In the Matter of Local Union 734
Laborers’ International Union of
Independent Hearing Officer
Docket No. 04-26T
Decided: December 30, 2004
FINAL ORDER AND MEMORANDUM
This Final Order and Memorandum addresses
the Emergency Trusteeship LIUNA General President Terence M.
O’Sullivan (General President) imposed over Laborers’ International
Union of North America (LIUNA) Local Union 734 (Local 734) in
Newark, New Jersey, on October 28, 2004.
Local 734 had previously been under the
supervision of the International Union pursuant to the terms of a
Voluntary Supervision Agreement executed between the parties on
October 28, 2002. See GEB Ex. 2 (In re Supervision
Proceedings, LIUNA Local 734, Newark, New Jersey, Voluntary
Supervision Agreement of 10/28/02 (Voluntary Supervision
Agreement)). The loss of decertification elections and the raiding
of Local 734 membership by an independent local union made the
Voluntary Supervision necessary to protect the organization as an
institution and assure the performance of collective bargaining
agreements. See In the Matter of Local Union 734, IHO Order
02-16T (November 26, 2002). The General President appointed Vice
President and Regional Manager Raymond Pocino (Pocino) as the Local
734 Supervisor; Assistant Regional Manager Patrick C. Byrne (Byrne)
was appointed as Local 734 Deputy Supervisor. See GEB Ex. 3
(Letter from Terence M. O’Sullivan to Raymond Pocino of 11/8/02).
The Voluntary Supervision began on
October 28, 2002, and was scheduled to run 18 months. See
GEB Ex. 2, (Voluntary Supervision Agreement). However, under the
terms of the Supervision Agreement, “the General President and GEB
Attorney shall have the discretion to extend the term of the
supervision for a period of up to six months if they conclude that
an extension is necessary to accomplish the purposes of the
supervision.” Id. ¶ 4. The Voluntary Supervision was
extended for another six months until October 28, 2004. Tr. 24 –
25, 51 (BYRNE).
On October 28, 2004, the General
President properly informed Local 734 members and officers and the
Emergency Trusteeship at issue here had been imposed because of
various administrative problems within the Local’s benefit funds.
See General Executive Board (GEB) Exhibit (Ex.) 36 (Letter
from General President Terence M. O’Sullivan to Local Union 734, Its
Supervisor, Officers and Members of 10/28/04 (Emergency Trusteeship
Notice)). The General President appointed Pocino as the Local 734
Trustee. Id. Byrne and International Representative Paul
Drazen were appointed as Local 734 Deputy Trustees. Id.
The IHO held the Emergency Trusteeship
hearing in Newark, New Jersey over several days, including November
23, 24, December 6 and 7, 2004. CITE TRANSCRIPT; see also 29
U.S.C. § 464(c); International Union Constitution (International
Article IX, Section 7. At the hearing, Associate GEB Attorney
Patrick Slevin appeared on behalf of the International Union; Bruce
Leder, with the law firm Cohen, Leder, Montalbano & Grossman, LLC,
appeared on behalf of former Business Manager Michael Rosado.
Trustee Pocino and Deputy Trustee Bryne were both present and
testified at the hearing. Numerous Local 734 members also attended
the hearing. The hearing was transcribed by a court reporter. A
sworn interpreter translated the November 23, 2004 hearing for the
members attending.1 See
Transcript In the Matter of Trusteeship Proceedings Local 734
(Tr.) of 11/23/04.
The Labor Management Reporting and Disclosure Act (LMRDA) gives a
governing body, in the case LIUNA, discretion in placing its member
organizations under trusteeship to correct certain problems. See
29 U.S.C. §§ 461-466. A governing body seeking to impose a
trusteeship upon its subsidiary must give the targeted entity a full
and fair hearing. See 29 U.S.C. § 464(c). Under
Article IX, Section 7 of the International Constitution, the
LIUNA General President may appoint a Trustee when:
[t]he General President finds, in his opinion, that action by him is
necessary for the purpose of correcting corruption or financial
malpractice, assuring the performance of collective bargaining
agreements or other duties of a bargaining representative, restoring
democratic procedures or otherwise carrying out legitimate objects
of such subordinate body or
1 The IHO later determined that
a translator was unnecessary for the remaining days of the hearing.
the International Union, or to protect the organization as an
Article IX, Section 7.
In addition, LIUNA may
impose a trusteeship over a subordinate body to correct officers’
mismanagement and corruption. Id.. The LIUNA General
President delegates his power “to impose and review the imposition
of trusteeships over any district council, local, or other entity
within the Union” to the GEB Attorney.
EDP, Section 3. Pursuant to Section 5 of the EDP, the LIUNA IHO
“shall preside over and provide rulings in” the imposition of all
trusteeship. See EDP, Section 5.
Ethical Practices Code
Under the “Health Welfare
and Retirement Funds” section of the Ethical Practices Code (EPC),
“[c]omplete records of the financial operations of all health,
welfare and retirement funds and programs shall be maintained in
accordance with the best accounting practice. Each Union trustee
shall require that each such Find be audited regularly.”
Relevant Provisions of
Local 734 Trust Agreements
Local 734 has two benefit
plans relevant to this matter: the Pension Fund and the Welfare and
Educational Fund. See GEB Ex. 73 (Restated. Supplemental and
Amended Agreement of Trust of the Local 734 Welfare and Educational
Fund); GEB Ex. 74 (Restated. Supplemental and Amended Agreement of
Trust of the Local 734 Pension Fund) (collectively, Trust
Agreements). Under the terms of the Trust Agreements, “Employee
Trustees…shall be designated by the Executive Board of Local 734 of
the Laborers’ International Union of North America , AFL-CIO, with
the approval of the International Union.”2
See GEB Ex. 74, Article IV, Section 2(a), p. 41 (Pension
Agreement); GEB Ex. 73 at pp. 38-39 (Welfare Agreement).
The Trust Agreements further state:
The respective Trustees shall serve at the will of the Union or the
Employers, respectively appointing them. The Union or the Employers
shall seek successor Trustees whenever
2 The IHO refers to “Employee Trustees”
as “Union Trustees” for ease of identification of the parties.
vacancies occur within their respective appointments. A
vacancy shall be deemed to have occurred whenever a Trustee
resigns or when a Trustee is removed by the party which
appointed him, or by reason of death or incapacity of a
GEB Ex. 74, Article IV, Section
2(c), p. 41 ((Pension Agreement); GEB Ex. 73 at
p.39 (Welfare Agreement).
Under the terms of the
The Executive Board of the Union shall designate the Union Trustees
and shall have the right at all times, with or without cause, to
remove and replace such Trustee so designated by or for them and to
fill any vacancy or vacancies caused by the death, removal,
incapability to act under this Trust Agreement, or resignation of
GEB Ex. 74, Article 74, IV, Section 2(e), p. 42 (Pension
Agreement); GEB Ex.
