UNION INVESTMENT OF $3M AT RISK
Laborers Local 190's pension fund banked on
now-bankrupt company
The local is suing two players in the deal,
alleging professional misconduct
BY CAILIN BROWN
Staff writer
November 18, 1993
A $3 million investment by the Construction and General Laborers
Union Local 190 pension fund is in jeopardy because the money was
invested in a now-bankrupt company.
The $3 million -- which accounts for only 5 percent of the pension
fund's $60 million in assets -- was invested in a limited real estate partnership in
Connecticut. The fund purchased zero-coupon bonds, which are sold at deep discounts with
no interest paid until the bonds mature.
The Local 190 pension fund filed a lawsuit against Arthur Andersen
& Co., an accounting firm, and Cushman & Wakefield, real estate appraisers,
charging that the companies provided inaccurate information to the union.
The lawsuit, filed in state Supreme Court in
Albany County on Friday, alleges that the accounting and real estate firms failed to do
their jobs when they inflated the value of the property the union invested in.
The financial well-being of the pension fund is not affected by
the bad investment, according to Sam Fresina, Local 190 business agent.
The construction union is separate from Laborers'
International Union Local 452 of Troy, which was recently dissolved after an audit showed
that its business agent, Frank Archina, embezzled money from that local. Archina remains a
fugitive and is wanted by the FBI.
In the Albany local's case, Colonial Real Estate Co. of
Connecticut pitched its real estate investments at an annual AFL-CIO conference in Florida
in 1990.
Fresina, and representatives from unions throughout the country,
heard the presentation and received backup information from Andersen and Cushman &
Wakefield, Fresina said Wednesday.
After reviewing the proposals, which promised a a $6 million
return to Local 190 in 1996, the pension's board of trustees opted to
invest.
Fresina said the board never invested in real estate before and
decided to "dabble" in it.
"It was very impressive, so we invested, and now we're in
litigation because we don't know if Arthur Andersen gave the right
information," Fresina said.
The pension fund is diversified; investments are spread out in
stocks, bonds and government securities. Fresina said the fund earned $6 million on its
investments in the most recent fiscal year.
The membership has no need to worry, he said.
"We're giving bonus checks, as we do every
year. The fund made better than 10 percent, which is $6 million in profits, and continues
to be strong and continues to make money," Fresina said.
A representative for Cushman & Wakefield declined comment
Wednesday and representatives of Arthur Andersen could not be reached for
comment.
In a report to the state Board of Accountancy, the Connecticut
attorney general found that Andersen had violated accounting standards and that its
relationship with Colonial was improper. Andersen agreed to pay a $3.5 million fine and
was suspended from working in real estate syndications in Connecticut for
two years.
Local 190's only chance to recover its investment is from Andersen
and Cushman on the basis of professional misconduct, said New York City attorney Paul
Windels, who represents the local.
Local 190's attorney, Eugene Devine of Albany, described Colonial
as one of the biggest real estate syndicates in the country.
"It looked like a good investment and at that time they were
a reputable outfit," Devine said. "What I think happened is they started
pyramiding."
The Colonial web has been described as both a pyramid and Ponzi
scheme. Either way, the company continued to collect investment money,
but instead of using it to make profits, used it to pay debts.
Devine said the union alleges that an employee
of Arthur Andersen who was intimately involved with Colonial did more than just act as an
accountant. He also prepared the prospectus for Colonial and did not use accurate figures.
"Arthur Andersen and Cushman Wakefield puffed up the value of
the appraisals," Devine said.
Devine said the pension fund is healthy and
added that those who have pensions should not be concerned.
"The pension fund is fully able to pay
every retiree everything they are owed when they retire," Devine said.
Fresina, Local 190 business agent, has been in the news lately because he was assigned as the trustee to oversee the financial situation at Troy's Local 452 of the Laborers' International Union.