By JEFFREY L. RABIN, Times Staff Writer
Lawsuit Alleges Mishandling of Pension Funds Litigation: Targets include MTA contractor and Sen. Feinstein's husband. They say the accusation is false
Three retired Carpenters Union members have filed a lawsuit in federal court alleging that the trustees and a prominent financial advisor to their union's nearly $2-billion Southern California pension fund have "engaged in improper self-dealing" by investing pension money in businesses in which they have "direct and substantial" financial interests.
The first trustee named in the lawsuit is Ronald N. Tutor, president of Tutor-Saliba Corp., one of the state's biggest construction firms. Tutor, the largest contractor on the Metro Rail subway and many major public works projects in California, serves as vice chairman of the pension fund for Carpenters Union members in Southern California and Nevada.
Also named as a defendant is the fund's financial advisor, San Francisco financier Richard C. Blum, the husband of U.S. Sen. Dianne Feinstein (D-Calif.).
Other defendants in the complex case filed in Los Angeles include Douglas McCarron, president of the United Brotherhood of Carpenters and Joiners of America, and all of the trustees of the Southern California pension fund as well as a separate $500-million pension fund for union officials, the United Brotherhood of Carpenters fund.
The suit alleges that the Southern California fund's trustees in 1997 authorized investing about $27 million of pension fund assets in investments controlled by Blum and his companies. The suit contends that some or all of that money was invested in the purchase of preferred stock in Perini Corp., a Massachusetts-based construction and real estate development company, which has been a partner with Tutor on many large construction projects, including the Los Angeles subway. In addition, the suit says that the separate United Brotherhood of Carpenters pension fund invested with Blum.
Through the purchase of preferred stock in Perini, the suit said, Blum and his companies won the right to appoint Tutor and McCarron and another official to Perini's board of directors. Tutor is now chairman of Perini, as well as the top executive of his own firm, Tutor-Saliba.
Tutor vehemently denied that any investment of Southern California Carpenters pension money in Perini took place. "There is no way the Southern California fund invested in Perini. It is simply not true," he said. "This idiotic lawsuit . . . is so absurd. It is absolute, contrived nonsense."
Owen Blicksilver, a spokesman for Blum Capital Partners, said "the lawsuit is factually false. There is no merit and the plaintiff clearly knows that. Filings with the Securities and Exchange Commission bear this out."
Earlier this month, Murray Indick, general counsel of Blum Capital Partners, filed a statement with the SEC saying that "the Carpenters Pension Trust for Southern California is not and has never been a limited partner" in the Blum investment group that is the largest shareholder of Perini.
But Blum's New York spokesman confirmed that the separate United Brotherhood of Carpenters pension fund did make what he called a "lawful and appropriate" investment in Perini.
Since the pension fund investment three years ago this month, the value of Perini stock has dropped sharply. Perini has experienced major financial problems related to the write-off of real estate losses, including a major San Francisco office, retail and residential complex known as Rincon Center that was built by Tutor.
Carpenters Union Defends Payments
The suit also contends that the Southern California fund's payments to Blum and his companies for investment advice, estimated at nearly $8 million in 1997 alone, were "grossly out of proportion to the value of such services."
Blicksilver would not discuss what Blum has been paid as financial advisor to the pension fund. But Monte Byers, spokesman for the Carpenters Union, defended the payments. "Mr. Blum is the most successful financial advisor the [Southern California] fund has ever had," he said.
The lawsuit also alleges that "the trustees and investment advisors have engaged in improper self-dealing by causing the plans to make investments in business entities in which they have direct and substantial financial interests, have caused the plans to make imprudent investments" and have violated their fiduciary duties under the federal Employee Retirement Income Security Act.
"This duty includes the obligation not to engage in activities that inure to their own benefit rather than to the benefit of the plan," the suit said.
The three retired carpenters, Horacio Grana, Phillip R. Helsius, and Walter J. Sprenger, contend that the "breaches of fiduciary duty and self-dealing alleged . . . are so egregious" that a federal judge should order the removal of the trustees and Blum as the pension funds' investment advisor. The plaintiffs also seek an injunction barring the trustees and the financial advisor from taking any action with respect to pension plan assets.
Federal law prohibits pension fund trustees or financial advisors from acting in a manner adverse to the interests of the plan's beneficiaries or participants. There are 30,000 participants in the Southern California plan and 4,400 in the United Brotherhood of Carpenters plan for union officials. Tutor said there was "no self-dealing period," and he branded the suit as "two-bit harassment."
A spokesman for Blum would not discuss the Employee Retirement Income Security Act (ERISA) issues on the record. The Carpenters Union spokesman said of the case: "We're going to fight it and we expect to prevail."
Los Angeles attorney Daniel Belin, whose firm filed the lawsuit, defended the action. In the suit, the plaintiffs seek access to documents to verify how their pension money was invested.
"We asked the Blum organization for a meeting before we filed suit and they refused to meet," Belin said. "We asked again, and again they refused to meet. The bottom line is that if they can show us there has been no impropriety under ERISA, we won't proceed under ERISA. It's as simple as that."
Contractor on Many Public Works Projects
The lawsuit contends that since the Perini stock investment, many of Perini's assets have been transferred to Tutor or to his entities at prices highly favorable to Tutor and highly unfavorable to Perini and its shareholders. Tutor said Perini was "desperate" for cash, and he bought out its 20% interest in two contracts at San Francisco International Airport.
Tutor-Saliba, often in partnership with Perini, has worked on numerous public works projects. The company is the largest contractor on the Metro Rail subway and has been paid $940 million by the Metropolitan Transportation Authority for work on stations and tunnels. The firm's work has generated controversy, including its failure to build some downtown subway tunnels to the required thickness.
The politically connected company has been selected as the major contractor on the Alameda Corridor project to link the ports of Long Beach and Los Angeles with rail yards near downtown Los Angeles.
also in the San Francisco Chronicle http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/01/20/MN3363.DTL