73 at p.40 (Welfare Agreement.)
Relevant Portions of the October 28, 2002 Supervision Agreement
terms of the Voluntary Supervision Agreement include that,
[p]ursuant to Article IX, Section 7 of the Constitution of The
Laborers’ International Union of North America (LIUNA), Local Union
734 consents to the appointment of a Supervisor who shall be
authorized to exercise all of the powers and responsibilities set
forth in that Section. The Supervisor shall be authorized to take
full charge of the affairs of Local Union 734 during the period of
supervision and to take any and all action that, in the Supervisor’s
judgment, is necessary to preserve or manage the subordinate body
and to protect its interests consistent with this Agreement. Such
authority shall include but will not be limited to, the power (a) to
appoint, terminate or replace any employees; (b) to appoint and
supervise stewards; (c) to retain lawyers, accountants, other
professionals, and service providers on behalf of Local Union 734;
and (d) to retain persons to assist him in the exercise of his
responsibilities. The General President and GEB Attorney shall have
complete authority to select the Supervisor and, if necessary, to
replace the Supervisor during the period of supervision.
GEB Ex. 2, ¶ 1 (Voluntary
Supervision Agreement clearly delineated that,
[d]uring the period of supervision, one or more of the
Constitutional officers of Local Union 734 may be removed from
office at the direction of the Supervisor in his sole discretion.
While in office, the officers may exercise such authority as shall
be delegated to them by the Supervisor, who shall have unfettered
discretion to exercise the powers granted in paragraphs one, above.
GEB Ex. 2 ¶ 2 (Voluntary Supervision Agreement).
The Voluntary Supervision Agreement further provided that deliberate
violations of the agreement would constitute obstruction of the
General President and the GEB Attorney, and could be charged as a
violation of LIUNA Ethics and Disciplinary Procedure (EDP). See
GEB Ex. 2, ¶ 3 (Voluntary Supervision Agreement).
WITNESSES TESTIFYING ON BEHALF OF THE GEB
Raymond Maria (Maria) is a Certified Public Accountant (CPA), former
Supervisor agent of the Federal Bureau of Investigation (FBI), and
former Deputy Inspector General of the U.S. Department of Labor.
Tr. 287 – 292 (MARIA). For several years Maria has operated his own
company engaged in detection of fraud, fiduciary abuse, and
conflicts of interest in union, pension and government contracts.
Id. Maria is now a sole practitioner employed in various
matters by the LIUNA Inspector General. Id. The IHO has
previously qualified Maria as an expert in labor racketeering
matters. See, e.g., In the Matter of Anthony Franco, IHO
Order and Memorandum,
02-01D (December 16, 2002); In the Matter of Local Union 1175,
IHO Order and Memorandum, 03-10T
(June 11, 2003); In the Matter of Fred Clemenza Jr., IHO
Order and Memorandum, 03-29D (June 23, 2004).
Jack Elko (Elko) is employed as a private contractor with the LIUNA
Office of Inspector General. Tr. 239:13-15 (ELKO). Elko was
previously employed for ten years by the Morris County Prosecutor’s
Office in Morristown, New Jersey. Tr. 239:24 – 240:2 (ELKO). During
that time, Elko investigated organized crime, gambling, fraud, and
municipal production. Tr. 240:3-5 (ELKO). While at that office,
Elko was a member of the electronic surveillance unit, which
conducted most of the wire tapping and listening investigations at
the Prosecutor’s Office. Tr. 240:9-12 (ELKO). In 1983, he was
employed by the Division of Criminal Justice, New Jersey Attorney
General’s Office, investigating organized crime in the solid waste
industry. Tr. 240:21 – 241:3 (ELKO). In 1985, Elko joined a
statewide organized crime task force, and was employed there until
he retired in 1997. Tr. 243:4-9 (ELKO). In that task force, he
actively investigated the activities of the Genovese crime family in
New Jersey. Tr. 243:15-25 (ELKO).
FINDINGS OF FACT
1. Local 734 is located in Rochelle
Park, New Jersey. Tr. 43:14-15 (BYRNE).
2. The Local 734 Pension Fund and
Welfare and Educational Fund (collectively, the Funds) office is
also located in Rochelle Park, New Jersey, although an ancillary
office for the Funds was located in Brick, New Jersey. See
GEB Ex. 28 (Schultheis & Panettieri, LLP Draft Report (Schultheis
3. Michael A. Rosado (Rosado) was
Local 734’s Business Manager and a Union Trustee to the Funds when
the Emergency Trusteeship was imposed. Tr. 20:11-12 (BYRNE).
4. Joseph Gambardella (Gambardella)
was Local 734’s Vice President and a Union Trustee to the Funds at
the time the Emergency Trusteeship was imposed. Tr. 36:7-8 (BYRNE).
5. Louis Calastro (Calastro) is the
Chairman of the Funds Trustee Committee and an Employer Trustee to
the Funds. Tr. 686:12-25 (CALASTRO). Calastro has been an Employer
Trustee to the Funds since in or about 1998. Id.
6. Salvatore Salerno (Salerno) was
the second Employer Trustee to the Funds. Tr. 37:9 (BYRNE).
7. John Fritzsch (Fritzsch) was the
Administrator of the Funds from 1995 to September 2004. Tr.
8. Peter Rizzo (Rizzo) was the
Assistant Administrator of the Funds until September 2004.
9. Frank Pernice (Pernice) was a
Local 734 business agent until August 2003 when he became a Pension
Investigator for the Funds. Tr. 27:18-20 (BYRNE).
Background Regarding Voluntary
Supervision of Local 734
10. After the Supervision was
imposed in October 2002, Supervisor Pocino replaced the Funds’ legal
counsel with the law firm of Kroll, Heineman Giblin, LLC (the Kroll
Law Firm). Tr. 155-56 (BYRNE). Albert Kroll, a principal of the
firm, handled the Funds’ matters. Id.
11. During 2003, Byrne received
complaints about Local 734 business agent Pernice. Tr. 29 (BYRNE).
Consequently, Byrne fired Pernice on August 22, 2003. Id.
However, the Funds had hired Pernice as a Pension Investigator with
a salary of approximately $139,000. See GEB Ex. 54 (Local
734 Welfare Plan Payroll Data).
12. Byrne discovered that Pernice’s
salary was greater than most welfare Fund administrators’ salaries.
Tr. 30:2 – 32:6 (BYRNE). When Byrne protested that Pernice’s
compensation was excessive, the Administrator of the Funds cut his
salary in half. Id.
