Laborers Local 190's pension fund banked on now-bankrupt company

The local is suing two players in the deal, alleging professional misconduct


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.

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