Mendenhall.
22 MR. LYDON: Just to make sure that I got the
23 record covered on this. As I understand it, this
24 witness conducted a special audit for the purpose
25 specifically to look for people being reported but not
120
1 on the payroll which was initiated and focused
2 initially on James Capasso. And she was the auditor
3 who did that work. We've asked to see her work papers,
4 which typically contain information and notes obtained
5 in the course of an audit, typically contain notes of
6 either conversations or documents pertinent to the
7 issue, and in this instance the issue of why such
8 persons may have been on the contribution list but not
9 the payroll is a significant issue. That's in
10 particular what I would hope to find if I were
11 permitted to review the audit work papers. And I
12 understand from your ruling that we're being denied
13 that opportunity.
14 THE INDEPENDENT HEARING OFFICER: Yes. Okay.
15 And let me put this in context. In the reform movement
16 and the history of these transactions, these hearings
17 such as the Trusteeships has never been the full scope
18 of discovery as one defines in a civil court or
19 administrative court. But we try to have some degree
20 of due process. In this particular case I denied you
21 to look at the papers she brought in. And had I been
22 on the Board I would have looked it over and saw her
23 not realizing that she had something with her, and I
24 would have just gotten it off the table. But she did
25 -- whatever she looked at she gave to Mr. Mendenhall to
121
1 cross examine. I in the recess took her file that she
2 had in front of her and I went through it examining and
3 searching for any indication of these -- the
4 conversations in which the Union had some advice or
5 some idea that they were permitted to do whatever they
6 were doing or the reasons for it. It's a pure
7 auditor's file. There's just simply a number of spread
8 sheets and any conversations she had, nothing to do
9 with that -- very brief. Spoke to John. There is no
10 interrogation as such. However, Mr. Mendenhall is free
11 to ask her about any of those conversations she may
12 have had on that subject matter. But I've gone through
13 that file and I find nothing along that subject matter.
14 Okay. Mr. Mendenhall, go ahead.
15 CROSS EXAMINATION
16 BY
17 MR. MENDENHALL:
18 Q. Good afternoon, Miss Smith. Can you hear me
19 okay?
20 A. Yes. Thank you.
21 Q. Mr. Thomas spent a fair amount of time with
22 you on direct on Exhibit Number 32. If you would turn
23 with me to Exhibit 32 and the volume I handed you over
24 the break.
25 MS. NAGLE: Mr. Mendenhall, are you referring
122
1 to the bate stamped copy?
2 MR. MENDENHALL: Yes. It will be easier for
3 her to get to bate stamped documents, I believe, than
4 scrambling and finding certain documents.
5 BY MR. MENDENHALL:
6 Q. We're starting with the first page, Miss
7 Smith. Let me know when you have that.
8 A. I have that.
9 Q. And based upon -- taking a look at the first
10 paragraph in your testimony concerning the audit, you
11 stated in this letter you performed an audit from
12 January 1st, 1963 through May 31, 2002; is that
13 correct?
14 A. Yes.
15 Q. And the total finding in this audit of
16 underpayments was $80,872.82; is that correct?
17 A. Right, not including liquidated damages or
18 audit costs.
19 Q. Exactly. And taking that -- and that was the
20 sum total minus the liquidated damage and audit costs,
21 right?
22 A. Yes.
23 Q. And if you would for me, ma'am -- you brought
24 a calculator with you today; am I correct?
25 A. Yes.
123
1 Q. And would you please take that $80,872.82
2 number and divide it by 40 years for me, the scope of
3 your audit.
4 A. Yes.
5 Q. And what number do you come up with, ma'am?
6 A. $2,021.82.
7 Q. So over the scope of this 40 year period the
8 average underpayment per year is only $2,021 -- how
9 much?
10 A. $2,021.82. But that's not correct. The
11 findings -- that is correct.
12 Q. Just so the record is clear, the correct
13 number is $2,021 you said, am I correct?
14 A. I just need to check something. Can I look
15 at this exhibit to check something?
16 Q. The question on the floor, Miss Smith, in all
17 fairness, is if you take that number you provided us
18 that I asked you earlier, that $80,872 number and
19 divide it by 40, and my simple question, if we can get
20 a clean record, what is the answer to that?
21 A. $2,021.82.
22 Q. Thank you. And also along those lines, Miss
23 Smith, you noted that this -- you did the audit all the
24 way back to 1963; am I correct?
25 A. Yes.
124
1 Q. And you also did an audit all the way back to
2 1963 of payments made on behalf of you said members who
3 who did not receive an actual check or salary, correct?
4 A. As part of the -- it's not a separate audit.
5 Q. Okay. Well the audit that you performed
6 looked into two separate areas, correct?
7 A. The findings were in two separate areas.
8 There was not two separate audits completed.
9 Q. I think we're saying the same thing. And I
10 may not be doing a good job of expressing myself, so
11 I'll take the onus on myself, Miss Smith. What I was
12 simply trying to say is that during the audit you
13 looked into the issue of individuals being paid Health
14 and Welfare and Pension benefits without being paid a
15 salary, correct?
16 A. Correct.
17 Q. And if you would turn with me, staying in
18 Exhibit Number 32, going in three pages to the bate
19 stamped number GEB 0863. Do you see that document?
20 A. Yes.
21 Q. And this is a document you prepared in
22 connection with this audit, correct?
23 A. Correct.
24 Q. And this document lists the number of
25 individuals that you located who received benefits but
125
1 who were, at some point or another, was not receiving a
2 corresponding salary, correct?
3 A. Correct.
4 Q. And can you please -- and you -- I believe
5 you testified that the total number of names on that
6 list were 33. Do you recall that testimony?
7 A. No.
8 Q. Would you please take a moment and count the
9 number of names on that list for me.
10 MR. THOMAS: Stipulate, Mr. Vaira.
11 THE INDEPENDENT HEARING OFFICER: I think it
12 might have been -- go ahead and count. Go ahead and
13 count. The record speaks for itself.
14 THE WITNESS: There's 34 names total.
15 BY MR. MENDENHALL:
16 Q. But if I'm correct, I think that last name
17 says "not identified".
18 A. Correct.
19 Q. So taking these 34 names, if you can now do
20 that counting, as 34th unidentified individual, can you
21 please point out for me the number of names on that
22 list where these contribution benefits were started
23 after October of 2001.
24 A. I'm sorry. I don't understand your question.
25 Q. If you can please take a look at that and let
126
1 me know any start dates on that list of 34 people that
2 begins after October 2001.
3 A. I'm going to repeat your question to make
4 sure I understand it. Do you want any individuals that
5 are on here from 2001 thereafter or starting in 2001?
6 Q. Okay. Let's walk through that so we have a
7 clear record. For example, let's take the first
8 gentleman's name.
9 MR. THOMAS: What document are you referring
10 to?
11 MR. MENDENHALL: I gave the bate number as
12 well, Mr. Thomas.
13 THE INDEPENDENT HEARING OFFICER: 0863.
14 MR. MENDENHALL: 0863. And that's the bate
15 stamp sitting in back of you.
16 MR. THOMAS: We're in Exhibit 32, something
17 in the middle of Exhibit 32?
18 MR. MENDENHALL: Not in the middle, Mr.
19 Thomas. It's the third one in, and it's bate stamped
20 GEB 0863.
21 THE INDEPENDENT HEARING OFFICER:
22 "Individuals On Contribution Reports But Not On
23 Payroll".
24 MR. THOMAS: That's all I need.
25 BY MR. MENDENHALL:
127
1 Q. And Miss Smith, my question is, just so we're
2 clear -- you said you didn't understand the question.
3 We're going to walk through the first example.
4 Willie Bates. The period reported on the
5 contribution reports but not on the payroll covers the
6 period which starts in October of 2000 through February
7 of 2002. Do you see that?
8 A. Yes.
9 Q. So my question would be: Mr. Bates started
10 receiving benefits prior to October, 2001; am I
11 correct?
12 A. Correct.
13 Q. And my question to you, ma'am, is of the 34
14 names on that list, would you please identify for us
15 all the names where they started receiving benefits
16 post October, 2001.
17 A. So in your example, the first individual
18 would be included in this list.
19 Q. He would not because he started receiving
20 them prior to October, 2001.
21 A. Thank you. There are none.
22 Q. Okay. And just so Mr. Vaira and Miss Nagle
23 heard you correctly.
24 THE INDEPENDENT HEARING OFFICER: I heard it.
25 I heard -- there are none. I counted myself.
128
1 BY MR. MENDENHALL:
2 Q. There are none, correct?
3 A. Correct.
4 Q. And now, let's go one step further just so
5 Local 1001 will not be accused of playing loose with
6 the facts. Please count for us the number of names on
7 the list that received benefits post October, 2001. So
8 that's the ending date, the second number. Do you
9 understand the question, Miss Smith?
10 A. So you want to know what individuals received
11 benefits ending in December of 199 --
12 Q. After October 31st --
13 MR. THOMAS: I have an objection.
14 BY MR. MENDENHALL:
15 Q. -- 2001.
16 MR. THOMAS: Objection to the form. I think
17 what he's asking is whether contributions were made
18 after that particular date from the Union. What he
19 said was benefits received, which is actually a very
20 different thing.
21 BY MR. MENDENHALL:
22 Q. Miss Smith, just so I'm clear and so that
23 there's no confusion for the record. I am now asking
24 you to take a look at the second column, the ending
25 date. And we'll use Mr. Bates as an example again.
129
1 Mr. Bates last received payments February, 2002; am I
2 correct?
3 MR. THOMAS: Objection. Objection. Mr.
4 Bates is not receiving payments according to this
5 chart. The Union is making payments on his behalf to
6 the Funds which is -- there are some people on this
7 list who got money and others who did not. But this
8 list has to do with the Union making payments to the
9 Funds.
10 THE INDEPENDENT HEARING OFFICER: I think we
11 can get the ground rules.
12 Miss Smith, you did the audit so you
13 understand what these meant. These were folks whose
14 benefits were paid for them to the Pension Fund.
15 THE WITNESS: Right. The center column is
16 when our individuals -- this is when they were
17 receiving benefits and not on payroll, and the second
18 column -- the last column is when they started being on
19 payroll. So for the first individual he was on -- not
20 on payroll from October of 2000 through February of
21 2002. And he was started on payroll 2-22-02, and he
22 was on payroll and receiving benefits thereafter.
23 BY MR. MENDENHALL:
24 Q. So you're absolutely right, Miss Smith. And
25 my point is this gentleman, Willie Bates, would qualify
130
1 as an individual that received contributions after
2 October, 2001 while he was not being paid a salary,
3 correct?
4 A. Right. He received benefits after 2001 while
5 he was not receiving a salary and while he was
6 receiving a salary.
7 Q. Miss Smith, and that's where I think you're--
8 MR. THOMAS: Mr. Vaira, I'm sorry. We're
9 mixing terminologies here and I think it's really
10 making the record --
11 THE INDEPENDENT HEARING OFFICER: He's asking
12 questions. Let him do it. The witness is -- he's
13 asking a question and we'll establish the playing field
14 here pretty soon.
15 MR. MENDENHALL: And I thank you for that,
16 Mr. Vaira. And the one thing I would ask, with great
17 deference to my colleague, is that he not do the
18 speaking objections. State his objection. And
19 honestly I think the witness and I are trying our best
20 to come to some type of mutual understanding.
21 THE INDEPENDENT HEARING OFFICER: I think so,
22 but I don't know exactly -- just deal with her. Deal
23 with her.
24 BY MR. MENDENHALL:
25 Q. For example, what I'm just asking you to look
131
1 at, Miss Smith, there's nothing in this -- the final
2 column. I'm just asking you focus instead on the
3 middle column entitled "Period Reported On Contribution
4 Reports But Not In Payroll".
5 A. Okay.
6 Q. This sole column there. And what I need you
7 to tell us are the individuals that received
8 contributions --
9 MR. THOMAS: Objection.
10 MR. LYDON: Not received, paid on behalf.
11 BY MR. MENDENHALL:
12 Q. Persons reported on -- I need you to tell me
13 the persons reported on the contribution reports but
14 not in the payroll post October, 2001. I.e., for
15 example, Willie Bates would be one of those individuals
16 you said because he was receiving it in February, 2002.
17 MR. THOMAS: Same objection.
18 BY MR. MENDENHALL:
19 Q. Do you understand he was receiving
20 contributions.
21 A. So you basically --
22 THE INDEPENDENT HEARING OFFICER: Time, time,
23 time. Everybody's -- ask your question. Keep going.
24 Go ahead.
25 THE WITNESS: Just so I'm clear. So anyone
132
1 that received contributions in October of 2001 and on
2 back that's the number of individuals.
3 BY MR. MENDENHALL:
4 Q. Going forward.
5 A. So 2001 through 2003?
6 Q. 2002, 2003, yes.
7 A. Versus the opposite direction.
8 Q. Exactly, ma'am.
9 A. Okay.
10 THE INDEPENDENT HEARING OFFICER: The witness
11 is ready for you.
12 THE WITNESS: Four.
13 BY MR. MENDENHALL:
14 Q. So of the 34 names, only four received
15 contributions but are not on the payroll post October,
16 2001, correct, ma'am?
17 MR. THOMAS: Objection.
18 THE INDEPENDENT HEARING OFFICER: What's your
19 objection?
20 MR. THOMAS: We're mixing terms and it's --
21 THE INDEPENDENT HEARING OFFICER: I
22 understand. He's mixing saying they got benefits. The
23 chart shows -- is only dealing with persons for whom
24 the benefits were paid to the Pension Fund.
25 MR. THOMAS: Correct. And --
133
1 MR. LYDON: Actually it's contributions,
2 contribution credit.
3 MR. THOMAS: And all I'm asking is that the
4 question make that clear for the record because both
5 the questioner and the witness are using the term
6 "benefits received" which is not what we're talking
7 about.
8 THE INDEPENDENT HEARING OFFICER: We're
9 talking about this particular document and the reader
10 is not going to get confused -- we are talking about
11 benefits paid to the Fund.
12 MR. THOMAS: To the Fund.
13 MR. LYDON: Contribution credits.
14 THE INDEPENDENT HEARING OFFICER:
15 Contributions paid to the Fund.
16 MR. THOMAS: Yes.
17 THE INDEPENDENT HEARING OFFICER: All right.
18 And everybody understands that and Miss Smith knows
19 that. Now go ahead.