13. In November 2003, some Local 734
members confidentially informed Pocino and Byrne that a law
enforcement agency was investigating the Funds for no-show employees
and misuse of funds. Tr. 32:16 – 33:6 (BYRNE).
14. Taking a proactive approach to
determining the credibility of this information, Pocino and Byrne
decided to have Byrne added to the Board of Trustees and
commissioned a review of procedures. Tr. 33:21 – 34:4 (BYRNE).
Attempts to Appoint Byrne as Funds’ Union Trustee
15. In or about late November 2003,
Byrne asked one of the Funds’ two Union Trustees, Rosado, to have
Byrne appointed as a third Union Trustee.3 Rosado said he
would “handle it.” Tr. 34:7-19 (BYRNE).
17. On May 26, 2004, Pocino had
lunch with Calastro, the Chairman of the Board of Trustees and an
Employer Trustee. Tr. 37:7-8 (BYRNE). Calastro
3 Appointment of a third Union Trustee
would also have required appointment of a third Employer Trustee.
agreed that the number
of Trustees would remain the same, but Byrne should be a Union
Trustee. Tr. 37:22-25 (BYRNE).
18. Thereafter, Byrne informed
Rosado that he (Byrne) would become a Union Trustee at the June
meeting. Tr. 38:5-7 (BYRNE). Rosado was well aware that Byrne
would replace Gambardella as a Union Trustee.
19. Byrne had the June meeting
scheduled on his calendar for June 8, 2004. Tr. 38:10-11 (BYRNE).
When he attempted to confirm the date, Rosado told him that he had
the wrong date and the next Trustees’ meeting was June 15, 2004.
Tr. 38:10-14 (BYRNE). Byrne changed the date on his calendar, but
the Funds’ Trustees’ meeting was actually held on June 8, 2004. Tr.
38:10-16 (BYRNE). When Byrne inquired how he was given the wrong
date, Rosado said that he had made a mistake. Tr. 40:14-15 (BYRNE).
20. Byrne brought the incident to
Pocino’s attention and, as a result, a meeting between Pocino,
Byrne, and Rosado was held on June 29, 2004, at the Foresgate
Country Club. Tr. 40:17-24 (BYRNE). At the meeting, Pocino and
Byrne instructed Rosado to remove Gambardella as a Union Trustee and
designate Byrne a new Trustee. Tr. 42:2-8 (BYRNE). Pocino further
directed Rosado to arrange an emergency trustees meeting so that an
operational review could be authorized. Id. Rosado agreed to comply
with these directions. Tr. 42:11-12 (BYRNE).
21. On July 27, 2004, Rosado, Funds’
Administrator Fritzsch, Byrne, Attorney Kroll, and Employer Trustee
Salerno attended a meeting at the union hall. Tr. 43:10-18
(BYRNE). Gambardella was not present. Tr. 44:24-25 (BYRNE).
22. At that meeting, Byrne
introduced himself and informed those present he was replacing
Gambardella as Union Trustee. According to Byrne, nothing indicated
that this was not a meeting of the Funds’ Trustees. Tr. 45:20-24
23. During the meeting, Byrne
recommended engaging the accounting firm Schultheis & Panettieri,
LLP (Schultheis Accounting Firm) to perform an operational review of
the Funds.4 Tr. 43:24 – 44:3 (BYRNE).
4 The firm was retained to perform
an “agreed upon procedures engagement” (engagement). This
accounting procedure was not an audit, although the witnesses often
generically refer to it as an audit. The engagement agreement reads
drafted an engagement
letter which Attorney Kroll reviewed and approved. Tr. 44:4-5
(BYRNE). Byrne made a motion that hiring the Schultheis Accounting
Firm be approved, which was unanimously accepted. Tr. 44:4-8
(BYRNE). In addition, Byrne requested to be added to the fiduciary
policy and to be given permission to sign the retainer agreement.
Tr. 44:8-15 (BYRNE). The group agreed to his proposals. Id.
No one at the meeting objected to Byrne’s presence at the meeting.
Tr. 45:8 (BYRNE). Curiously, no minutes were taken at this
meeting. Tr. 707:18-20 (CALASTRO).
25. The Funds’ Trust Agreements
require Union Executive Board approval for the appointment or
removal of a Union Trustee. See GEB Ex. 74, Article IV,
Section 2(e), p. 42 (Pension Agreement); GEB Ex. 73 at p.40 (Welfare
Agreement). Notice of the appointment or removal must be
delivered in writing to the Funds’ Trustees. See GEB Ex. 74,
Article IV, Section 2(f), p. 42 (Pension Agreement); GEB Ex.
73 at p.40 (Welfare Agreement).
26. Under the Voluntary Supervision
Agreement in effect on July 27, 2004, the Supervisor was authorized
to exercise all powers granted by Article IX, Section 7, including
removal and replacement of the Funds’ Union trustees. See
GEB Ex. 2 (Voluntary Supervision Agreement). Since the Supervisor
had the power to remove any officer or override any Executive Board
decision, it was unnecessary for the Supervisor to submit his
nomination of Byrne for an Executive Board vote. See infra,
27. While written notice would have
been preferable, Byrne’s appearance at the July 27, 2004 meeting,
and the Trustees’ agreement to place Byrne on the fidelity policy
and engage the Schultheis Accounting Firm provided actual notice of
Byrne’s appointment as a Union Trustee.
obtain job descriptions of the Funds’ employees and
them to ensure that job descriptions are accurate. We will
walk-through tests of transactions pertaining to their
jobs. We will also review timekeeping and payroll
records. If we observe opportunities
for streamlining your
operations, we will point them out
to you in the report we will issue
at the conclusion of our engagement.
GEB Ex. 6
(Letter from Patrick Byrne to Vincent Panettieri of 7/29/04
(Schultheis Engagement Letter)).
28. Gambardella’s absence at the
meeting was further evidence that he was no longer a Union Trustee.
29. During the hearing on December 6, 2004, Calastro denied that the
July 27, 2004 meeting was an actual Trustee meeting, despite the
actions of the Trustees at that meeting, and further denied that
Byrne announced that he was a Union Trustee. Tr. 706:2-6, 709:17-19
(CALASTRO). The other Employer Trustee, Salerno, submitted an
affidavit agreeing with Calastro’s position. See Rosado Ex.
37 (Affidavit of Salvatore Salerno of 12/3/04). The IHO does not
find these statements credible, given the actions taken at the
meeting and conduct following the meeting.
Engagement of the Schultheis Accounting Firm
30. On July 29, 2004, Byrne sent an
engagement letter to the Schultheis Accounting Firm, which he copied
to Fritzsch, the Funds’ Administrator. See GEB Ex. 6 (Letter
from Patrick C. Byrne to Schultheis & Panettieri, LLP of 7/29/04
(Schultheis Engagement Letter)).
