BY CAILIN BROWN
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
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
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,"
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.