20 BY MR. MENDENHALL:
21 Q. And Miss Smith, can you please identify those
22 four names for us.
23 A. Willie Bates, Nicholas Cataudella I think.
24 Q. And for the benefit of the court reporter
25 that is spelled, C-a-t-a-u-d-e-l-l-a?
134
1 A. Correct.
2 Q. And the next one?
3 A. Floyd Gene Grogan and Victor Roa, R-o-a.
4 Q. For the benefit of the court reporter that is
5 spelled R-o-a?
6 A. Yes.
7 Q. And Miss Smith, in the course of preparing
8 the audit you prepared, were you provided -- were you
9 asked to look into any minutes or any documents
10 establishing why this practice existed? And by the
11 practice I mean, one, the practice of contributions
12 being made to the Pension -- to the Funds for
13 individuals not on payroll.
14 A. Asked by who?
15 Q. By anyone. Then we can work back from there,
16 ma'am.
17 A. Can you ask your question again.
18 Q. Okay. Either before, during, or after your
19 audit were you ever asked by anyone to look into the
20 issue of why contributions were being made to Pension
21 and Health and Welfare Funds for individuals not on the
22 payroll.
23 A. We were asked to -- no, we were not asked to
24 look at any documents. Well, we were asked to
25 determine why these individuals were on payroll. We
135
1 asked what their positions were and we asked why they
2 were contributed on and not on payroll.
3 Q. And that practice was explained to you,
4 correct?
5 A. It was explained to us. We did not receive
6 any documentation.
7 Q. And it was explained to you that these
8 individuals served in different capacities for the
9 Local, i.e., Executive Board members, Auditors, and
10 other positions, correct?
11 A. Right.
12 Q. And so each of these individuals were in fact
13 working for the Local, correct, in some capacity or the
14 other. At least you were informed of that.
15 MR. THOMAS: Objection to the form of that.
16 She has no basis to know. She only knows what she was
17 told.
18 MR. LYDON: That's what he asked.
19 MR. MENDENHALL: I just asked her, "And you
20 were you informed of that."
21 THE INDEPENDENT HEARING OFFICER: I'm going
22 to -- you may clarify that because that's a misleading
23 statement. Go ahead. Keep going.
24 MR. MENDENHALL: Are you going to clarify or
25 did you want me to?
136
1 THE INDEPENDENT HEARING OFFICER: If you
2 don't, I will.
3 BY MR. MENDENHALL:
4 Q. Okay. And you were informed that these
5 individuals were in fact performing services for the
6 Local, correct?
7 A. Right. We were verbally told that these
8 individuals were performing services for the Local.
9 Q. As you sit here today, you have never seen
10 any information to the contrary that these individuals
11 were not performing services for the Local; am I
12 correct?
13 A. Correct.
14 THE INDEPENDENT HEARING OFFICER: Were you
15 told, ma'am, that some of these individuals were
16 part-time? They were not paid full-time? Were you
17 given any description of their duties, whether it was
18 full-time or part-time or just paid for coming to
19 meetings?
20 THE WITNESS: We were told what position they
21 were. If they were paid they were not in payroll.
22 THE INDEPENDENT HEARING OFFICER: Okay. So
23 you have no idea if they were -- if they were what you
24 call a full-time salary or only paid for showing up
25 once a month.
137
1 THE WITNESS: Right.
2 THE INDEPENDENT HEARING OFFICER: And do you
3 know if they get paid once a month for showing up they
4 were given a W-2 for that?
5 MR. LYDON: Is there any evidence they showed
6 up once a month?
7 THE INDEPENDENT HEARING OFFICER: In the
8 business of a Union there are many part-time --
9 MR. LYDON: I understand, but what are you
10 referring to?
11 THE INDEPENDENT HEARING OFFICER: Just
12 because his question was, "These persons were working
13 for the Union they were being paid by them." That
14 could mean Business Managers full-time,
15 Secretary-Treasurer maybe full-time, Executive position
16 once a month to show up. Recording Secretary once a
17 month. So the question --
18 MR. LYDON: It could be once every two weeks.
19 We might want to --
20 THE INDEPENDENT HEARING OFFICER: So maybe
21 they get paid 40 bucks for showing up or something like
22 that. So the question as is -- I don't want the record
23 to be misleading that they were told they were working
24 for the Union and performing services. It could have
25 been one day a month.
138
1 MR. LYDON: With respectful objection to what
2 you just said, I think -- unless you're a witness as to
3 what went on, it would be appropriate if she told us
4 about that.
5 THE INDEPENDENT HEARING OFFICER: I just
6 asked her that and she said she was never given any
7 direction to that. Go ahead.
8 MR. MENDENHALL: Madam Court Reporter, can
9 you read back my last question and the witness' answer?
10 (Record read.)
11 BY MR. MENDENHALL:
12 Q. And in fact, Miss Smith, you've never seen
13 any information that individuals were being paid a
14 salary or money and not doing any work on behalf of the
15 Local; am I correct?
16 MR. THOMAS: Objection as to the relevance.
17 That's not an allegation in this case.
18 BY MR. MENDENHALL:
19 Q. Am I correct?
20 THE INDEPENDENT HEARING OFFICER: Overruled.
21 Let me hear the answer. What was the question now?
22 BY MR. MENDENHALL:
23 Q. You've never seen any information that
24 individuals were being paid money and not performing
25 any work on behalf of the Local; am I correct?
139
1 A. Can I repeat your question so I can see if I
2 understand what you're asking me?
3 Q. Sure.
4 A. Are you asking me did I see individuals
5 making a salary and not performing work?
6 Q. Yes.
7 MR. THOMAS: She couldn't -- the objection is
8 she couldn't possibly have a basis for knowing that.
9 She's checking paper. She's not monitoring -- she's
10 not surveilling.
11 THE INDEPENDENT HEARING OFFICER: If she
12 knows. That's not an allegation here, but if she
13 knows.
14 THE WITNESS: I don't know if they were
15 making a salary and working. I just know if they were
16 making a salary and reported to the Funds or not.
17 BY MR. MENDENHALL:
18 Q. And Miss Smith, you are aware in the
19 corporate world individuals serve on Board of Directors
20 and receive compensation through stock and other forms;
21 am I correct?
22 A. No, I don't know that.
23 Q. So as you sit here today, you have a limited
24 knowledge of how a Board compensation and --
25 compensation is paid to officers who serve on
140
1 particular Boards; am I correct?
2 A. Correct.
3 Q. And you don't purport to hold yourself out as
4 an expert in any way in that regard; am I correct?
5 MR. THOMAS: Objection to the relevance.
6 We're not talking about Corporate Boards here.
7 THE INDEPENDENT HEARING OFFICER: I don't
8 think she's holding herself out. Nobody asked her that
9 anyway. You may answer it.
10 THE WITNESS: No, I'm not an expert on
11 Corporate Boards.
12 BY MR. MENDENHALL:
13 Q. Or how Union Boards operate or compensate
14 members of the Board; am I correct?
15 A. No, I'm not an expert on how Unions
16 compensate members of their Board.
17 Q. So you have no opinions in that regard. You
18 simply performed an audit, correct?
19 A. Correct.
20 Q. In connection with this audit, did you talk
21 to any other members of the Local outside of the
22 officers?
23 A. No.
24 Q. So as you sit here today, you do not know
25 whether or not the members approved of this practice of
141
1 allowing individuals to receive contributions in the
2 form of Pension and Health and Welfare who were not on
3 payroll; am I right?
4 A. No, I do not know if any of the members of
5 Local 1001 approved of individuals being on
6 contribution reports and not on payroll.
7 Q. And in the course of performing your various
8 audits, have you ever -- strike that.
9 Have you ever had the occasion to audit any
10 other Locals within LIUNA to determine whether or not
11 this was a practice at another Union?
12 A. I do not know what LIUNA is.
13 THE INDEPENDENT HEARING OFFICER: Ma'am,
14 LIUNA is the Laborers' International Union of North
15 America, and Local 1001 is a member of that Union. Now
16 do you understand the question?
17 THE WITNESS: Yes.
18 I have performed audits from other Locals. I
19 do not remember if they were respective of the
20 Laborers' or not.
21 BY MR. MENDENHALL:
22 Q. Miss Smith, in the complaint -- I ask you to
23 assume these facts are true. In the complaint for
24 Trusteeship LIUNA, who Mr. Vaira just explained to you,
25 alleges that members of organized crime received a
142
1 total of $435,003 worth of Pension and Health and
2 Welfare Benefits over the course of this 40 year period
3 you talked about earlier. I'm asking you to assume for
4 purposes of these next questions that those facts are
5 true, okay?
6 A. Okay.
7 Q. Okay. If you would for me, would you please
8 take the $435,003 number and divide it for me by 40 and
9 let me know what do you get?
10 MR. THOMAS: Mr. Vaira, this is -- he can do
11 this in his brief. He can do it -- it's an observable
12 fact.
13 THE INDEPENDENT HEARING OFFICER: Let's go.
14 Go ahead, sir.
15 BY MR. MENDENHALL:
16 Q. $435,003 divided by 40.
17 A. $10,875.75, unless I have too many zeroes.
18 Q. That's exactly what I have. I have $10,875.
19 So we're not -- we're off by two dollars.
20 A. Okay.
21 Q. And I will give you the benefit of the doubt
22 on that one. I calculated these numbers pretty early.
23 Miss Smith, I will now ask you to turn to
24 Exhibit 7, and the bate number on that document is GEB
25 0409. Let me know when you're there.
143
1 A. I'm here.
2 Q. And this was a document that Mr. Thomas
3 showed you earlier; am I correct?
4 A. Yes.
5 Q. Let me backtrack slightly, Miss Smith, very
6 quickly a couple of questions. As you sit here today,
7 you do not know whether or not there was a hand shake
8 deal between the Fund and Local 1001 concerning the
9 practice you reference concerning payments to Pension
10 Funds but not being on payroll, am I correct?
11 A. I don't know about any hand shake deals
12 between the Local and the Funds.
13 Q. And you don't know about any written deals
14 that may exist between the Local and the Fund; is that
15 correct?
16 A. I believe that they have a contract, so that
17 would be a written deal.
18 Q. But I mean just as it relates specifically to
19 this issue of whether or not Pension -- there was an
20 agreement that contributions to the different Funds
21 could be made to individuals who were not on the
22 payroll.
23 A. No, I do not know about any written deals
24 between the Local and the Funds about individuals that
25 could be contributed on and not on payroll.
144
1 Q. And you were specifically asked again to
2 analyze and come up with some numerical figures, am I
3 correct, in the audit. You were strictly asked to do
4 the audit.
5 A. We were strictly asked to do the audit.
6 Q. Turning to Exhibit Number 7, which Mr. Thomas
7 asked you about earlier. The numbers provided in this
8 exhibit, do you recognize the numbers as information
9 you came across during the course of your audit, have
10 you seen these numbers prior to today?
11 A. No.
12 Q. And Miss Smith, the file that you brought
13 with you today, I was able to review one set of
14 handwritten notes. Are there other handwritten notes
15 in that file?
16 A. Yes.
17 Q. Okay. And what do those relate to?
18 MR. THOMAS: Objection.
19 THE INDEPENDENT HEARING OFFICER: She can
20 describe them generally. You may describe them
21 generally, ma'am.
22 THE WITNESS: The process of how the audit
23 was conducted.
24 BY MR. MENDENHALL:
25 Q. The procedures and methods you used, correct?
145
1 A. Correct.
2 Q. And those procedures and methods are what you
3 use customarily in the normal course of your business,
4 correct, of conducting audits similar to these.
5 A. Yes, it's procedures. The procedure that I
6 used to conduct audits for Local 1001 is the procedure
7 I use to conduct all the audits for compliance.
8 Q. And it is based upon those procedures that
9 you were able to prepare the documents that you did in
10 fact send to the Fund; am I correct?
11 A. Correct.
12 Q. Miss Smith, if you would turn with me again
13 to Exhibit 32.
14 A. Yes.
15 Q. I would ask that you turn to page bate
16 stamped GEB 0870.
17 MR. THOMAS: Mr. Vaira, it appears that the
18 document -- that the set of exhibits that the witness
19 has been given has been highlighted. And I don't know
20 whether everyone else's copies have been highlighted.
21 THE INDEPENDENT HEARING OFFICER: We will
22 trade you. This one isn't highlighted. You must have
23 -- maybe that's something Miss Kathy had.
24 MS. NAGLE: It's nothing Miss Kathy had.
25 MR. MENDENHALL: Mr. Thomas, you're more than
146
1 welcome to come take a look at it if you'd like, the
2 highlighted portion.
3 MR. THOMAS: Is my copy highlighted?
4 THE INDEPENDENT HEARING OFFICER: It was Miss
5 Nagle's copy.
6 MS. NAGLE: No, it was not.
7 THE INDEPENDENT HEARING OFFICER: Anyway,
8 whatever it was it was purely yellow. There was no
9 notes on it or anything like that. Go ahead.
10 BY MR. MENDENHALL:
11 Q. Miss Smith, have you had an opportunity to
12 turn to 0870?
13 A. Yes.
14 Q. And this is a report you prepared concerning
15 -- strike that.
16 Please tell us what this is.
17 A. This is the part of the -- this is the
18 detailed report of the audit report that was sent for
19 Local 1001, and the date is 3-31-03.
20 Q. And the audit report relates this portion to
21 the underreporting of benefits. That's my
22 understanding. Am I correct?
23 A. Yes.
24 Q. And this report consists -- this portion of
25 the report consists of ten pages; am I correct?
147
1 A. Yes.
2 Q. And can you please -- of these ten pages, can
3 you please refer me to pages that refer to conduct post
4 October, 2001.
5 MR. THOMAS: Mr. Vaira, may I ask for a
6 proffer of relevance of the October, 2001 date? The --
7 let me just state what I think my objection is going to
8 be depending on what the proffer is. But this matter
9 was uncovered by the Fund in March of 2002. So by
10 definition it was a very short period of time after
11 that when all of this was cut off. So perhaps counsel
12 can tell us what the relevance of that date is.
13 THE INDEPENDENT HEARING OFFICER: Counsel may
14 have a different idea about something and I'll -- I
15 believe they're not something -- they have an idea
16 where it is. They're very specific and we'll let them
17 go and we'll see. You may proceed.