31. When Byrne arranged for the
Schultheis Accounting Firm to begin its document review, the firm
requested copies of various documents in advance of going to the
site. Tr. 48:12-16 (BYRNE); see also GEB Ex. 7 (E-Mail from
Michael Van Sertima to Patrick Byrne of 8/11/04).
32. Byrne faxed the document request
to Rosado on August 12, 2004. See GEB Ex. 8 (Facsimile from
Patrick C. Byrne to Mike Rosado of 8/12/04).
GEB Ex. 9 (Letter from John Fritzsch to M. Van Sertima of 8/13/04).
34. Byrne was puzzled by the delay
because all of the Trustees at the July 27, 2004 meeting had agreed
to begin the engagement. Tr. 51:2-7 (BYRNE).
35. Byrne was anxious to have the
operational review completed and begin taking corrective measures
before the Supervision ended on October 28, 2004, when the
Supervisor would lose all power to conduct the engagement or make
changes based upon the findings. Tr. 51:12 – 52:15 (BYRNE).
37. When Byrne spoke with Rizzo,
Rizzo agreed to produce the documents by September 1, 2004. Tr.
56:8-11 (BYRNE). However, by September 10, 2004, no documents had
Resignation of the Funds’ Administrator
38. A meeting of the Funds’ Trustees
was scheduled for September 14, 2004. Byrne could not attend the
meeting because he was scheduled to leave for a two week vacation in
China that day. Tr. 58:13-18, 65:3-10(BYRNE).
39. A few days before the September
14, 2004 meeting, Byrne learned that Funds Administrator Fritzsch
intended to announce his resignation at that meeting.5 Tr. 59:9-14 (BYRNE). Byrne did not want the Trustees
to vote on Fritsch’s replacement until the engagement with the
accountants was completed. Tr. 59:23 – 60:8 (BYRNE).
40. Byrne informed Rosado that there
should not be a vote on Fritzsch’s replacement until Byrne
returned. Id. Rosado agreed. Tr. 60:11 (BYRNE), 971:7-16
41. Byrne also told Calastro that he
did not want Assistant Administrator Rizzo appointed to replace
Fritzsch. Tr. 60:19 – 61:24 (BYRNE). Byrne testified that Calastro
agreed that there should not be a vote on Rizzo and that Calastro
told Byrne he believed Rizzo was controlled by the “man down south,”
who was understood to be Auggie Vergalito, a former Local 734
Assistant Business Manager. Id. Calastro denies that he made
this statement. Tr. 717:5-7 (CALASTRO).
42. According to Byrne, Employer
Trustee Salerno told Byrne he would support Byrne’s motion to
prevent Rizzo from becoming Funds Administrator. Tr. 62:6-8 (BYRNE).
5 Fritzsch was resigning for health
reasons. Tr. 49:12-14 (BRYNE)
44. When he returned from vacation,
Byrne discovered that the Funds’ Trustees had voted to give Rizzo
the position as Funds’ Administrator at the September 14, 2004
meeting. Tr. 65:19-24 (BYRNE).
45. Byrne immediately confronted
Rosado, who said that he had abstained from voting. Tr. 68:12 –
69:16 (BYRNE). Byrne testified that he learned that Rosado had, in
fact, voted in favor of appointing Rizzo, but, later in the meeting,
had the minutes altered so that it would appear that he had not
voted. Tr. 66:10-18 (BYRNE).
46. Rosado testified that he was in
favor of Rizzo, but changed his vote to an abstention before the
vote was final. Tr. 980:5-13 (ROSADO). Rosado told Byrne the
Employer Trustees had recognized Gambardella as the proper Union
Trustee and, thereafter, Gambardella voted to appoint Rizzo as the
Funds’ Administrator. Tr. 69:4-16 (BYRNE).
47. When Byrne asked Rosado whether
he recognized Byrne as a Union Trustee, Rosado admitted Byrne was a
Trustee. Tr. 69:19-21 (BYRNE).
48. Upon Byrne’s request that Rosado
confirm in writing that Byrne was Trustee, Rosado wrote Byrne a
letter on September 30, 2004. See GEB Ex. 15 (Letter from
Michael Rosado to Patrick Byrne of 9/30/04). Rosado’s September 30,
2004 letter is vague and evasive; Rosado did not state that Byrne
was a Trustee and deliberately attempted to evade the Supervisor’s
request for information. Rosado was well aware of Byrne’s position
at the September 14, 2004 meeting and his purported abstention from
voting, which allowed Gambardella to vote for Rizzo, was a further
attempt to thwart the Supervisor’s intentions.
49. Thereafter Byrne sent Rosado a
draft letter, which clearly set out that Byrne was a Union Trustee,
that Byrne directed Rosado send to Rizzo on Local 734 letterhead.
See GEB Ex. 16 (Letter from Patrick Byrne to Michael Rosado
of 10/1/04). Rosado said he wanted to put the letter in his own
words. Tr. 73:2-3 (BYRNE). Rosado never sent a letter. Tr. 73:23
(BYRNE). Rosado’s refusal to send the letter complying with Byrne’s
request was a deliberate obstruction of the Supervisor.
50. Calastro, Chairman of the Funds’
Trustee Committee, received a copy of the draft letter and became
infuriated. Tr. 721:22-24 (CALASTRO). Calastro testified it was
totally false and threatened Rosado with legal action if he signed
it. Tr. 722:3-12 (CALASTRO).
The Accountants’ Findings and Resulting Circumstances
51. The Schultheis Accounting Firm conducted an on-site document
review at the Rochelle Park office starting on September 23, 2004.
Tr. 86:24 – 87:2 (BYRNE). On October 5, 2004, Byrne had a
conversation with a member of the accounting firm. The firm’s
preliminary findings indicated that there were several very highly
compensated individuals on the payroll with virtually no
responsibilities; the administrative costs of the Welfare and
Educational Fund were in excess of 20 percent of the contributions;
and the administrative costs of the Pension Fund ran as high as 40
percent of the contributions. Tr. 89:2-13 (BYRNE).
52. On October 4, 2004, Rizzo,
Salerno, Calastro, and Gambardella held an emergency Trustees’
meeting and voted to immediately terminate the Kroll Law Firm as the
Funds’ counsel. See GEB Ex. 19 (Letter from Peter Rizzo to
Albert Kroll of 10/4/04); GEB Ex. 20 (Minutes of the Emergency
Meeting of the Local 734 Pension Fund and Local 734 Welfare &
Educational Fund of 10/4/04). Byrne was not notified of the
meeting. Tr. 78:2-3 (BYRNE).
