Hearing on allocation of losses tied to Madoff
By Matt Glynn
Bernard L. Madoff is in prison, but unionized carpenters in New York State are still coping with the financial fallout from his fraudulent scheme.
The United Brotherhood of Carpenters and Joiners of America is looking into allegations that a union representing carpenters across the state disproportionately burdened upstate members with millions of dollars in investment losses stemming from Madoff’s fraud.
The UBC has scheduled a hearing today and Wednesday in Albany on actions taken by the Empire State Regional Council of Carpenters, which is based in Westchester County.
Douglas J. McCarron, general president of the Washington, D. C.-based UBC, laid out the allegations in a letter this month to Patrick B. Morin, the council’s executive secretary-treasurer. Copies of the letter were sent to members of affiliated local unions, including Cheektowaga-based Carpenters Local 289.
The 10-page letter offers a look into the financial ripple effect of Madoff’s $65 billion Ponzi scheme on some of its victims. In the case of the Empire State Regional Council, the impact hit individuals in the form of diminished pension, annuity and health funds for unionized workers at affiliated locals. The council says it has 15,000 members in a territory that excludes New York City.
Morin did not return a call to comment.
McCarron wrote to Morin that the UBC had received “numerous complaints” from local unions affiliated with the council over how the Madoffrelated losses had been allocated.
The total losses to the council’s pension, annuity and health funds were estimated at more than $160 million. The largest share of those losses, $97 million, was to the pension fund, McCarron wrote.
Madoff was arrested in late 2008 and later admitted to the Ponzi scheme. He is serving a 150-year prison sentence in North Carolina.
Buffalo-area victims of the scheme included Laborers Local 210, Bricklayers and Allied Craftworkers Local 3, and developer Howard Zemsky. Carpenters union workers had been identified in previous media reports as victims, but McCarron’s letter provides a more detailed account of the impact.
The letter refers to Syracusebased investment adviser J. P. Jeanneret Associates, a firm that placed money with Madoff on behalf of many unions in the state. Questions were raised at a meeting of the Empire funds’ board of trustees over whether Jeanneret was diversified enough in its investment products, the letter says.
“This appears to suggest that Jeanneret investments may not have been adequately diversified and raises questions regarding whether the Empire funds should have taken action to further diversify their assets to reduce the likelihood of large losses,” McCarron wrote.
McCarron also wrote that the UBC received information about possible financial irregularities within the Empire State Regional Council’s pension, annuity and health funds “and that these financial irregularities threaten the welfare of members within the council.”
The letter says it appears the Madoff losses were “disproportionately” allocated to former participants of the Upstate New York Carpenters annuity, pension and health funds, which were merged with the Empire State Regional Council’s funds before the Madoff fraud was uncovered.
McCarron said it appears the Empire Annuity Fund’s board of trustees approved allocating 75 percent of the fund’s Madoff-related losses to former participants in the Upstate fund —even though the Empire fund had assumed control of the former Upstate fund assets 2z years before the fraud was exposed.
The letter also says it appears that an investment of about $6.4 million in a Madoffrelated investment in December 2008 by the Empire Welfare Fund was allocated entirely to former Upstate Health Fund members, despite the Upstate fund having been dissolved and merged in early 2007.
“In addition to resulting in an inequitable allocation of losses, attributing such investment to the Upstate area appears to be fraudulent,” McCarron wrote.
Upstate members took a hit on an individual level, as their health reimbursement accounts and annuity accounts were sharply cut, the letter said. It recounts the story of one Upstate member who had to pay a monthly health insurance premium of $1,060 to avoid the termination of his health insurance.
Thomas Burke, president of Carpenters Local 289 in Cheektowaga, said he expects some of his local’s 1,400 members will probably testify at the hearing, but he couldn’t predict what the outcome of the process might be.
“We’re all going to have to wait and see what happens at the hearings,” Burke said.
Burke said however much an individual union member lost as a result of the Madoff fraud, the loss is significant.
“Any time you take a hit on a fraudulent scheme, it’s not coming back,” he said.
Local 747 in Syracuse said on its Web site it will provide buses for members who want to travel to Albany to testify at today’s hearing.
McCarron in his letter said the hearings will determine if supervision by the UBC over the Empire State Regional Council should be imposed.
Monte Byers, chief of staff for the UBC, said the hearings will not be open to the public. “This is a chance for the members to express their legitimate concerns,” he said.
Byers said he expects the UBC will release a statement following the hearings.
The UBC’s General Executive Board will make a final determination about the next step after the UBC’s Hearing Committee submits a report and recommendations, Byers said.