18 BY MR. MENDENHALL:
19 Q. Miss Smith, of those ten pages can you please
20 let me know which page contains information relating to
21 conduct post October, 2001.
22 A. On page ten.
23 Q. So the first nine pages does not contain any
24 conduct or evidence relating to underreporting after
25 October, 2001; am I correct?
148
1 A. Correct.
2 Q. And Miss Smith, turning now to page ten. The
3 number of months that you determined there was
4 underreporting post October, 2001, how many months are
5 we looking at, ma'am?
6 A. Are you including October, 2001?
7 Q. Yes.
8 A. Eight.
9 Q. And if you would, ma'am, my final question is
10 -- strike that. I'll withdraw that.
11 No more questions. Thank you very much for
12 your time.
13 THE INDEPENDENT HEARING OFFICER: Thank you.
14 REDIRECT EXAMINATION
15 BY
16 MR. THOMAS:
17 Q. Miss Smith, let me just ask you a couple of
18 points mostly in the way of clarification.
19 Mr. Mendenhall asked you to do some math
20 dividing a little more than $80,000 into -- by forty
21 years. Remember that? And you came up with slightly
22 over 2,000?
23 A. Yes.
24 Q. The $80,000 loss to the Funds, that is the
25 underpayment from the Local to the Funds, occurred in
149
1 what -- which portions of that 40 year period?
2 A. Can I look at this document?
3 Q. Please.
4 A. The audit findings are from June of 1992
5 through May of 2002.
6 Q. So the $80,000 was actually --
7 MR. MENDENHALL: If I can just -- Mr. Vaira,
8 in all honesty, you guys were asking me a question
9 about the exhibits. I didn't hear the underlying
10 question or answer that she just gave. I would ask the
11 court reporter if you can read me back Mr. Thomas'
12 question and answer.
13 (Record read.)
14 MR. THOMAS: Can I proceed?
15 THE INDEPENDENT HEARING OFFICER: Okay.
16 BY MR. THOMAS:
17 Q. So the $80,000 loss relates to a ten year
18 period actually, not to a 40 year period, correct?
19 A. Correct.
20 Q. So the math, the division, if you were to do
21 it on a per year basis in the last ten years, would be
22 more like $8,000 a year, right?
23 A. Correct.
24 Q. Now there was some terminology that we all
25 got using and I want to make sure that we're cleaning
150
1 up the record on this. The issue that you looked at
2 with respect to the list of people that you generated
3 for whom contributions were made when they weren't
4 reflected on payroll. I think you have that in front
5 of you, correct?
6 A. Yes.
7 Q. I want to distinguish between contributions
8 made by the Local and benefits received by any
9 individuals. Do you understand that distinction?
10 A. Yes.
11 Q. That list that Mr. Mendenhall was questioning
12 you about reflects which of those?
13 A. It is contributions made by the Local.
14 Q. Okay. Were you asked to do any analysis of
15 actual benefits received by any of these people?
16 A. No.
17 Q. Mr. Mendenhall asked you a number of
18 questions about what you were told about these things.
19 He never asked you who you talked to. Who did you talk
20 to at the Local?
21 A. I talked to a number of people, Bob Chianelli
22 and Sam DeChristopher I believe.
23 Q. Okay. And was there any rhyme or reason as
24 to why those people as opposed to anybody else?
25 A. I did talk to other people at the Local, but
151
1 they were -- Bob was the one that was working with me
2 at the -- giving me all the documents to complete the
3 audit.
4 Q. And did you get any information concerning
5 who at the Local prepared the remittance reports to the
6 Funds?
7 A. From what I remember, Debra Chianelli.
8 Q. One of the clerical staff?
9 A. Yes.
10 MR. MENDENHALL: I'm going to enter an
11 objection and ask for a time period. The remittance
12 reports go back 40 years, and I'm quite sure the same
13 person didn't prepare all 40 years of reports. If Mr.
14 Thomas can provide us some time frame, that would be
15 helpful.
16 MR. THOMAS: The time frame comes from a
17 cross examination question which is when she was
18 talking to these people.
19 BY MR. THOMAS:
20 Q. Did the people you talked to give you any
21 time frame on when Miss Chianelli did those reports?
22 A. I know that Debra did them for a period of
23 time while she was working there, and Shirley Esposito
24 did it for a period of time also. I don't know exactly
25 what time frames they were.
152
1 Q. Okay. So you talked to Mr. Chianelli, Mr.
2 DeChristopher. Anyone else you can think of?
3 A. I would have to refer to my notes.
4 Q. And what was the purpose of your actually
5 having the conversations? Was it to gain access to the
6 files or for some other reasons?
7 A. Some of them were to gain access to the files
8 or documents that we needed for the audits. Some of
9 them were to identify individuals or -- and some of
10 them were to explain to the people, the officers that
11 were there and Debra, I think she was there, what the
12 findings were. And from what I recall -- and we had to
13 identify different job titles.
14 Q. So what was the context for the conversation
15 in which you were told, and this is from my notes, that
16 you were told verbally that some of these people were
17 performing services. Was that you questioning them or
18 was that them volunteering that information after you
19 read them the findings? What was the context?
20 A. The context was I informed them that there
21 were certain people on the contribution reporting forms
22 that were not on payroll and I didn't know why, and
23 they told me that certain people, they were getting
24 compensation for -- they were getting compensation for
25 their position based on an election.
153
1 Q. But the compensation for their position, was
2 that described to you what the compensation was?
3 A. It wasn't said exactly that they were getting
4 benefits for not -- they were -- well I guess they were
5 saying exactly. They were getting -- they were being
6 contributed on in benefits for whatever position they
7 were -- they held.
8 Q. In other words, they were getting Pension and
9 Welfare benefits as their sole form of compensation.
10 A. For that position that they held.
11 Q. Did that make any sense to you?
12 MR. MENDENHALL: Object to the relevancy.
13 THE INDEPENDENT HEARING OFFICER: You can
14 answer that.
15 THE WITNESS: I didn't care.
16 BY MR. THOMAS:
17 Q. So you simply compared one to the other, and
18 then when you gave them their findings this is what
19 they essentially said in response.
20 A. Correct.
21 Q. And as best you can recall, that was Mr.
22 Chianelli and Mr. DeChristopher.
23 A. Yes.
24 Q. Did they give you -- did either Mr. Chianelli
25 or Mr. DeChristopher or anyone else you talked to ever
154
1 say to you that these people actually worked 120 or 160
2 hours a month as indicated on the remittance reports?
3 A. No, they did not discuss that with me.
4 MR. THOMAS: Thank you.
5 Nothing further, Mr. Vaira.
6 RECROSS EXAMINATION
7 BY
8 MR. MENDENHALL:
9 Q. Miss Smith, do you have notes there
10 reflecting these conversations with Mr. Chianelli and
11 Mr. DeChristopher and the other individuals you spoke
12 with at Local 1001?
13 A. Yes.
14 Q. And they would be contained in that file you
15 have with you today?
16 A. Yes.
17 MR. LYDON: We renew an opportunity --
18 THE INDEPENDENT HEARING OFFICER: Denied.
19 Denied.
20 BY MR. MENDENHALL:
21 Q. Miss Smith, you've mentioned Mr. Chianelli.
22 Let's start with Mr. Chianelli. He cooperated fully
23 with you during your audit; am I correct?
24 A. Yes.
25 Q. And even offered you lunch if I'm correct.
155
1 Am I correct you were offered food as well while you
2 were at the Local.
3 A. Coffee.
4 Q. And let's take Mr. DeChristopher. Mr.
5 DeChristopher also cooperated with you fully during
6 this audit, correct?
7 A. Yes.
8 Q. And at no point did he refuse to cooperate or
9 produce you any documents, correct?
10 A. Yes, they did refuse to provide documents.
11 Q. What documents were they?
12 A. They were cash disbursement records.
13 Q. Cash disbursement records?
14 A. Right.
15 Q. And did anybody -- did Miss Chianelli refuse
16 to cooperate with you in any way?
17 A. Yes, he also refused to provide us cash
18 disbursement records.
19 Q. Miss Chianelli I said.
20 A. Debra Chianelli?
21 Q. Miss Chianelli.
22 A. Yes. If one didn't provide it, all of them
23 didn't provide it.
24 Q. Okay. And what was the significance of the
25 cash disbursement records?
156
1 A. The cash disbursement records is to see if
2 there are any outside payments for individuals. Let's
3 say there was another full-time employee being paid
4 through their cash disbursement records that were not
5 on payroll, we would be able to determine that.
6 Q. But that had nothing to do with the issues
7 you looked into concerning the underreporting or the
8 benefit payments for individuals?
9 A. Yes, it would have. If there was another
10 time person being paid through another account, then
11 that person should have been contributed on.
12 Q. And who -- and are -- is that information
13 reflected in your notes, the refusal to cooperate?
14 A. Refusal -- we knew that we were not going to
15 receive those records before the third time. It wasn't
16 as though Mr. Chianelli or Mr. DeChristopher refused us
17 the records. Their attorneys refused us the records.
18 Q. Okay.
19 A. So they took directions from their attorneys.
20 Q. So then you misspoke when you said Mr.
21 Chianelli or anyone at the Local refused to cooperate
22 with you, correct?
23 A. Well if they didn't give us the records, they
24 didn't cooperate in that sense.
25 Q. And they were acting on the advice of their
157
1 counsel, correct?
2 A. Correct.
3 MR. MENDENHALL: No further questions.
4 THE INDEPENDENT HEARING OFFICER: You have
5 one more question.
6 MR. THOMAS: I guess I'll try not to make it
7 compound.
8 MS. NAGLE: You can have two now he said.
9 FURTHER REDIRECT EXAMINATION
10 BY
11 MR. THOMAS:
12 Q. Was there a correspondence between your firm
13 and Local 1001's counsel that you were aware of
14 explaining why you weren't going to get these
15 documents?
16 A. There is correspondence between Local 1001's
17 attorney and our -- people in our firm about why we did
18 not receive the records.
19 Q. Why did you want the records in addition to
20 the other payroll stuff that you did get access to?
21 A. It's part of our regular audit procedures.
22 Q. How often does it occur to you in a regular
23 compliance audit that someone refuses you part of the
24 records that you're asking for.
25 A. I would say maybe five per cent of the times,
158
1 but then eventually we see the records.
2 Q. In this case you did not?
3 A. Correct.
4 MR. THOMAS: Nothing further.
5 THE INDEPENDENT HEARING OFFICER: Thank you.
6 Ma'am, thank you very much.
7 (Witness excused.)
8 Mr. Thomas, I understand you're going to call
9 Mr. Maria to the stand.
10 MR. THOMAS: Yes.
11 THE INDEPENDENT HEARING OFFICER: I will give
12 everybody a five minute break to get coffee to get
13 prepared for Mr. Maria's testimony.
14 (Whereupon a break was taken in
15 the proceedings after which the
16 following proceedings were had:)
17 THE INDEPENDENT HEARING OFFICER: Gentlemen,
18 are we ready to go here?
19 MR. THOMAS: At this time we call Mr. Maria
20 to the stand.
21 (Witness duly sworn.)
22 RAYMOND MARIA,
23 called as a witness on behalf of the Petitioner, having
24 been first duly sworn, was examined and testified as
25 follows:
159
1 DIRECT EXAMINATION
2 BY
3 MR. THOMAS:
4 Q. Good afternoon, Mr. Maria.
5 Could you state your full name for the record
6 please.
7 A. Raymond Maria.
8 Q. Mr. Maria, how are you employed?
9 A. I'm self employed.
10 Q. What type of work do you do?
11 A. I perform fraud detection, fraud prevention,
12 and forensic accounting services.
13 Q. Let's get a sense of your professional
14 background.
15 After college where did you go to work or
16 what further education did you get?
17 A. After the military, after service in the
18 United States Army I then -- and after graduate school
19 I then was employed by the Federal Bureau of
20 Investigation from 1965 until 1968.
21 Q. Okay. So three years with the Bureau. Any
22 particular types of investigations?
23 A. General criminal investigations during that
24 time frame with the bureau.
25 Q. And then 1968 forward?
160
1 A. 1968 to 1972 I was employed by the firm that
2 was then known as Ernst & Ernst, now known as Ernst &
3 Young.
4 Q. In what capacity?
5 A. I spent two years on the consulting staff and
6 then acquired my CPA and spent two years on the audit
7 staff.
8 Q. I think you said 1972 is when you stopped
9 working there?
10 A. Yes.
11 Q. Where did you go to work in 1972?
12 A. I then returned to the FBI in 1972 and
13 remained there until 1984.
14 Q. What types of investigations did you work on
15 during those twelve years?
16 A. I worked in the area of organized crime and
17 labor racketeering.
18 Q. Okay. And in 1984 where did you go?
19 A. 1984 I then was appointed to the position of
20 Deputy Inspector General of the United States
21 Department of Labor and remained there until 1990.
22 Q. What were the areas under your supervision at
23 the Office of Inspector General?
24 A. Initially I was responsible for overseeing
25 the Office of Labor Racketeering in addition to
161
1 performing all the other duties that a deputy would
2 perform for the Inspector General.
3 Q. And I think we all know it, but just to make
4 sure what you mean by the term. Can you describe what
5 you mean by labor racketeering?
6 A. Well our investigations were premised on --
7 basically we were attempting to establish or did
8 establish the premise that the organized criminal
9 element had infiltrated and controlled legitimate labor
10 organizations in an effort to influence the quality and
11 quantity of labor in time intensive industries. And so
12 my investigations involved Laborers' International
13 Union of North America, International Brotherhood of
14 Teamsters, International Longshoremans' Association,
15 and the Hotel and Restaurant Employees' International.
16 And that work spanned from my second term in the FBI
17 through the -- my tour as the Deputy Inspector General
18 and then Acting Inspector General for the Department of
19 Labor.
20 Q. So that would be approximately eighteen
21 years, your twelve with the Bureau and then six with
22 the Department of Labor?
23 A. That is correct.
24 Q. Okay. And that took you to 1990 if I heard
25 you correctly?
162
1 A. Correct.
2 Q. What did you do in 1990?
3 A. 1990 I formed a small corporation that was --
4 essentially offered services in the area of fraud
5 detection, fraud prevention, conflicts of interest,
6 ethical breaches. My clients were primarily law firms
7 who had corporate clients. And I also did work for
8 state regulatory and enforcement bodies, departments of
9 insurance. And then in the year 2000 I closed the
10 company and became a sole proprietor, which is what I
11 am today.