53. Rizzo informed Byrne that Rosado
was not at meeting, but was reached later by telephone and concurred
in the results. Tr. 80:22-25 (BYRNE). Gambardella told Byrne that
Rosado was at the meeting and agreed to terminate the Kroll Law
Firm. Tr. 83:16 – 84:9 (BYRNE).
54. The Kroll Law Firm had continued
to support the engagement of the Schultheis Accounting Firm and
substituting Byrne for Gambardella as Union Trustee. Tr. 81:15-19
55. The IHO finds that the Kroll Law
Firm was dismissed for its support of engaging an independent
accounting firm and substituting Byrne as a Union Trustee.
56. On October 18, 2004, Angelo R.
Bisceglie Jr. (Bisceglie), from the Bisceglie & Friedman, LLC law
firm (Bisceglie Law Firm), sent a letter to the Schultheis
Accounting Firm that stated the Bisceglie Law Firm had been retained
as counsel to the Funds. See GEB Ex. 24 (Letter from Angelo
R. Bisceglie Jr. to Schultheis & Panettieri, LLP of 10/18/04). In
that letter, Bisceglie informed the Schultheis Accounting Firm that
“the Trustees have directed that the release of [recent audit]
information be made” solely to the Bisceglie Law Firm. Id.
Byrne was never consulted on the matter. Tr. 90:22 (BYRNE).
57. The IHO finds that this October
18, 2004 letter was an attempt on the part of the Trustees to
suppress the engagement findings until the Supervision expired on
October 28, 2004. If the delay had occurred, the Trustees could
have suppressed the report and membership would be unaware of the
gross misuse of Funds.
58. By letter of October 6, 2004,
Pocino removed Gambardella as a Union Trustee to the Funds, with a
copy to Rosado and Rizzo. See GEB Ex. 17 (Letter from
Raymond Pocino to Michael Rosado of 10/6/04).
59. On October 20, 2004, Pocino
called a meeting of the Funds’ Trustees. Tr. 92:3-6 (BYRNE).
Calastro and Salerno, the two Employer Trustees, did not attend.
Tr. 92:15-25 (BYRNE). Pocino, Rosado, Gambardella6,
Byrne, Attorney Kroll, and Vincent Panettieri (Panettieri) attended
the meeting. Tr. 96:4-8 (BYRNE). Panettieri, a partner in the
Schultheis Accounting Firm, gave a presentation regarding its
findings, including possible no-show jobs, overpayment of salaries,
a very highly compensated accounting firm, a Bricktown office that
seemed to serve no real function, and very high Fund expenses. Tr.
60. When they heard the findings,
Rosado and Gambardella said they were too busy with Union business
to know what goes on in the Funds and they relied on the Funds’
Administrator to keep them informed. Tr. 98:12-15 (BYRNE).
61. At that meeting, Pocino removed
Rosado as Union Trustee of the Funds, replacing Rosado with himself
(Pocino). Tr. 97:17-23 (BYRNE); see also GEB Ex. 26 (Letter
from Raymond Pocino to Board of Trustees of 10/21/04).
62. On October 21, 2004, Pocino sent
a letter to the Employer Trustees confirming that he had removed
Rosado and had replaced Rosado with himself. See GEB Ex. 26
(Letter from Raymond Pocino to Board of Trustees of 10/21/04). In
that letter Pocino also indicated he had appointed Byrne as Union
Trustee on July 27, 2004, and had reappointed him on October 6, 2004
to clarify any confusion that may have existed. Id. Pocino
stated that Rosado was removed to resolve serious issues related to
Funds’ administration revealed by the operational review by the
Schultheis Accounting Firm. Id.
63. On October 21, 2004, the
Schultheis Accounting Firm presented a draft engagement report to
Pocino in his rule as Supervisor. See GEB Ex. 28 (Schultheis
Draft Report). It cited numerous instances of overpayment of
employees, unnecessary employee positions, and mismanagement.
64. Calastro testified he believed
that the Schultheis Accounting Firm breached the confidentiality
clause contained in the engagement agreement by
6 Gambardella was invited to the
meeting to the meeting to contribute his past knowledge.
engagement findings to Pocino and Byrne. Tr. 776:24 – 777:3
65. The Bisceglie Law Firm sent a
letter to the Schultheis Accounting Firm on October 22, 2004,
informing the firm that it was “in material breach” of the
confidentiality clause in the retainer agreement, the firm was
terminated, and “any monies paid for [the] audit were deemed
forfeit.”7 GEB Ex. 29 (Letter from Angelo R. Bisceglie
Jr. to Vincent Panettieri of 10/22/04).
66. Notwithstanding the Bisceglie
Law Firm’s position, Pocino and Byrne, as the Funds’ Union Trustees
and by virtue of their positions as Supervisor and Deputy
Supervisor, were entitled to see the Schultheis Accounting Firm
67. On October 22, 2004, Employer
Trustee Calastro wrote a scathing letter to Pocino accusing him of
making false accusations and questioning whether he could remove
Rosado and Gambardella as Union Trustees. See GEB Ex. 30
(Letter from Louis Calastro to Raymond M. Pocino of 10/22/04).
68. The Local 734 Executive Board
sent a letter to Pocino on October 25, 2004 protesting Pocino’s
prior statements about the integrity of Rosado and Gambardella. The
Executive Board urged Pocino to terminate the Supervision. See
GEB Ex. 33 (Letter from the Executive Board of Local 734 to
Raymond Pocino of 10/25/04).
7 The confidentially clause read as follows:
The results of the audit,
i.e., any report prepared or any findings
or recommendations, will be given to the Fund Administrator
and the Trustees of the Funds only. Any documents prepared by
Schultheis & Panettieri, LLP cannot be released to any other
party except for the Fund Administrator and the Trustees of the
Funds. Schultheis & Panettieri, LLP agree that should they
release any information from the operational audit to any third
party other than the Fund Administrator and Trustees of the
Funds, that will be deemed a material breach of this
confidentiality agreement and a breach of this agreement in total
and subject them to forfeit of all monies paid for this audit and
GEB Ex. 29 (Letter from Angelo R.
Bisceglie Jr. to Vincent Panettieri of 10/22/04).
69. On October 26, 2004, the
Executive Board sent a letter to all Local 734 members requesting
petitions be sent to the International Union in an effort to keep
Rosado and Gambardella as Union Trustees. Id. A copy of the
Executive Board’s October 25, 2004 letter to Pocino was attached to
the letter to the membership. The letter was mailed on Local 734
stationery and paid for by the Union.
Imposition of the Emergency Trusteeship
70. On October 28, 2004, the LIUNA
General President placed Local 734 in emergency trusteeship,
appointing Pocino as Trustee and Byrne as Deputy Trustee.
71. When Pocino took over as
Emergency Trustee on October 28, 2004, Pocino immediately dispatched
investigators and accountants to review the books and records of
Local 734 and Funds. Employees of the Funds were interviewed.
72. Pocino discovered a series of
Rosado’s handwritten notes in Rosado’s desk. See GEB Ex. 34
(Rosado Handwritten Notes Recovered From His Desk 10/29/04). The
handwritten notes indicated that Rosado wrote a draft of the items
to be included in the October 25, 2004 letter to Pocino. Id.
Rosado’s notes are as follows:
I need a draft letter from our Executive Board to Pocino (cc: Wash
D.C.) making reference that they are ‘confused’ why me and Joey
[Gambardella] would be removed. All we (Executive Board and
me) have done is cooperate with his request for past 2 yrs of
supervision. And that me and Joey always have been the best
trustees etc. and that (Pocino) his problem is with the Employer
trustees – we (Executive Board) feel Mike and Joe have done nothing
wrong, and have been more than cooperative etc., etc., etc. (We
need to make reference to Pocino ltr and his language).
• All (Pocino) request have been
met (chg of our attorneys etc.).
• Hire an organizer as a new
Bus. Rep. to replace one of our own.
• Contribute to LEROF and PAC
• We’ve all accepted pay cuts
and the loss of our DCF.
• M.R. also had P&W trustees
agree to Audit etc.
Pocino comment in ltr:
“Reason for removal
is to expedite the resolution of serious
issues related to Fund Administration.”
Mike does not administrate the Funds. He is our Bus. Mgr.
and leader for the past 8 years. He ran this year for office
and was unopposed.
*Our Exec. Bd. is made up of all variations of ethnicity
to meet our memberships needs and various shop stds. who keep
the members informed.
GEB Ex. 34 (Rosado Handwritten Notes Recovered From
His Desk 10/29/04).
73. Rosado caused the Executive
Board to send the October 25, 2004 letter to Pocino and then to the
74. Rosado’s use of the Executive
Board and causing letters to be mailed at Union expense is a
personal expenditure in violation of 29 U.S.C 501(a). The Executive
Board reacting to Rosado’s suggestions without any independent
inquiry is also a reflection of malfeasance.
75. On October 29, 2004, Calastro
wrote a critical letter to Pocino on behalf of the Funds, expressing
his surprise and dismay that the Union was placed in Trusteeship
because of the alleged irregularities in the Funds. See GEB
Ex. 37 (Letter from Louis Calastro, Chairman, to Raymond M. Pocino
of 10/29/04). Calastro further expressed displeasure about the
release of the Schultheis Accounting Firm findings to Pocino. Id.
Curiously, he urged that the accountants go forward with the
examination, despite the fact that his attorneys, purportedly acting
under his direction, had attempted to fire the Schultheis Accounting
Firm on October 22, 2004. Id.
76. On November 4, 2004, Rizzo,
purporting to act on behalf of the Funds’ Trustees, sent a letter to
all Local 734 members. See GEB Ex. 38 (Letter from Peter
Rizzo to Local 734 of 11/4/04). The Union Trustees did not
authorize this letter. Tr. 623:2-4 (POCINO). Calastro was not
aware of anyone other than Rizzo being involved in drafting the
letter. Tr. 828:14-17 (CALASTRO).
77. In the letter, Rizzo contended
that the International Supervisors hired an accounting firm to
review the operation of the Funds. See GEB Ex. 38 (Letter
from Peter Rizzo to Local 734 of 11/4/04). Rizzo complained that
this engagement was not put out for bid. Id. He also
complained that the accounting firm violated a confidentiality
agreement and made a presentation based on “uncompleted” findings.
Id. Rizzo stated that there was nothing wrong with the
78. Rizzo’s letter was an attempt to
thwart the publication of the gross misuse of the Funds to the
membership. It was an attempt to lull the membership into a false
sense of security about the operation of the Funds. The motive
behind the a letter is better understood in light of the findings,
infra, regarding Rizzo’s relationship with Auggie Vergalito,
the former Local 734 Assistant Business Manager.
79. Pocino requested an immediate
meeting of the Funds’ Trustees on November 5, 2004. The Employer
Trustees refused to meet. See Ex. 41 (Letter from Patrick
Byrne to Louis Calastro of 11/10/04).
Inspector General Findings Regarding the Operation of the Funds
80. Upon reviewing the Funds’
documents, investigators from the Office of the LIUNA Inspector
General uncovered information regarding the operation of the Funds,
81. Auggie Vergalito held various
positions with Local 734 as Organizer, Assistant Business Manager,
and Executive Board member, from 1995 through 1996.
82. He also held some positions with
the Funds, but the records are unclear regarding how he was
employed. See GEB Ex. 68 (Local 734 Executive Board Meeting
Minutes of 9/30/96) (“August Vergalito will no longer be a
Confidential Officer. He has been hired by the Welfare Fund as an
Outside Field Supervisor and Manager of the Bricktown Office, but
will still hold his title as Assistant Business Manager and be paid
10% by the Local.”)
83. The IHO cannot verify if he
occupied these positions with the Funds. .
Rhoda Vergalito – wife
Jamie Dolan – daughter r
Edward Dolan – son-in-law
John Fritzsch – son-in-law
Edward Dwyer – son-in-law
Peter Rizzo – associate
Isaac Barocus – business associate
Daniel Castiglione – former son-in-law
86. As demonstrated infra,
most of the jobs held by the Vergalito family and friends were of
little value to the operation of the Funds or Local 734, and were
887. Auggie Vergalito’s daughter
Jamie Dolan is married to Edward Dolan (Dolan), who was the Funds’
Administrator until 1995. Dolan was convicted of a federal labor
violation on June 14, 1995. See Ex. 48 (Donald Warshaw,
Union Chief, Ex-Official Guilty of Embezzlement, Newark Star
Ledger, June 16, 1995). Dolan conspired with Joseph DeMaio, the
administrator of a painters’ union fund, to create the no-show
“Benefits Coordinator” job for Dolan, which paid Dolan $40,000
88. Auggie Vergalito’s daughter
Stacy Vergalito is married to Fritzsch, who was the Funds’
Administrator from 1995 to September 2004. Fritzsch became the
Administrator of the Fund when Auggie Vergalito’s other son-in-law,
Dolan, was removed from the job after being convicted in federal
court in 1995. Fritzsch was paid $165,000 from 1995 to 2003, when
his salary was raised to $182,000. According to Maria, jobs of
similar responsibility in similar sized benefit Funds are $100,000
to $120,000 per year. When Rizzo assumed the job in 2004, his
salary was immediately raised to $150,000 per year.