12 Q. And in your -- in connection with your sole
13 proprietor business, have you worked at least part-time
14 for Inspector General Douglas Gow?
15 A. Yes, I've been a consultant to the Inspector
16 General Mr. Gow.
17 Q. Approximately what percentage of your work is
18 labor related?
19 A. That's a difficult question. From month to
20 month it varies, but it could be 35 per cent, it could
21 be 45 per cent. Some months it's zero.
22 Q. Okay. How many investigations -- labor
23 racketeering investigations, including your career in
24 law enforcement, do you think you've been involved in?
25 A. Numerous. Numerous. Some lasting as long --
163
1 if may -- may I explain?
2 Q. Yes.
3 A. Sometimes just one investigation which may
4 last five years. So -- but I would say easily 50 labor
5 racketeering investigations in which I actively
6 conducted investigations, far more in those that I
7 supervised.
8 Q. During the course of your career both with
9 Inspector General Gow as well as your prior career in
10 law enforcement and your private company, did you have
11 experience handling employee benefit fraud
12 investigations.
13 A. Yes, I did.
14 Q. And do you view that as separate from or part
15 of labor racketeering?
16 A. I view that as part of labor racketeering.
17 Q. Could you explain what you mean by that term
18 employee benefit fraud?
19 A. Well initially investigative efforts were
20 directed at fiscal malpractice within Labor Unions,
21 District Councils, but it became abundantly clear to me
22 and to others that the real money was in the area of
23 the employee benefit plan arena probably with respect
24 to private employee benefit plans, pension plans. I
25 think they're the largest source of non-bank investment
164
1 capital in the world. And we began to develop an
2 investigative template to examine, first of all, who
3 Trustees of the benefit plans were, particularly with
4 Taft-Hartley plans, what decisions they were making,
5 what vendors they hired, whether there were ineligible
6 participants receiving benefits from a plan, things of
7 this nature. This is what I would refer to as employee
8 benefit plan fraud. Kickbacks to influence the actions
9 of an employee benefit plan.
10 Q. Have you been involved in prosecutions
11 involving those fact patterns?
12 A. Yes.
13 Q. Have you been hired in your private sector
14 capacity to investigate those types of allegations?
15 A. Yes, indeed.
16 MR. THOMAS: Mr. Vaira, at this time I would
17 move to have Mr. Maria qualified, as he has been
18 qualified in previous cases, as an expert in labor
19 racketeering investigations and in criminal employee
20 benefit fraud matters.
21 THE INDEPENDENT HEARING OFFICER: Yes.
22 Granted.
23 MR. THOMAS: Thank you.
24 BY MR. THOMAS:
25 Q. Mr. Maria, when we talk about an ERISA Fund,
165
1 an Employee Benefit Fund, could you walk us through the
2 typical scenario. I'm not talking about 1001 and
3 Laborers' Pension Fund yet, but just the typical
4 scenario of who the employers are, how the
5 contributions are made, and then how they're supposed
6 to be handled by Trust Funds.
7 A. When we talk about a fund covered by ERISA,
8 in this environment, I believe, we're talking about a
9 multi-employer collectively bargained plan.
10 Q. You understand --
11 A. That's Mr. Jorgensen's plan.
12 Q. You want to explain that term?
13 A. These are plans that essentially grew out of
14 the Taft-Hartley Act, Labor Management Relations Act,
15 in 1947. And in the Taft-Hartley Act, also known as
16 Multi-Employer Collectively Bargained Plan, you have as
17 a result Collective Bargaining Agreements. A Trust
18 Agreement is established at various parties to
19 Collective Bargaining Agreement, agree to be bound by
20 the Trust Agreement, and make benefit plan
21 contributions to the Funds in behalf of eligible
22 participants.
23 Q. And is the term "eligible participants" a
24 legal term or a term of art?
25 A. I believe it's a legal term and -- I believe
166
1 it's a legal term.
2 Q. From ERISA or some other --
3 A. It will be mentioned in ERISA. And the
4 answer to that is yes.
5 Q. Okay. How --
6 A. And in the IRS code, somewhere in that code.
7 Q. And how does the law recognize or -- let me
8 rephrase that.
9 How is "eligible participant" defined in this
10 trade?
11 THE INDEPENDENT HEARING OFFICER: Eligible
12 participant in the benefit plan.
13 MR. THOMAS: Yes. For a benefit plan.
14 THE WITNESS: Synonym for "eligible
15 participant" would be "eligible employee". Okay.
16 "Employee" is further defined as one who works for
17 salary or wages in the services of an employer.
18 BY MR. THOMAS:
19 Q. All right. And so --
20 MR. MENDENHALL: Mr. Thomas, can I get a
21 quick clarification? Is this just in general, nothing
22 as to Local 1001, am I correct?
23 THE INDEPENDENT HEARING OFFICER: He said
24 that. This is just a general background. All right.
25 Mr. Maria, as you go along, perhaps you can
167
1 make a -- give us a painted picture. Just take a
2 typical construction company, let's assume that's part
3 of a Collective Bargaining Agreement. They're heavy
4 highway, let's say, or waste removal or whatever, and
5 they are a collective bargaining unit, and proceed from
6 there. Then you give us -- sort of paint the picture.
7 THE WITNESS: An employer who is going to be
8 a signatory, in this case contractor, or more
9 specifically in this case, Local 1001, which is
10 considered an employer, makes contributions for
11 eligible employees to the benefit plan according to a
12 formula established in the most recent or prevailing
13 Collective Bargaining Agreement, and being guided by,
14 obviously, the language set forth in the Trust
15 Agreement.
16 So on a monthly basis an employer submits an
17 employer contribution report, earlier it was referred
18 to as remittance report, but it's employer contribution
19 report, listing the eligible employees, the number of
20 hours worked, and of course then that's multiplied by
21 the prevailing dollar amount that the employer is
22 required to contribute to the pension plan, the welfare
23 plan and various other plans, and it varies from
24 Collective Bargaining Agreement to Collective
25 Bargaining Agreement. And form plus the remittance are
168
1 sent to the Funds on a monthly basis.
2 BY MR. THOMAS:
3 Q. And let me stop you there.
4 In connection with the transmission of
5 contribution reports to the Funds from the employer,
6 are there any certifications or warranties that go with
7 that statement?
8 A. Yes. The report completed by the employer
9 and accompanied by the remittance contains a warranty
10 which basically an officer -- an officer of the
11 employer is attesting to the accuracy of that report.
12 Q. What's the purpose of that warranty and
13 certification?
14 A. Well the purpose would be to make it clear to
15 the employer that he has an obligation to be truthful
16 and candid and abide by the terms of the Collective
17 Bargaining Agreement in terms of listing all the
18 eligible employees and then listing accurately the
19 number of hours for that month worked by each employee.
20 And it's significant in that submission of false
21 information on this report can and often is construed
22 as a criminal violation.
23 Q. Of what --
24 A. 18 United States Code, Section 1027, which is
25 a felony.
169
1 Q. And from the Fund's perspective on the
2 receiving end of these documents, what's the
3 significance of the certification and warranty.
4 A. Very similar to the IRS accepting your tax
5 return. There is a deterrent, or should be a
6 deterrent, knowing that once you've signed the
7 remittance report, or in this case -- in someone else's
8 case a tax return, the government is in fact relying on
9 your attestation or your warranty.
10 Q. So by analogy then you're saying the Funds
11 are relying on --
12 A. Yes.
13 Q. And in your experience in these types of
14 matters, do in fact Funds rely on that information?
15 A. Yes.
16 Q. What checks, if any, are in place -- again
17 not speaking about these particular players yet. But
18 in general, what checks are in place to help Funds make
19 sure that the information they are getting is accurate?
20 A. As we have heard earlier, the Trustees of the
21 Funds employ -- typically employ outside firms. They
22 can do it in-house, but in this case they employ
23 outside audit firms to conduct agreed upon procedures,
24 earlier described as payroll compliance audits, to
25 essentially test the integrity of the reporting and
170
1 remittance system.
2 Q. And so is this a -- at least ideally, anyway,
3 an objective measure? In other words, a third party
4 look at this?
5 A. Yes. And it's a reasonable -- it certainly
6 is a reasonable check and a reasonable procedure to
7 apply to ensure that, in fact, numerous -- I think in
8 this case Mr. Jorgensen testified there were
9 approximately seventeen hundred contributing employers.
10 Well it would be unreasonable, virtually impossible,
11 cost prohibitive to examine and challenge the monthly
12 Remittance Form from each employer. So one as a
13 Trustee reasonably commission an outside firm to sample
14 and attest on a cycle basis various employers.
15 Q. So it's in essence a periodic test?
16 A. Yes.
17 Q. So in terms of safety nets here, if the
18 information going from the employer to the Funds is
19 required to be accurate, what comprises the safety net
20 or should comprise the safety net to make sure the
21 Funds have the right information?
22 A. Well the safety net is the deterrence that
23 should be built into the penalties associated with a
24 false report. And then the other safety net is, of
25 course, knowing that the Funds, okay, periodically will
171
1 examine -- use an outside firm to examine the accuracy
2 of your submission.
3 Q. With respect to the officers of let's say a
4 Local Union employer, do they have any fiduciary
5 responsibilities to their membership with respect to
6 the Union's own money?
7 A. Yes, they do. That is clearly -- and that's
8 clearly stated. The standards of fiduciary behavior
9 for an officer of a Local Union with respect to
10 management of business affairs and assets for the
11 exclusive benefit of the members, it's clearly stated
12 in the Labor Management Reporting and Disclosure Act.
13 That would be Title 29, Section 501(A).
14 Q. And there are further provisions of that
15 statute that actually make certain misfeasance
16 criminal, correct?
17 A. Correct.
18 Q. Particularly 501(C)?
19 A. 501(C) speaks to the issue of mismanagement
20 or misapplication or embezzlement of the members'
21 assets or Funds by an employee or officer of that
22 particular Local or District Council.
23 Q. Okay. In connection with Labor Unions that
24 are making contributions on behalf of people who turn
25 out to be ineligible, what -- what if anything does
172
1 that mean with respect to the exercise of the fiduciary
2 responsibilities of that Local Union's officers?
3 A. If ineligible persons have been listed on an
4 employer contribution report and then contributions
5 made in their behalf to a benefit plan, that is
6 tantamount to the misapplication of the general assets
7 of the Union. You're using the Union Funds to make
8 employee benefit plan contributions to people who are
9 not entitled to that contribution.
10 Q. And is there any kind -- we've heard various
11 questions here about whether it's $2,000 a year, $8,000
12 a year, and so forth. Is there any deminimis
13 exceptions to these principles?
14 A. No, there is not. Things are taken at a case
15 by case basis. And ERISA does not refer to materiality
16 when it speaks to the issue of -- when it speaks to
17 monetary issues with regard to ERISA employee benefit
18 plans, it doesn't speak to materiality or immateriality
19 with regard to the dollar amount. Each case is decided
20 on its own merits.
21 Q. Turning now to some of the specific evidence
22 in this case. I would ask that you turn to Exhibit 7,
23 which is the first exhibit in Volume Two.
24 A. Exhibit 7?
25 Q. I'm sorry. I meant Volume Three.
173
1 Do you recognize this, Mr. Maria?
2 A. Yes, I do.
3 Q. Did you have a hand in preparing this?
4 A. Yes, I did.
5 Q. Could you describe the process of what data
6 you received to help put this together.
7 A. I prepared this spread sheet from information
8 provided to me by Kathleen McCarthy, who is the
9 Director of the Pension Department at the Laborers'
10 Pension Fund Health and Welfare Fund of the
11 Construction and General Laborers' District Council of
12 Chicago and Vicinity.
13 Q. Wow. I'm going to refer to that as the
14 Laborers' Pension and Welfare Fund because I'll never
15 keep all that straight.
16 All right. So Miss McCarthy gave you data.
17 And was part of that data the audit reports from
18 Levinson, et al?
19 A. Yes.
20 Q. Now there's color coding on this chart, is
21 there not?
22 A. Yes, there is.
23 Q. Could you explain -- I know it's coded on
24 page two, but could you walk us through what the
25 different color codes mean?
174
1 A. Red refers to two categories of individuals.
2 First of all let me say red refers to individuals who
3 are currently -- who had received -- try it again.
4 Red refers to individuals who had received
5 benefits for periods of time, and their benefits had
6 been calculated on periods of time for which they were
7 not eligible to receive contributions in their behalf.
8 And then explaining further, as in the name
9 of -- the second entry there, Mr. Julius Bataglini, it
10 says, "(Future benefit offset)". The interpretation of
11 that is in 2002 when the Funds learned that there were
12 periods during which he was not eligible for
13 contributions to be made, okay, they notified -- after
14 the appropriate appeals process, et cetera, they then
15 began to reduce future benefits in order to recover the
16 amount that was paid as a result of his being
17 ineligible. That was a long sentence.
18 And then others, looking at Mr. Sam, and I'm
19 going to -- it's Caifa, C-a-i-f-a, says, "(Suspended)"
20 in parens.
21 The work of Levinson, as communicated to the
22 Funds, show that Mr. Caifa had never been an employee.
23 Contributions never should have been made in his
24 behalf, and his -- any benefits he was receiving were
25 suspended as of 2002.
175
1 Q. Let's pause on that name if we could. Under
2 Mr. Caifa, if you go across, it appears that he was not
3 on the Local payroll from February of 1984 to February
4 of 1994. But how much in pension contributions did the
5 Local actually part with to his credit?
6 A. $17,218.00
7 Q. Now the next column. Can you explain what
8 the next column is?
9 A. Those are the pension benefits, $65,054.00.
10 Those are the pension benefits that were paid to Mr.
11 Caifa for -- during that period of ineligibility.
12 Q. In other words, actually received by him.
13 A. Yes.
14 Q. In your professional opinion, Mr. Maria, did
15 Mr. Caifa have any entitlement to that $65,000.00?
16 A. No.
17 Q. Is there a claim that the Funds or anyone
18 else could raise with respect to recovery of that
19 money?
20 A. The Trustees will have a responsibility --
21 fiduciary responsibility to try to make the Fund whole.