89. Auggie Vergalito’s daughter Kim
was married to former Local 734 Business Manager Daniel Castiglione;
they were divorced in or about 2000. Kim married Bernard Dwyer
(Dwyer) in 2002 and shortly thereafter he was employed by the Funds
and by Local 911, an independent Local in Brick, New Jersey. See
GEB Ex. 28 (Schultheis Draft Report); (GEB Ex. 59 (Local 911 LM2
Report for 2002-2003).
Auggie Vergalito and his wife
Rhoda have three daughters: Stacey Vergalito, Jamie Dolan, and Kim
The Funds’ Satellite Office in Brick, New Jersey
90. The Funds maintained a satellite
office in Brick, New Jersey, near the shore. Auggie Vergalito and
Dwyer both live in the near vicinity. The office was staffed by
91. In May 2000, Funds’
Administrator Fritzsch hired Isaac Barocus (Barocus) as office
manager of the Funds’ satellite office in Brick, New Jersey. Barocus
is a business partner of Auggie Vergalito, Fritzsch’ father-in-law,
in Rose Taxi and Limousine Service. See GEB Ex. 49
(Investigative Research Results on Rose Taxi and Irving Barocus).
Barocus was paid $123,500 to oversee two other persons whose duties
were at best minimal. See GEB Ex. 28 (Schultheis Draft
92. In contrast, Betty Brown,
manager of the main office at Rochelle Park, managed 15 people and
was paid approximately $65,000. Id. The accountants
questioned the necessity of the Funds’ office in Brick. Id.
93. As part of his duties Barocus
was a Pension Investigator. The ostensible purpose of this position
was to make random calls to persons receiving pensions to determine
if they were still alive, to prevent families of the deceased
members from continuing to cash the checks after the person died.
94. Byrne testified that he had
never seen such a position in any other pension Fund. Tr. 30
95. Prior Pension Investigators
included Pernice and Rizzo, at salaries in excess of $100,000.
See Ex. 28 (Schultheis Draft Report); GEB Ex. 57 (Completed
Pension Investigation Reports of 11/16/04).
96. Other labor union pension Funds
normally use an independent service for the same purposes.
According to Maria, an independent source contacted for a comparison
price would perform the same service for the Funds for $340 a year.
Tr. 319 (MARIA). The accounting firm suggested another simple
procedure, requiring pensioners to send in an annual notarized
letter. See GEB Ex. 28 (Schultheis Draft Report). Thus, the
Fund was wasting well over $100,000 or more every year paid to
Auggie Vergalito’s relative and associates.
97. Shortly after Dwyer married Kim
Vergalito in 2002, Fritzsch hired his new brother-in-law as Director
of the Scholarship Fund in the Brick, New Jersey office, at $119,000
per year. His salary was $119,000 per year. Dwyer handled the
scholarship program, which he took over from Barocus. The program
awards a total of between $25,000 and $28,000 a year in
scholarships. He does not participate in the decisions to award
scholarships. The accounting firm recommended that the position be
eliminated, and the duties assigned to another staff member. See
GEB Ex. 28 (Schultheis Draft Report). In addition to running
the scholarship program, part of Dwyer’s duties was to perform
medical screening. His job was to visit job sites and take blood
pressure readings and administer urine sugar readings. The Funds
refused to supply the Inspector General with any documents relating
to these tests.
98. Kim Vergalito is listed on the
2003 LM-2 Report of Local 911, an independent local in Brick, New
Jersey, as the Secretary-Treasurer of with a salary of $77,560.
Dwyer is listed as a Local 911 Organizer with a salary of $20,640.
See GEB Ex. 59 (Local 911 LM-2 showing Dwyer as an
99. Following her husband’s conviction in 1995, Jamie Dolan was
employed as Confidential Officer for Local 734. Jamie Dolan’s job
as Confidential Officer required her to be on twenty-four hour call
from Friday through Monday, and listen to voice mail messages from
members and try to resolve issues. See GEB Ex. 64 (Local 734
Executive Board Meeting Minutes of 12/16/95). In reality she came
into the office and took the messages off the voice mail two days a
week. See Id. In 2003, she responded to 109 calls. See
GEB Ex. 65 (Schultheis Chart of Calls to Confidential Line in
2003). In that year, her salary was $91,000 per year from the Funds
and $20,799 from the Union. See GEB Ex. 28 (Schultheis Draft
Report). This averages to approximately two calls per week, at
approximately $1,000 per call.
100.Rhoda Vergalito, Auggie Vergalito’s wife, was employed as a
Local 734 Confidential Officer to replace her husband when he left
the position in 1996. See e GEB Ex. 68 (Local 734 Executive
Board Meeting Minutes of 9/30/96). She was hired at a starting
salary of $1,000 a week plus benefits for working from 5:30 p.m. to
midnight, Tuesday through Friday. Id. Her salary increased
over the next several years. This would coincide with her daughter
Jamie working as Confidential Officer from 5:30 p.m. to midnight
Fridays through Mondays.
2001 $ 98,567
2004 $ 62,400
102.Auggie Vergalito also collected $108,294 as a confidential
officer in 1995.
103.The position of confidential officer was a ruse to employ Auggie
Vergalito, his daughter, and his wife. If such a position was
necessary, and there is serious doubt that it was, the duties of
confidential officer could have been handled by a contract employee
for a small fraction of the cost. The Schultheis firm accountants
could find no description of Rhoda Vergalito’s duties while she was
employed at the Funds. See GEB Ex. 28 (Schultheis Draft
104.Both Jamie Dolan’s and Rhoda Vergalito’s salaries were
transferred from Local 734 to the Funds in early October 2002. Tr.
353 (MARIA); see also GEB Ex. 28 (Schultheis Draft Report).
The IHO has independently determined that this was accomplished just
prior to the imposition of the Supervision.
105.These transfers were for the purpose of attempting to conceal
their salaries, as the Supervisor had no direct employment control
over Fund employees. These transfers reflect a conscious knowledge
on the part of the then officers of Local 734 and the trustees of
the Fund that Dolan’s and Rhoda Vergalito’s salaries were grossly
106.The following schedules reflect the salaries of the Vergalito
family and associates, as taken from the
L-M2 reports of Local 734 and 5500 reports of the Funds.9
Local Union 734
Fiscal Year Ends August 31
Castiglione, Business Manager
9 Rosado and Gambardella are included
their positions in the organizations and their knowledge of the
of the Vergalito family and associates.