22 If damage has been done to the Fund, it's their
23 responsibility to take reasonable measures in an effort
24 to recover money that was in effect given as a benefit
25 to ineligible participants.
176
1 Q. Now moving across the column there, the next
2 column is "Welfare Contributions"?
3 A. Yes.
4 Q. Am I right that this is money -- Local 1001's
5 money going to the Funds for essentially health
6 insurance coverage for Mr. Caifa.
7 A. Yes, $24,816.80.
8 Q. In your professional opinion should any of
9 that money been paid from Local 1001 to the Funds.
10 A. No.
11 Q. And with respect to "Claims Paid," the $3700
12 figure there, in your professional opinion was Mr.
13 Caifa entitled to have those claims paid by the Welfare
14 Fund?
15 A. No.
16 Q. All right. So the other entries in red are
17 comparable to that; is that right?
18 A. Yes.
19 Q. In other words, people who were actually
20 receiving benefits and then had them cut off when this
21 was discovered by the Funds?
22 MR. LYDON: Could we have -- okay. I'm
23 sorry. The ones in red you're saying?
24 MR. THOMAS: Yes. Just so it's clear, Mr.
25 Lydon, Julius Bataglini, Sam Caifa, Michael Cardilli,
177
1 Bruno Caruso, for a short period of time, William Pape,
2 Ramon Schaeffer, Bernard Spano and Michael Spingola.
3 MR. LYDON: Just to further clarify, there's
4 a parenthetical after these, and so we're clear, you
5 gave an explanation of what "Suspended" meant for Mr.
6 Caifa. And then the "Future benefit offset," I'm not
7 sure that that is clear on the record.
8 MR. THOMAS: Well he did explain it, but --
9 MR. LYDON: He didn't put it in terms -- in
10 the context of --
11 BY MR. THOMAS:
12 Q. If you know, I guess the other one that --
13 where that appears -- or the two others, Bruno Caruso
14 and Michael Spingola, if you have any information on
15 the circumstances of why their future benefit is
16 offset, please share that.
17 A. For those individuals who are designated with
18 -- in parens, "(Future benefit offset)", what that
19 essentially means is they did have periods of time for
20 which they were considered to be eligible employees and
21 contributions could be made in their behalf, and there
22 were periods of time in which they were not eligible to
23 have contributions made. So in this case the Funds
24 have computed the ineligible period. They determined
25 the pension plan contributions made during that
178
1 ineligible period, and they then determined the amount
2 of benefits that individual received during the
3 ineligible period -- received as a result of that
4 ineligible period. And since they are eligible and
5 they have sufficient eligibility to collect the
6 benefit, it will be reduced for the Funds to recover
7 the amount that was, shall we say, over paid.
8 Q. I see. So in other words, the period that
9 they were not on the payroll is not the full story of
10 their Union history, particularly in Mr. Caruso's case.
11 There was a lengthy period of time when he was actually
12 on payroll, right?
13 A. Yes.
14 Q. All right. So the name right above Mr.
15 Caruso, Michael Cardilli, indicates that he was not on
16 the Local's payroll from 1969 to 1987. Do you see
17 that?
18 A. Yes, I do.
19 Q. How much money did the Union pay to the Funds
20 in contributions for his pension account?
21 A. As an ineligible employee the Union paid
22 $30,802.00 to the Funds.
23 Q. In your professional opinion should those
24 monies have been paid?
25 A. No.
179
1 Q. How much money did Mr. Cardilli actually
2 receive after applying for those pension benefits?
3 A. $115,028.00.
4 Q. In your professional opinion should Mr.
5 Cardilli have received any of that $115,000?
6 A. No.
7 Q. Similarly with respect to the $20,000 in
8 funds that the Union paid to the Welfare Fund, in your
9 professional opinion should any of that money been paid
10 to the Welfare Fund?
11 A. No.
12 Q. And again, whose money is that that was paid?
13 A. That is money from the General Fund of Local
14 1001. Essentially that is the members' money.
15 Q. The members' money. And the $18,000 that was
16 paid out from the Funds, should any of that in your
17 professional opinion have been paid out?
18 A. No.
19 Q. All right. The -- let's turn next to the
20 category of black. The names that are written in
21 black, what do they represent? Or what is represented
22 by that color designation?
23 A. I should point out that -- my error. If one
24 looks at the coding on the second page where it says
25 black --
180
1 Q. The sentence doesn't end.
2 A. It doesn't end. These are mysterious things
3 that occur with Microsoft Word. But in any event, if
4 we could add, "for the period they were not on the
5 payroll." Were not on the payroll.
6 Q. Were not on the payroll?
7 A. Right.
8 MR. LYDON: Could I just -- "pc" would be
9 pension --
10 THE WITNESS: Pension credit.
11 BY MR. THOMAS:
12 Q. All right. With that addition explain what
13 you mean, Mr. Maria.
14 A. As an example let us look at Mr. Capasso,
15 James Capasso?
16 Q. Um-hum.
17 A. Okay. Contributions have been made in his
18 behalf from June, 1984 through May, 2002. He was not
19 an eligible employee during that period. The
20 contributions total $40,692.60 pension contributions.
21 He is entitled to receive nothing.
22 Q. And according to the chart, despite his
23 application for benefits he has received nothing,
24 right?
25 A. Correct. And just continuing. Now, during
181
1 his period -- his entire period of ineligibility, the
2 Local 1001 contributed $64,193.10 to the Welfare Fund
3 in Mr. Capasso's behalf. Now even though he was
4 ineligible, he did receive reimbursement of medical
5 claims totaling $6,808.52.
6 Q. And this was for a period of time when -- at
7 least during a portion of that period of time Mr.
8 Capasso was the full-time administrator of a different
9 Pension Fund, correct?
10 A. Mr. Capasso, by his own admission, is -- he
11 is a full-time employee -- he's the Executive Director
12 of the Laborers' and Retirement Board Employees'
13 Annuity and Benefit Fund of Chicago. This is separate
14 and distinct from the Fund for which Mr. Jorgensen is
15 the administrator.
16 Q. All right. We'll come back to Mr. Capasso's
17 application in just a bit. But first if you could
18 total up those numbers, the $40,000 and the $64,000,
19 how much of the Union's money was paid just for the
20 benefit of Mr. Capasso?
21 A. It looks like we're up to $104,900.00 nearly.
22 Q. All right. And of the total amount that was
23 paid out in pension contributions and welfare
24 contributions, approximately how much, you know, in
25 rough percentage terms are we talking that went just to
182
1 Mr. Capasso's benefit.
2 A. Would you repeat that question?
3 Q. If you go to the totals on page two, you have
4 pension contributions over the years of $396,000,
5 correct?
6 A. Um-hum.
7 Q. And welfare contributions over the years of
8 $434,000, right?
9 A. Um-hum.
10 Q. So that ends up --
11 A. Approximately ten per cent.
12 Q. Thank you. So approximately ten per cent of
13 the total went to Mr. Capasso's -- at least to his
14 accounts.
15 A. In his behalf.
16 Q. All right. Let's do green and then blue.
17 What's signified by green?
18 A. Green, again, these are individuals you have
19 the period not on the Local payroll. That should be
20 self-explanatory. That's the period in time which
21 contributions were made in their behalf but they were
22 not considered to be eligible employees who could
23 receive a contribution in their behalf. The green
24 people are deceased.
25 Q. Okay. So let's just take one or two
183
1 examples. If you look at Louis Briatta at the top of
2 that first page, indicates that he was not on the
3 payroll from 1963 to 1969. How much of the Union's
4 money was spent in his pension and welfare account?
5 A. $2,409.84.
6 Q. And then $1207 on his welfare?
7 A. That is correct.
8 Q. How much money did Mr. Louis Briatta actually
9 receive in pension benefits?
10 A. $108,056.00.
11 Q. Do you have any understanding of how someone
12 with relatively minimal pension contributions could
13 have received a six figure benefit in that way?
14 A. Well, he had a long life span.
15 Q. So he may have received it over a long period
16 of time?
17 A. Yes.
18 Q. I see. In your view was Mr. Louis Briatta
19 entitled to receive any of that $108,000.00?
20 A. No.
21 Q. And the blue categories mean what?
22 A. The blue categories involve individuals --
23 these are individuals in blue who are non-vested
24 participants. They had a permanent break in service,
25 and according to the Fund they've lost eligibility for
184
1 benefits. They will receive nothing.
2 Q. So most of these people, even though
3 contributions were made on their behalf, actually
4 received nothing on the other end.
5 A. Correct.
6 Q. Or will receive nothing on the other end.
7 A. Correct.
8 Q. Nonetheless, the figures in the columns
9 labeled "Pension Contributions" and "Welfare
10 Contributions," in some instances are significant
11 amounts of money, correct?
12 A. Yes.
13 Q. For example, Mr. Crivellone, $15,000, Mr.
14 DelGuidice, $16,000 and so forth?
15 A. Mr. Crivellone -- associate the $15,000 for
16 me please.
17 Q. In the "Pension Contribution" column.
18 A. Well a contribution was made in his behalf in
19 an account there, but he no longer is eligible. He's
20 lost all opportunity for pension benefits.
21 Q. My question is this: Should the Local Union,
22 Local 1001 have paid to the Funds that $15,661?
23 A. Absolutely not.
24 Q. And with respect to a couple lines down, Mr.
25 DelGuidice's entry there, should the Local 1001 have
185
1 paid that $16,818 to the Funds?
2 A. We're speaking of Louis, last name spelling
3 D-e-l-G-u-i-d-i-c-e?
4 Q. Yes.
5 A. Should the Union have made contributions in
6 his behalf?
7 Q. Yes.
8 A. No.
9 Q. So in terms of total loss -- well perhaps
10 that's not the right term.
11 In your professional opinion, Mr. Maria, how
12 much money did the Local expend in this process that
13 should not have been expended? And if you want to take
14 it column by column, that's fine.
15 A. Well essentially, according to this spread
16 sheet and according to the findings of the auditor and
17 my conclusion, is that Local Union 1001 misapplied
18 $396,465.11 in general membership assets by making
19 contributions for ineligible people. And then --
20 that's with regard to pension contributions.
21 With respect to making improper welfare
22 contributions in behalf of ineligible participants, the
23 Local Union, Local 1001, misapplied $434,157.38.
24 Q. So over $800,000 over that period of time?
25 A. That would be correct.
186
1 Q. Do you view these numbers, Mr. Maria, as de
2 minimis or insignificant?
3 A. No, I view them as material.
4 Q. In what sense?
5 A. Within the context or milieu of the employee
6 benefit plan arena, in terms of these -- the false
7 reporting then resulted --- first of all, the false
8 reporting, which is a federal violation, triggered
9 another violation in terms of misapplication or
10 conversion of the Employee Benefit Plan assets by
11 making benefits available to people who are not
12 entitled to the benefits. And in backing up you have
13 the contribution itself in behalf of ineligible
14 participants or employees was a violation of Title 29,
15 Section 501(C), essentially embezzlement, conversion,
16 misapplication of Union General Fund assets.
17 Q. So if the Union shouldn't have paid the
18 $825,000, I don't have the exact figure, but north of
19 $800,000, out at all, do the members have a claim
20 against the people responsible for having made the
21 payments?
22 A. That sounds like a legal question to me.
23 Q. Are there fiduciary duty implications in the
24 payment of over $800,000 that turn out in your view not
25 to be proper.
187
1 A. Indeed there are.
2 Q. What impact, if any, does this type of
3 scenario have with respect to the Fund's status and the
4 integrity of its standing with any regulatory bodies or
5 other entities?
6 A. If the Fund were receiving, in this case, and
7 paying benefits, receiving contributions in behalf of
8 ineligible participants and paying benefits to
9 ineligible participants, academically -- I don't know
10 what -- I can't speak -- it would be a matter of
11 concern for the Employee Benefits Security
12 Administration of the United States Department of
13 Labor, which formerly is known as the Pension and
14 Welfare Benefits Administration, which is charged with
15 enforcing the provisions of ERISA. There could be
16 penalties and sanctions taken against the Funds, and
17 the IRS could also have an interest, based upon its
18 regulations, with regard to -- and it goes back into --
19 as Mr. Levinson mentioned in his telephone interview
20 here, there would become what are legitimate wages?
21 Should taxes have been paid? And the IRS would also
22 have an interest in ERISA. But I choose not to speak
23 for them.
24 Q. Mr. Maria, you've also been here in the
25 hearing room when evidence has been introduced
188
1 concerning under payment by the Local with respect to
2 some of its employees. Do you recall that testimony?
3 A. Yes, I do.
4 Q. And indeed some of that's reported in the
5 Levinson audit documents, correct?
6 A. Yes, it is.
7 Q. Do you view that as a different type of
8 problem than the one we've just have been reviewing in
9 Exhibit 7?
10 A. In my experience -- well yes. The answer is
11 yes. In one instance the false reporting takes the
12 form of including ineligible participants and in effect
13 distorting the financial picture of the Local Union by
14 making its accounts payable or obligations higher than
15 they should be. And then on the flip side -- on the
16 flip side you have a group of individuals whose actual
17 hours worked were underreported.
18 Q. And who bears the loss -- who suffered the
19 lost in each of those two scenarios?
20 A. With regard to the inclusion in the false
21 reporting of ineligible individuals, clearly this was a
22 loss to the Local 1001. With regard to the
23 underreporting of hours for individuals, this probably
24 improved the cash flow of Local 1001 but may or may not
25 have actually harmed -- during the time periods, may or
189
1 may not have actually harmed the individuals whose
2 hours were underreported. I can explain.
3 Q. Before you do. Who was actually owed that
4 money that wasn't paid though?
5 A. The Funds.
6 Q. Thank you. You were going to explain that?
7 A. I can explain. The underreporting is clearly
8 important, otherwise we wouldn't have a felony
9 provision requiring people to report properly. But the
10 underreporting from my analysis was -- for the
11 approximately eight to ten people was probably
12 sufficient for those individuals to enjoy full pension
13 credit and full welfare participation, meaning they met
14 the thresholds that were established and testified to
15 by Mr. Jorgensen.
16 But the Funds are harmed by the
17 underreporting because that is money, in some
18 instances, instead of contributing at 40 hours a week,
19 actual hours work for full-time employee, they're
20 contributing at 32. In effect you have a shortfall of
21 25 per cent of the hours depriving the Funds, both
22 Pension Fund and Welfare Fund, of additional assets
23 which in fact could be invested and ultimately accrued
24 to the future benefit of the participants.
25 Q. Thank you.
190
1 Having reviewed the documents and listened to
2 the testimony, Mr. Maria, do you have an opinion as to
3 how this was able to happen for approximately 40 years?
4 A. Yes, I do.
5 Q. What is that opinion?
6 A. This happened as a result of the inability of
7 past and current officers of Local 1001 to discharge
8 their fiduciary responsibilities with regard to the
9 management of business affairs and the monies of the
10 members of Local 1001.
11 Q. And specifically --
12 MR. MENDENHALL: Excuse me, Mr. Thomas.
13 Can I have that answer read back, Madam Court
14 Reporter?
15 (Record read.)
16 Q. Do you have any opinions with respect to
17 whether remittance reports submitted from the Local to
18 the Funds were accurate or inaccurate?
19 A. They were inaccurate.
20 Q. And there's been plenty of testimony about
21 that. But what is your view as to how they were
22 inaccurate?
23 A. Well again they did not -- for a certain
24 category of individuals they included these individuals
25 who were not eligible employees. They should not have
191
1 been listed. There should have been no hours listed
2 and contributions made in their behalf. And then they
3 were inaccurate again because they were individuals
4 whose actual hours worked were underreported.
5 Q. All right. So let's take the last remittance
6 report, which is Exhibit 8, the last exhibit reported
7 before the problem was detected. So specifically July,
8 2001. That's close to the back.
9 A. What month?
10 Q. July, 2001.
11 MR. LYDON: The last report?
12 MR. THOMAS: The last one before it was
13 detected.
14 BY MR. THOMAS:
15 Q. So Mr. Maria, this is before the Capasso
16 application triggers scrutiny, right?
17 A. Yes.
18 Q. So when the Local filled this out, it was the
19 same pattern as the prior years, correct?
20 A. Yes.
21 Q. So for example, if we look at the list of
22 names here, the recipient of this information, the
23 Funds, would be lead to believe that these individuals
24 worked a certain number of hours, correct?
25 A. The Funds would interpret the document as
192
1 it's submitted.
2 Q. And enter that data into their system?
3 A. That is correct.
4 Q. So with respect to Mr. James Capasso, who was
5 working full-time at the City of Chicago Pension Fund,
6 what does that form indicate he worked in terms of
7 actual hours at 1001?
8 A. They represent that Mr. Capasso for four
9 weeks during this reporting period worked 30 hours per
10 week at Local 1001.
11 Q. Now let's take someone that we know was
12 working -- well, I was going to say working full-time,
13 but Mr. Bruno Caruso had a full-time -- actually at
14 this point he was out of the District Council. Mr.
15 Bruno Caruso was no longer a business manager of the
16 District Council, but he still was Business Manager of
17 Local 1001. What does it indicate for him with respect
18 to the amount of hours that he worked on a full-time
19 basis?
20 A. For this reporting period it shows that for
21 four weeks Mr. Caruso worked 40 hours per week for a
22 total of 160.
23 Q. Contrast that with one of the clerical staff,
24 let's say, Debra Chianelli.
25 A. Miss Chianelli, who was a full-time salaried
193
1 employee, was reported at 30 hours per week for a four
2 week period, and it should have been 40 hours.
3 Q. Okay. So let's just take a look at the 2001
4 LM-2, which is Exhibit 6, Volume Two.
5 MR. MENDENHALL: What number, Mr. Thomas?
6 MR. THOMAS: That would be Exhibit 6 and it
7 would be Tab B.
8 BY MR. THOMAS:
9 Q. Mr. Maria, you're familiar with LM-2's, are
10 you not?
11 A. Yes, I am.
12 THE INDEPENDENT HEARING OFFICER: And we're
13 going to what?
14 MR. THOMAS: Tab B.
15 THE INDEPENDENT HEARING OFFICER: Okay.
16 BY MR. THOMAS:
17 Q. Mr. Maria, what's an LM-2?
18 A. An LM-2 is the annual report filed by labor
19 organizations as required under the LMRDA. It's filed
20 with the United States Department of Labor.
21 Q. What's the purpose of an LM-2?
22 A. Basically it's a document which under law is
23 required to be filed, and it's a document by which the
24 members can refer to to acquire a sense of and an
25 understanding of financial affairs of the Local.
194
1 Q. Okay. And are the Unions who are required to
2 fill out an LM-2 required to specify levels of
3 compensation for certain employees?
4 A. Yes.
5 Q. So if we turn to the bottom of these pages
6 that say 2-6, 2-7, 2-9 and so forth. If you go to page
7 2-9, do you see entries for certain employees and
8 officers, correct?
9 A. Page 2-9. Yes, I do. And that's also on the
10 LM-2, that's Schedule 9, in the upper left-hand corner.
11 Q. On page 2-9 and in the lower right-hand
12 corner it says "Page 9 of 12," line 7 there, "James
13 Capasso, Auditor"?
14 A. I see it, yes.
15 Q. What's reflected in terms of the gross salary
16 and so forth?
17 A. Mr. Capasso's listed as an officer, that
18 position being auditor, and the Schedule shows that he
19 received zero gross salary.
20 Q. And presumably if one were to check the
21 payroll records of the Local, as the auditors did, you
22 would find payroll information also reflecting zero,
23 correct? Is that what you would expect?
24 A. Yeah. Examination of the payroll documents
25 would reflect no payroll or no wages or salary to Mr.
195
1 Capasso.
2 Q. Mr. Maria, if you -- going between these two
3 documents, in other words, Exhibit 8, the remittance
4 report, showing 120 hours worked, and pension and
5 welfare credits being earned as a result with the LM-2
6 showing zero, what conclusions, if any, do you draw --
7 let me rephrase that.
8 How do you reconcile a zero on the LM-2 with
9 120 hours of work earning pension and welfare credits.
10 Is there any way that can be reconciled?
11 A. I'm having a difficult time reconciling it.
12 This is what is peculiar about this type of situation.
13 You have an individual who is listed as an auditor. An
14 auditor is an unpaid position. Mr. Capasso is not
15 receiving wages or salary, therefore he's not an
16 eligible employee. But the form, the monthly
17 remittance report from the Fund, falsely reports him to
18 be an employee at 30 hours per week, and he may be
19 Herculean, but he also has a full-time job as an
20 Executive Director of a very large public sector
21 employee benefit plan. So there are a number of things
22 here that are incongruous.
23 Q. And then going forward in that document, 2 of
24 10, 2 of 11 on the Schedule 9 -- do you see the
25 Schedule 9?
196
1 A. Um-hum.
2 Q. Is that a continuation of what we were just
3 reading?
4 A. Yes. It's Schedule 9. If you look at the
5 title of the Schedule it says, "continued all
6 officers--
7 MR. LYDON: Excuse me. What page are you on?
8 MR. THOMAS: S-9 --
9 THE INDEPENDENT HEARING OFFICER: That would
10 9 of 12 -- 2 of 9, gentlemen, in the center.
11 MR. THOMAS: And then I moved on a few pages
12 to where it says S-9.
13 THE INDEPENDENT HEARING OFFICER: So you flip
14 it over to page 10.
15 MR. LYDON: I see it.
16 BY MR. THOMAS:
17 Q. At the top is says "Schedule 9 - All Officers
18 and Disbursements to Officers (continued)". At the
19 bottom it says S-9. This also reflects total
20 compensation to certain people, correct?
21 A. Yes.
22 Q. Do you recognize any of the names on here,
23 any of the ones who have zeroes corresponding to
24 people that were reported for 120 or 160 hours.
25 A. You had Mr. Roa, Mr. Cataudella, Mr. Grogan,
197
1 Mr. Bates, Mr. DeChristopher, Mr. Chianelli.
2 Q. So would there be any way for someone reading
3 this LM-2 to know that these people were getting a
4 different form of compensation from the Local?
5 A. No.
6 Q. By the way, if you were in the position of
7 the Funds and you were hiring an audit firm to check
8 the remittance reports against the payroll records, or
9 the LM-2's for that matter, how difficult would it be
10 to catch this discrepancy, to see it?
11 A. It should be very apparent.
12 Q. In your professional opinion was it very
13 apparent to Levinson, et al?
14 A. Yes, it was.
15 Q. What conclusions, if any -- you've given one
16 conclusion about the -- what you described as the
17 misfeasance of the Local's officers with respect to the
18 remittance reports. What conclusions, if any, have you
19 drawn concerning the performance of the audit work on
20 behalf of the Funds, the safety net that you described
21 earlier.
22 A. Let's see if I can search for a euphemism
23 here. The work initially performed by Thomas Havey &
24 Company for the Funds failed to disclose what should
25 have been a very apparent, significant finding. And in
198
1 fact, they reported to the Funds that there were no
2 exceptions.
3 Q. That's Exhibit 26 I believe?
4 A. I don't have that.
5 Q. The November --
6 A. I do want to add something to the -- you do
7 have to question -- a reasonable person would -- an
8 objective person I think would question, "What did
9 Thomas Havey actually do?" Of course I think a lot of
10 entities would say, "What do the public accountants
11 really do?" But what did Thomas Havey really do?
12 Because we send Levinson & Company in there and they
13 find this immediately. And this is not rocket science.
14 This is not difficult. These are very basic, agreed
15 upon procedures that are being performed. But Havey
16 was also requested to conduct an examination to ensure
17 that dues were being properly withheld from employee
18 members of Local 1001.
19 Q. What does that actually mean, dues being
20 withheld?
21 A. These would be your monthly dues that are
22 required to be paid to the Local.
23 THE INDEPENDENT HEARING OFFICER: You're
24 referring to dues check off.
25 THE WITNESS: Yes.
199
1 BY MR. THOMAS:
2 Q. Dues check off.
3 So what is the operating assumption of
4 whether there is something to be deducted?
5 A. Well the assumption is that there is a --
6 Local 1001 as the employer is in fact preparing a
7 check, a payroll check, and making appropriate
8 deductions for State withholding, Federal withholding,
9 perhaps other allotments, and a deduction for Union
10 dues.
11 Q. What if anything did Thomas Havey represent
12 to the Funds it had determined with respect to dues
13 check off for any of these people.
14 A. It represented that for one month -- a
15 limited sample, but for one month, I believe it was
16 January -- do we have the report? What's the exhibit?
17 Q. 26 is the November, '98 Havey report.
18 A. 26. And Exhibit 26 shows, and they
19 communicated this to the Funds, it said "Results of
20 Dues Test"
21 Q. Are you on the first page or --
22 A. I'm after the opinion. I'm going right to
23 their supporting schedule.
24 Q. Okay.
25 A. It says January, 1995 they tested to
200
1 determine whether dues from employees of Local 1001
2 were being appropriately deducted, check off dues.
3 January, 1995 they said they examined the dues
4 deduction for James Capasso and they said, "Dues were
5 deducted".
6 Q. So --
7 A. Here's my question. How can you deduct dues
8 if there's no payroll check?
9 Q. Let me make sure I follow you here. We're
10 talking about the one page opinion and the page
11 immediately following that, correct?
12 A. Yes.
13 Q. So in addition to the finding on the summary
14 page in the letter saying there are no discrepencies,
15 Havey made an affirmative representation here that with
16 respect to that month James Capasso's dues were
17 deducted from his paycheck.
18 A. That is correct.
19 Q. That's what you understand that to mean.
20 And based on the findings of Levinson and
21 then the LM-2's indicating a salary of zero, how is it
22 possible for there to be dues to be deducted from Mr.
23 Capasso's paycheck?
24 A. This statement is patently erroneous.
25 Q. And --
201
1 A. The affirmative statement or the affirmative
2 finding of Havey and Company that dues were being
3 deducted, okay, from any payroll checks received by Mr.
4 Capasso from Local 1001, okay, that's simply not true.
5 So it raises the questions of what did they do and what
6 did they look at.
7 Q. Do you distinguish in any way this kind of
8 affirmative statement as opposed to a negative
9 statement that there are no discrepencies?
10 A. No.
11 THE INDEPENDENT HEARING OFFICER: Gentlemen,
12 I believe that some of these individuals who -- that
13 was only a one month check; is that right, Mr. Maria?
14 THE WITNESS: Yes.
15 THE INDEPENDENT HEARING OFFICER: Okay.
16 BY MR. THOMAS:
17 Q. But let me --
18 THE INDEPENDENT HEARING OFFICER: If that
19 practice continued for three or four months, all of
20 those officers would have been ineligible, the whole
21 office should have been suspended.
22 MR. THOMAS: I agree.
23 BY MR. THOMAS:
24 Q. Is there a -- is there a payment of dues, a
25 constitutional requirement, Mr. Maria, for officers?
202
1 A. I believe there's a reference to that -- an
2 explicit reference in the constitution.
3 THE INDEPENDENT HEARING OFFICER: I was the
4 election officer in this for seven years. And if you
5 miss -- anyone, a normal worker or an officer misses
6 the payment of his dues for two months, that in the
7 third month you are suspended and you're no longer
8 eligible to hold office or run for office until you --
9 until the end of a year passes. And so if that's the
10 case, you have some -- there's some possibility you
11 have some ineligible persons holding office.
12 BY MR. THOMAS:
13 Q. So still in the category, Mr. Maria, of what
14 happened, what is your view of how the 40 year pattern
15 of ineligible contributions or improper contributions
16 for ineligible participants, how was that able to go
17 on?
18 A. It occurred because of the actions or
19 inactions of the past and current officers in terms of
20 the management for the business affairs and fiscal
21 affairs of Local 1001. And just to elaborate on
22 business affairs. It would appear that compounding the
23 situation here is that a reading of the constitution
24 would suggest that Mr. Capasso was not eligible to be
25 an officer in the first place.
203
1 THE INDEPENDENT HEARING OFFICER: I don't
2 think he was an officer --
3 THE WITNESS: No, he's an officer according
4 to the constitution, but he was not eligible to be
5 elected or to be nominated.
6 BY MR. THOMAS:
7 Q. Directing your attention to Exhibit 22, Mr.
8 Maria. Do you have that?
9 A. One moment.
10 Q. 22.
11 A. Have it.
12 Q. These are minutes of the Laborers' Pension
13 and Welfare Funds from December, 1999, correct?
14 A. Correct.
15 Q. And directing your attention to page 2 of
16 that document. Is there a reference there to a
17 District Council policy being disseminated to the Local
18 Unions?
19 A. Yes.
20 THE INDEPENDENT HEARING OFFICER: What are
21 you looking at?
22 MR. THOMAS: Exhibit 22, page 2. On the
23 document itself it says page 15, but it's page 2 of the
24 document.
25 THE INDEPENDENT HEARING OFFICER: Where on
204
1 page 2 of this document?
2 THE WITNESS: Paragraph XXIV, Roman XXIV.
3 BY MR. THOMAS:
4 Q. Is there a reference there -- let me make
5 sure Mr. Vaira has what we're talking about.
6 THE INDEPENDENT HEARING OFFICER: We're
7 catching up with you. We're two pages behind you. Go
8 ahead guys.
9 BY MR. THOMAS:
10 Q. Is there a reference there to a District
11 Council policy?
12 A. Yes, there is.
13 Q. Could you read that into the record please?
14 A. "Mr. Riley stated that the District Council
15 and Local Unions had agreed last summer to adopt a
16 uniform policy providing for contributions of 40 hours
17 per week for all full-time Union employees and actual
18 hours worked for part-time office staff."
19 Q. Okay. And then it goes on to talk about
20 Council for the Funds being requested to obtain a
21 letter and so forth confirming this policy, right?
22 A. Yes.
23 Q. All right. Mr. Maria, what light, if any,
24 does that shed on the fact that -- on what you've occur
25 -- seen occur here factually with respect to 1001.
205
1 A. Well, here we have the Funds and District
2 Council establishing a policy in 1999 regarding
3 contribution right. And clearly they articulate that
4 it will be salaried -- a salaried full-time person will
5 be deemed to have worked 40 hours per week.
6 Q. Did the Union do that, Local 1001?
7 A. No, they did not --
8 Q. With respect to clerical --
9 A. -- with respect to those employees for whom
10 their hours worked were underreported.
11 Q. And then on the other side is there reference
12 to there being a reflection of actual hours worked?
13 A. And that would refer to part-time employees.
14 Q. Okay. So for example, if someone is an
15 auditor in the Local Union, has a CPA firm that does
16 its auditing work, the audit function of that officer
17 might be fairly minimal, right? It might be more than
18 nothing but minimal.
19 A. According to the constitution if the Local
20 had -- employs an outside auditor, then the duty of the
21 elected auditor or officer is to function as a liaison
22 with the outside audit firm.
23 Q. So you wouldn't expect that to be 120 or 160
24 hours a month, would you?
25 A. Clearly not.
206
1 Q. Have you reached any conclusions with respect
2 to the accuracy of -- well excuse me, with respect to
3 the Local 1001's compliance with this District Council
4 policy referred to in this exhibit.
5 A. Yes, I have.
6 Q. What is that?
7 A. It appears that the officer of the Local
8 ignored the policy.
9 Q. Mr. Maria, can a Local Union membership
10 authorize something that the law forbids?
11 A. No, they can not. That's specifically
12 referenced in the first paragraph of 501(A). I should
13 say it's referenced in Labor Management Reporting and
14 Disclosure Act, Title 29, Section 501(A).
15 Q. So if the Union were to say, "Well, we
16 approve this. We knew what we were doing and we
17 approved it and it was put to the membership and they
18 voted for it," would you view that as -- in any way a
19 defense or sufficient to answer these?
20 A. It can't be a defense. The law speaks to the
21 fact that membership cannot override the fiduciary
22 behavior requirements of 501(A). To do so would not be
23 in the public interest.
24 Q. I want to draw your attention to --
25 THE INDEPENDENT HEARING OFFICER: Is that
207
1 501(C)?
2 THE WITNESS: No, A.
3 BY MR. THOMAS:
4 Q. With respect to this issue. I want to draw
5 your attention to three exhibits, 23, 24, and 25. Do
6 you have those?
7 A. Yes, I do.
8 Q. Let's start first with 23. This appears to
9 be a copy of Local 1001's minutes, Special Nomination
10 Meeting May 1, 1999. Do you have that?
11 A. Yes, I do.
12 Q. And --
13 MR. MENDENHALL: Excuse me, counsel. I
14 believe you may have misspoken. I think you said '99.
15 Did you mean '91?
16 MR. THOMAS: I thought I said '91.
17 THE INDEPENDENT HEARING OFFICER: '91 it is.
18 MR. THOMAS: But if I didn't, I'm sorry.
19 BY MR. THOMAS:
20 Q. The last page of that exhibit of those
21 minutes, Mr. Maria, could you turn to that? Last page
22 of 23.
23 A. I have that.
24 Q. There is a section there that's circled. Do
25 you see that?
208
1 A. Yes.
2 Q. Could you read that into the record?
3 A. It says, "Historically contributions for the
4 health and welfare and pension benefits have been made
5 for the following positions. Sergeant-at-Arms,
6 Auditors, Executive Board Members."
7 Q. Okay. Even if a membership could approve
8 something the law forbids, in your view would this be
9 sufficiently detailed for the membership to understand
10 what it was they were approving?
11 A. They would have no idea what they're voting
12 to spend.
13 Q. Could you explain?
14 A. There are no contributions -- I should say
15 there are no numerical amounts associated with the
16 contribution for the positions mentioned.
17 MR. LYDON: Excuse me?
18 THE WITNESS: No dollar amounts. Better?
19 MR. LYDON: All right.
20 BY MR. THOMAS:
21 Q. So in other words, would there be a
22 sufficient basis for the Union membership to understand
23 what was on the table here?
24 A. There would not have been at all.
25 Q. And even if this were sufficiently detailed,
209
1 would, in your opinion, the officers of Local 1001 be
2 able to propose this type of benefit for uncompensated
3 people.
4 A. They should not because in order to share in
5 their fiduciary duties they can only make employee
6 benefit plan contributions in behalf of eligible
7 employees.
8 Q. All right. Let's briefly do the same
9 analysis with respect to 25 -- 24 and 25.
10 THE INDEPENDENT HEARING OFFICER: Before you
11 move on to that.
12 Mr. Maria, looking at that document
13 resolution, I take it from there the President,
14 Secretary-Treasurer, Vice President and Recorded
15 Secretary are what we would term full-time employees of
16 the Union. That's their job and they're employed to be
17 there and run the Union, those four individuals.
18 THE WITNESS: We could draw that inference,
19 yes.
20 THE INDEPENDENT HEARING OFFICER: The other
21 persons down below, the Sergeant-at-Arms, Auditors,
22 Executive Board Members, although they might be
23 officers, are not full-time and would get paid if they
24 attended a meeting.
25 THE WITNESS: I would imagine -- in some
210
1 instances I did notice on the LM-2 that there were --
2 in the Schedule 9 of an LM-2 which reflects
3 compensation or salary paid to officers and employees,
4 I did note in certain LM-2's that there were certain
5 allowances and certain very minimal disbursements, two
6 or three hundred dollars during the course of the year,
7 given to people I believe were Sergeant-at-Arms,
8 Auditors or E Board members, and I would infer that
9 that would be perhaps compensation or reimbursement for
10 attending.
11 THE INDEPENDENT HEARING OFFICER: I refer to
12 those persons as non-officer Executive Board members,
13 and they're required to show up once a month, or
14 whatever it is, and they get paid 75 bucks or something
15 like that?
16 THE WITNESS: If I may correct the Chair
17 here. The -- these are officers.
18 THE INDEPENDENT HEARING OFFICER: You're
19 right. You're correct. I mean non full-time officers.
20 In every Union there is a two or three or maybe just
21 one, depending on the size, what I call the full-time
22 officer. Very small Unions, business manager is the
23 only person who is there full-time. The rest of the
24 people show up once a month. The bigger Unions, they
25 go to Secretary-Treasurer, Vice President, perhaps
211
1 Recording Secretary. They're there and they work
2 everyday, or they might even have another job as Field
3 Rep, but they're getting paid a salary. The other ones
4 get this minimal amount. The Sergeant-at-Arms gets 50
5 bucks when he shows up. That's the difference. I
6 think that may be what that line that's referring to
7 paying them benefits.
8 THE WITNESS: Again, my opinion, one can't
9 pay benefits unless one receives -- one cannot receive
10 benefits.
11 THE INDEPENDENT HEARING OFFICER: I
12 understand that. I understand that. Could they get
13 paid benefits for getting paid 50 bucks?
14 THE WITNESS: We shouldn't mix our terms. We
15 can't say they're being paid benefits.
16 THE INDEPENDENT HEARING OFFICER: Benefits
17 paid to the Pension Funds.
18 THE WITNESS: No. Contributions.
19 THE INDEPENDENT HEARING OFFICER:
20 Contributions.
21 THE WITNESS: Contributions.
22 THE INDEPENDENT HEARING OFFICER: To the
23 Pension Funds.
24 THE WITNESS: To the Pension Funds. They're
25 not eligible to receive that.
212
1 THE INDEPENDENT HEARING OFFICER: Okay.
2 BY MR. THOMAS:
3 Q. Mr. Maria, moving on to Exhibit 24. This is
4 a comparable document, but this time I think four years
5 later, April 23, 1995, again Nomination Minutes. If
6 you go to the fourth page of that document, it reflects
7 some proposed salary information, correct?
8 A. Yes.
9 Q. And some actual dollar amounts for the
10 full-time officers and then an indication that other
11 officers, Sergeant-at-Arms, Auditors, and Executive
12 Board Members will be not receiving a salary. Do you
13 see that?
14 A. Yes.
15 Q. And is this similar language with respect to
16 this payment of health and welfare and pension
17 contributions?
18 A. Yes, very similar to Exhibit 23.
19 Q. Even if the officers at Local 1001 were
20 allowed to make these contributions to the Trust Funds,
21 would this be sufficient disclosure to the membership
22 upon which the membership could make a decision?
23 A. Inadequate disclosure.
24 Q. And had it been adequate, would they have
25 been able to do this in any event?
213
1 A. No.
2 THE INDEPENDENT HEARING OFFICER: Gentlemen,
3 I draw your attention on 24 is different from 23, that
4 authorizing paragraph, has this paragraph: It says,
5 "Since they do not receive a salary," and on 23 it
6 doesn't mention that.
7 BY MR. THOMAS:
8 Q. Do you have any thoughts on that, Mr. Maria?
9 Does that change your opinion in any way?
10 A. No, it does not.
11 Q. Moving on to 25. This is 1999, also
12 Nomination Minutes. It's not circled in this document,
13 but I'll count the pages in. One, two, three, four,
14 five, six, the seventh page in with Mr. Gibson's
15 signature, which appears twice, do you see that?
16 A. I have it.
17 Q. And up at the top do you see similar
18 language?
19 A. Yes.
20 Q. If I asked you the same questions concerning
21 this language, would you give the same answers?
22 A. Yes.
23 Q. And by the way, this is simply a declarative
24 statement of something that's already happened, right?
25 It's fait accompli. Do you agree with that?
214
1 A. Either basically making a statement in the
2 past tense, yes.
3 Q. Is there anything here that makes it clear
4 that the Union membership is actually free to challenge
5 this? Is that suggested here?
6 MR. LYDON: Object to that as a legal
7 conclusion.
8 THE INDEPENDENT HEARING OFFICER: What was
9 the question?
10 MR. THOMAS: I'll rephrase it.
11 BY MR. THOMAS:
12 Q. Is there anything here that would give the
13 membership the indication that this was anything other
14 than the status quo that should be approved.
15 MR. LYDON: That's pretty speculative, but go
16 ahead.
17 THE WITNESS: I did not interpret it as an
18 issue over which the membership can debate and approve
19 or disapprove.
20 BY MR. THOMAS:
21 Q. Thank you.
22 Okay. Mr. Maria, there were -- you were here
23 when Mr. Levinson testified by phone and then Miss
24 Smith testified in person, correct?
25 A. Yes.
215
1 Q. So you heard the sequence of that testimony
2 that there were actually three stages to that audit,
3 correct?
4 A. Three audit periods, correct.
5 Q. When the -- I'm going to show you some
6 documents in a minute. Let me first ask you, when the
7 Local was first confronted with the information that
8 they had underpaid for some of the clerical staff over
9 a period of years, did they challenge that information?
10 A. No, they did not.
11 Q. In fact, did they share that information --
12 MR. LYDON: I object. What does that mean?
13 THE INDEPENDENT HEARING OFFICER: I missed
14 that. Ask him that question again.
15 BY MR. THOMAS:
16 Q. When the auditors -- excuse me. When the
17 Funds gave the Local the information that they had
18 underpaid for their clerical staff and that they owed
19 them money, whether the Union challenged that or not.
20 MR. LYDON: To the Fund? In some written
21 challenge you're talking about?
22 MR. THOMAS: Any challenge.
23 MR. LYDON: That's hearsay.
24 THE INDEPENDENT HEARING OFFICER: You're
25 saying was there a contest about that.
216
1 MR. THOMAS: Well there was a lot of
2 discussion --
3 THE INDEPENDENT HEARING OFFICER: A dispute
4 about that?
5 MR. THOMAS: Yes. There was a lot of
6 discussion implicit in the questions of the last two
7 days whether those numbers were accurate, whether they
8 were really fair, whether it was really owed or not.
9 THE INDEPENDENT HEARING OFFICER: I didn't
10 take that as that. I don't think there was any
11 dispute. There was some -- there was a dispute as to
12 $40,000 being paid. There was $80,000, what was the
13 final number, but I didn't get from the testimony that
14 the Union disputed the fact that there was an
15 underpayment of something. Am I right?
16 MR. THOMAS: I don't know whether they
17 dispute that or not, but the record I want to make is
18 not only that the Union paid it and acknowledged that
19 it was owed, but they actually had their auditors, the
20 same auditors that missed it, say, "We agree with
21 this." And I just want to make that --
22 MR. LYDON: The $40,000.
23 THE INDEPENDENT HEARING OFFICER: I think it
24 was pretty much accepted that they paid, then -- they
25 paid a certain amount and they had to pay another
217
1 certain amount, and then it came out.
2 MR. LYDON: Then there was a lawsuit and --
3 THE INDEPENDENT HEARING OFFICER: But --
4 MR. THOMAS: The lawsuit deals with a
5 completely unrelated issue.
6 THE INDEPENDENT HEARING OFFICER: The lawsuit
7 only dealt with something else, but the actual amount
8 for the secretarial staff there was they ended up
9 paying.
10 MR. LYDON: $43,000 or --
11 THE INDEPENDENT HEARING OFFICER: I
12 understand there may be some interest, but that's off
13 the table.
14 MR. THOMAS: If I can just put the facts on
15 the record so that we have them, because I think there
16 was enough ambiguity that I would just like to clear
17 that up and complete the record.
18 MR. LYDON: How is that going to be done
19 through this witness?
20 THE INDEPENDENT HEARING OFFICER: And then
21 I'm the one who has to recognize the ambiguity and I
22 don't have any problem with that. I don't think
23 there's any ambiguity.
24 BY MR. THOMAS:
25 Q. Mr. Maria, if you would look at Exhibit 33.
218
1 Do you have the -- it's not in the binders. I'll share
2 this with you. Exhibit 33. This is from phase one of
3 the audit, correct?
4 A. That's for the first audit period, July 1,
5 1998 through May 31, 2002.
6 THE INDEPENDENT HEARING OFFICER: What are
7 you looking at there, Mr. Maria?
8 THE WITNESS: Exhibit Number 33, which is a
9 letter dated June 27th, 2002, letterhead of Levinson,
10 Simon & Sprung.
11 MR. LYDON: That's one of your loose ones?
12 MR. THOMAS: Yes.
13 THE INDEPENDENT HEARING OFFICER: Here is 33.
14 Yeah.
15 MS. NAGLE: I don't have it.
16 THE INDEPENDENT HEARING OFFICER: I saw it
17 sometime this morning, but here, take it. I'll look
18 over the witness' shoulder. But I saw that this
19 morning. Go ahead.
20 BY MR. THOMAS:
21 Q. So can you explain what that is, Mr. Maria?
22 A. Yes. Exhibit 33, letter dated June 27th,
23 2002.
24 MR. LYDON: I object. I don't understand
25 what Mr. Maria, how he can aid as an expert on a
219
1 document that's written by the accounting firm,
2 witnesses who were already here, as to what this is.
3 This is a letter which is self-explanatory. Whatever
4 it means it states on its face. There were witnesses
5 here from the accounting firm. What are we having him
6 testify to?
7 MR. THOMAS: Well I could be done with this
8 whole line of testimony if you would just let me put it
9 in. What this relates to is a sequence.
10 THE INDEPENDENT HEARING OFFICER: If you're
11 clarifying something, go ahead. If we're going to be
12 duplicate, I'll catch it. Go ahead.
13 MR. THOMAS: The one thing the auditors said
14 they had no knowledge of is whether or not there was
15 any presentation to the Union of demand for money back.
16 That was the one thing they said they had no knowledge
17 of, and I simply want to complete that portion in the
18 record.
19 THE INDEPENDENT HEARING OFFICER: Okay. I
20 don't think that happened, but go ahead.
21 BY MR. THOMAS:
22 Q. So Mr. Maria, the initial demand amount as of
23 that first phase was what?
24 A. Well this isn't the demand. This is
25 Levinson's -- Levinson, Simon & Sprung performed the
220
1 compliance payroll audit on the issue of underreporting
2 for the period of July 1, 1998 to May 31st, 2002. They
3 said the underreported amount for all the affected
4 Funds was $38,445.50. They communicated this finding
5 to the Funds.
6 Q. And did that calculation -- let me show you
7 Exhibit Number 34, which is a Fund document with
8 various categories of either interest or liquidated
9 damages. Did that come up to $43,000?
10 A. This is a based -- this is a document
11 prepared by the Field Department of the Funds, and it--
12 MR. LYDON: I object to that. Where does
13 that come from? Whose testimony is that? The person
14 who looked at this last said they didn't know where it
15 came from, the last witness.
16 MR. THOMAS: And this witness says he knows.
17 MR. LYDON: He says it comes from the Fund.
18 Where is the foundation for that testimony?
19 BY MR. THOMAS:
20 Q. Mr. Maria, would you like to lay a foundation
21 for that?
22 A. Yes. During my visit to the Funds, I
23 interviewed the -- Jean Mashos, M-a-s-h-o-s, who is the
24 Director of the Field Division for the Funds, and it
25 was her office that prepared this as a result --
221
1 prepared Exhibit 34 based upon the information provided
2 by Levinson & Company with respect to underreporting.
3 And they essentially took the amount reported on
4 Exhibit 33 of $38,445.50, added penalties and audit
5 costs, and arrived at an amount due from Local 1001 for
6 underreporting, amount due of $43,750.05.
7 Q. Now then shortly thereafter -- I show you
8 Exhibit 35. Did the Funds write to Local 1001
9 concerning payment of that amount?
10 A. Yes, they did.
11 Q. And specifically if you look at the pages
12 that are attached to that, did Local 1001 respond?
13 A. Through counsel Local 1001 responded.
14 Q. What if anything did Local 1001 say?
15 A. I will read. "Please be advised Local 1001's
16 accountants have reviewed the audit report for the
17 period of July 1, 1998 through May 31, 2002. Upon
18 review there was no disagreement with the audit
19 results, and we enclose a check payable to the Funds in
20 the amount of $43,750.05.
21 Q. Who were the Union's accountants at that
22 time?
23 A. Local 1001's auditors at that time in 2002,
24 the firm is known as Legacy Professionals, formerly
25 known as Thomas Havey & Company.
222
1 Q. And then -- so there was -- they were the
2 same firm that had --
3 MR. LYDON: That's probably not quite true
4 either. I don't know why we're going here.
5 THE INDEPENDENT HEARING OFFICER: I think
6 that's a spin-off. That's been reformed, that whole
7 group.
8 BY MR. THOMAS:
9 Q. Mr. Lamont though is the same person who had
10 been with Thomas Havey, correct?
11 A. Yes.
12 Q. Mr. Lamont of Legacy who we saw on some of
13 the correspondence?
14 A. Yes.
15 Q. Showing you Exhibit Number 36. Is this a
16 copy of the check that the Union paid?
17 A. This is a copy of the check.
18 Q. In the amount of $43,750.05?
19 A. That is correct.
20 Q. And that was the total amount of what had
21 been requested after that ten year look back, correct
22 -- or three year look back.
23 A. This was looked back from 1998 to 2002.
24 Q. Sorry. Thank you for clarifying that.
25 After the second phase of the audit where
223
1 they looked back a further seven years for a total of
2 ten, did the Union -- did the Funds generate an
3 additional report reflecting additional amounts?
4 A. Yes, they did.
5 Q. Showing you Exhibit Number 37, is that a copy
6 of the Funds' internal calculations on that issue?
7 A. I believe page -- Exhibit 37 represents a
8 compilation made by the Funds of the amount -- total
9 amounts owed for underreporting for the period June 1,
10 1992 through May 31st, 2002.
11 Q. Does it reflect that the Union had paid back
12 the $43,000 we just talked about?
13 A. Yes, it does.
14 Q. Leaving a balance of what at this time?
15 A. Leaving a balance of $48,334.87.
16 Q. So the total amount, according to 37 and also
17 Exhibit Number 38, which we've been looking at before,
18 the total amount, before you credit the Local 1001 with
19 any payments that was under paid to the Funds for that
20 ten year period, was what?
21 A. Slightly more than $80,000.
22 Q. Thank you. And the amount that's currently
23 due after the crediting 1001 with the payment?
24 A. The amount that's currently due is
25 $48,334.87.
224
1 Q. Thank you.
2 So Mr. Maria, I asked you a number of
3 questions of how this was able to happen, these two
4 issues. Having studied the facts of this matter and
5 listening to the testimony in this case, do you have an
6 opinion as to what occurred that caused the pattern to
7 stop, that caused the contributions and the
8 underreporting to ultimately be detected and analyzed.
9 A. The critical event which brought this false
10 reporting of ineligible participants and then
11 underreporting of some individuals to the Funds, the
12 critical event was the application by Mr. Capasso for
13 pension benefits.
14 Q. In what sense was that the critical event?
15 A. It's a critical event because it was brought
16 to Mr. Jorgensen's attention that Mr. Capasso was
17 retiring. And Mr. Jorgensen, in my interview with him,
18 expressed surprise. He said, "Well that's a --
19 MR. LYDON: I object to this as cumulative.
20 Mr. Jorgensen was here and testified to all of this
21 yesterday.
22 THE INDEPENDENT HEARING OFFICER: It may be
23 cumulative. He was just pointing out what the pivotal
24 point -- I recall Mr. Jorgensen saw it and said, "Hey,
25 he's retiring. There must be an opening over there for
225
1 my associate. She can go over and apply," something
2 like that. Am I correct?
3 THE WITNESS: That's correct.
4 BY MR. THOMAS:
5 Q. But you were explaining in what sense this
6 was a pivotal event.
7 MR. LYDON: I object. It's already been in
8 the record, all been testified to.
9 MR. THOMAS: Mr. Jorgensen did not testify
10 about that aspect of it.
11 MR. LYDON: What aspect? I mean it came to
12 their attention and they launched an investigation, and
13 it's evident from all of the evidence that you put in
14 here. They had an audit that they initiated. That's
15 what we've gone through two days of.
16 MR. THOMAS: Let me phrase it differently
17 then so I satisfy your concern.
18 THE INDEPENDENT HEARING OFFICER: I observed
19 that. I mean I am aware that that's what caused it and
20 this began to spill. And so what else are you trying
21 to prove? Not that I'm trying to say to you you can't
22 go on with your case, but it's pretty obvious now that
23 we've heard about it and the sequence of events, unless
24 you want to throw something else in here.
25 MR. THOMAS: No, I'll honor that point.
226
1 BY MR. THOMAS:
2 Q. Mr. Maria, what was it about the previous
3 applicants' names that was -- what was it about Mr.
4 Capasso's name that was somehow different from all
5 these applicants in prior years that caused this level
6 of scrutiny?
7 MR. LYDON: I object to that. That's
8 obvious. That's just what you related, he knew who
9 Capasso was. It came to his attention, and he said,
10 "There's a job opening."
11 THE INDEPENDENT HEARING OFFICER: What caused
12 him to think about it. He said, "Is this guy Capasso a
13 prohibited received because he has two jobs." That's
14 what went through his mind the first time. And then
15 when he looked at it a little closer it wasn't the fact
16 he had two jobs. It was the other aspect. It's pretty
17 clear. I don't think that needs to be cleared up.
18 MR. THOMAS: All right. I'll move on. Thank
19 you.
20 THE INDEPENDENT HEARING OFFICER: If you're
21 saying they might not have caught it because -- that's
22 an inference you can argue to me. If he had not been
23 such a -- you know, known in the investment --
24 Retirement Funds community.
25 BY MR. THOMAS:
227
1 Q. Mr. Maria, could you turn to Exhibit 12
2 please. Do you have that?
3 A. Yes, I do.
4 Q. Have you seen that before?
5 A. Yes, I have.
6 Q. What is it?
7 A. It is a letter from Mr. Capasso -- James
8 Capasso dated March 27th, 2002 to Kathleen McCarthy,
9 who is the Director of the Pension Department, at the
10 what we have been referring to as the Funds.
11 Q. And are there any representations in this
12 letter for Mr. Capasso to Miss McCarthy that you find
13 significant?
14 A. In the penultimate paragraph he says, "If I
15 was asked, "do I work in the laboring industry," I
16 would have to answer absolutely not." And it went on
17 to say, "We are administrative employees who are
18 allowed to participate in the Fund," meaning his
19 Retirement Board, City of Chicago, "by virtue of being
20 a "Retirement Board Employee" as the name of our title
21 so indicates." It sounds like -- by this writing it
22 sounds like Mr. Capasso may be an attorney.
23 MR. LYDON: You know, I'll object and ask
24 that that be stricken. What are we doing here?
25 THE INDEPENDENT HEARING OFFICER: Which part?
228
1 The question?
2 MR. LYDON: His answer.
3 THE INDEPENDENT HEARING OFFICER: We'll
4 strike that. Okay.
5 MR. THOMAS: I assume you're just striking
6 that last part, not the whole answer, right?
7 THE INDEPENDENT HEARING OFFICER: Right.
8 BY MR. THOMAS:
9 Q. Specifically, Mr. Maria, does Mr. Capasso
10 indicate there that by virtue of his employment with
11 his City of Chicago Pension Fund he has a full pension
12 benefit by virtue of that job? He says, "We are
13 administrative employees who are allowed to participate
14 in the Fund by virtue of being a Retirement Board
15 Employee." What do you interpret that to mean?
16 A. My interpretation is that as an employee of
17 the Retirement Board, he's eligible to participate
18 fringe benefits offered by the Retirement Board.
19 Q. By his employer there.
20 A. Yes.
21 Q. Separate and apart from what he's applying
22 for here with Mr. Jorgensen's Fund.
23 A. Yes.
24 Q. Finally, Mr. Maria, in your review of the
25 documents and your listening to the testimony and your
229
1 interviewing witnesses in this matter, have you seen
2 anything anywhere indicating any tacit approval or
3 blessing by the Funds, explicit, implicit, or
4 otherwise, of these contributions from 1001 that you
5 view to be improper?
6 A. No.
7 Q. Have you seen any evidence of any written
8 agreements, verbal agreements, anything of the like
9 that's been referred to in some of the questions here?
10 A. No.
11 MR. THOMAS: Nothing further, Mr. Vaira.
12 THE INDEPENDENT HEARING OFFICER: Mr. Maria,
13 just direct Number 12. Maybe I'm missing the fact who
14 he's writing this to and what he's saying. He is
15 writing to the Director of the Pension Department,
16 Laborers' Pension. That's -- is that his own employer?
17 Am I correct?
18 THE WITNESS: I'm sorry?
19 THE INDEPENDENT HEARING OFFICER: Is that his
20 own employer?
21 THE WITNESS: No, that's not correct. This
22 is a Fund administered by Mr. Jorgensen.
23 THE INDEPENDENT HEARING OFFICER: Okay.
24 MR. THOMAS: Mr. Vaira, I think I can explain
25 the context if you like.
230
1 THE INDEPENDENT HEARING OFFICER: I'm just --
2 I understand what he's doing.
3 MR. LYDON: I think Mr. Capasso's going to be
4 here tomorrow and he can explain it himself.
5 THE INDEPENDENT HEARING OFFICER: Okay.
6 That's fine.
7 MR. THOMAS: If I may, Mr. Vaira. Mr.<