Ends August 31
Daniel Castiglione, Business Manager
Jamie Dolan, Organizer and
Vergalito, Organizer and Assistant Business Manager
Organizer and Confidential Officer
Organizer and Confidential Officer
Castiglione, Business Manager
Castiglione, Business Manager
Organizer and Confidential Officer
Organizer and Confidential Officer
Organizer and Confidential Officer
Organizer and Confidential Officer
Castiglione, Business Manager
President and Business Manager
Gambardella, Executive Board Member and Vice President
Organizer and Confidential Officer
Organizer and Confidential Officer
Gambardella, Vice President
Organizer and Confidential Officer
(transferred to Funds in October)
(transferred to Funds in October)
Gambardella, Vice President
Local Union 734
Fiscal Year Ends August 31
Organizer, Confidential Officer
(Approximately 5 weeks)
Gambardella, Vice President
Scholarship Fund Director
Brick Office Manager
Scholarship Fund Director
Brick Office Manager
Scholarship Fund Director
Brick Office Manager
107. It is disturbing
that such positions could have been maintained with acquiescence of
the Local 734 Executive Board and the Funds’ Trustees without
someone raising a question as to their propriety.10
Other Employees of the Local 734 Funds
108. The Funds have an internal
bookkeeping service provided by Charles J. Purcell; that
service employs one bookkeeper who works 20 hours a week. That
employee is paid $650 per week by Purcell. Purcell charges the Fund
10 Rosado testified that he
was aware of all the Funds’ employees’ salaries as he signed the
paychecks. Tr. 1081 (ROSADO).
$3,500 a week or
$182,000 a year. Purcell makes a 67percent profit margin. According
to Maria a similar service by an independent vendor can be obtained
for $30,000 to $40,000 per year for a full-time bookkeeper. Tr. 377
109. The Funds employ two women who work 10 hours per week at $47
per hour for clerical duties. This is an excessive pay rate. If
annualized at 40 hours a week, they each would earn over $97,000 per
110. The Funds pay a dentist, Dr. Jastrzebski, $123,000 per year for
one or two afternoons a week in the Fund reviewing dental claims to
determine which should be paid. The accounting firm is of the
opinion that this fee arrangement is well above market rate. See
GEB Ex. 28 (Schultheis Draft Report).
Auggie Vergalito’s Ties to Organized Crime
111. The GEB Attorney presented additional evidence regarding Auggie
Vergalito through the affidavit of FBI agent Daniel P. Conlon.
See GEB Ex. 75 (Affidavit of Daniel P. Conlon of 12/3/04.
112. On March 24, 1999 at 2:15 p.m. an FBI surveillance team
identified the acting Boss of the Genovese Family, Don Cirillo,
enter the Soho Grand Hotel, 310 West Broadway, New York, accompanied
by Genovese soldier, Paul Rogina.
113. On that same day, Auggie Vergalito was observed by an FBI
surveillance team exiting the Soho Grand Hotel with Rizzo at 2:40
p.m. The two were photographed. They were identified in the photo
by witnesses at the hearing.
114. The FBI observed Auggie Vergalito entering the same hotel while
Cirillo and other members of the Genovese family were present on 12
other occasions in 1999 on March 3, 11, 17 and 31; April 7; May 12;
June 2, 9, 16, 30; July 14, 21. All these days, with the exception
of one, were on Wednesday. See Ex. 75.
115. Agent Conlan recalls seeing Vergalito seated in the hotel bar
on one occasion in March or April 1999 in the company of Cirillo.
(Dec 6 Tr. 9-11) Ex. 75.
116. The IHO finds that the information supplied by the FBI is
credible, and proves that Auggie Vergalito is an associate of the
Genovese crime family.11 One does not meet on a regular
basis with high ranking members of a major crime family by accident
or for purely social purposes. In Re: Bruno Caruso, IHO Order
99-12D (January 10, 2001) (finding that a three hour dinner the
Local Union’s Secretary-Treasurer had with the head of organized
crime family was not a casual meeting).
117. The IHO further finds that Rizzo’s accompaniment with Vergalito
on March 24, 1999, places him in a position to know of Vergalito’s
relationship with the crime family.
118. The IHO finds that the other information supplied by the GEB
Attorney regarding Auggie Vergalito’s possible association with the
Genovese family lacks sufficient specificity to be probative and
will not be considered.
119. On November 12, 2004, the Funds’ Chairman Calastro announced
that the following actions had been taken; the Brick office of the
Funds was closed; the employment of Bernard Dwyer, Isaac Barocus,
Jamie Dolan, Dr. Jastrzebski was terminated; the services of the
accounting firm of Charles J. Purcell was terminated. See
GEB Ex. 72 (Letter from Louis Calastro to Raymond M. Pocino of
120. Rosado testified on his own behalf at the Emergency Trusteeship
hearing. The IHO finds that Rosado’s explanations of the events was
purposely evasive and misleading and not credible on material
This Emergency Trusteeship raises issues regarding the jurisdiction of
the EDP and EPC over the actions of a Union trustee’s fiduciary duties
as a trustee for a benefit funds. The EPC provides the following
directives regarding a Union trustee’s duties of a Health and Welfare
11 An associate is an individual
who works on behalf of members of a crime family and facilities
organized crime activities. Associates may run day to day illegal
operations or are employed in some form of legitimate business, and are
under the control of organized crime. In the Matter of Salvatore
Franco, IHO Order and Memorandum,
(October 6, 1998).
Health, Welfare and Retirement Funds
3. Complete records of the financial
operations of all health, welfare and retirement Funds and programs
shall be maintained in accordance with the best accounting practice.
Each Union trustee shall require that each such Fund be audited
4. All such audit reports shall be
provided to the International Union and shall be available to the
members of the Union covered by the Fund.
5. The Union trustees or administrators
of such Funds shall make a full disclosure and report to the members
covered by the Fund at least once each year.
LIUNA EPC, Health, Welfare
and Retirement Funds, p.19.
IHO has previously held that the conduct of a Union officer acting as a
benefit fund trustee is subject to the scrutiny of the Inspector General
and the GEB Attorney. See Clemenza, 03-29D. A breach of
fiduciary duty or misuse or embezzlement of benefit funds by a trustee
is subject to disciplinary charges pursuant to the EDP. Id.
Misuse of benefit funds is also subject of a complaint for trusteeship
over a local union. See Local 1175, IHO Order and Memorandum,
03-10T (June 11, 2003).
record raises the issue of the degree of diligence required of the Union
Trustees regarding the conditions of the Funds. ERISA imposes upon
trustees a fiduciary duty to the funds to act solely in the interest of
their participants and beneficiaries to defray the reasonable expenses
of administering the plans with the care, skill, prudence and diligence,
under the circumstances then prevailing, that a prudent person would
use. Dole v. Anthony Formica, 1991 U.S. Dist. LEXIS 19743 (N.D.
Ohio September 30, 1991); Clark v. Washington Teamsters Welfare Trust,
8 F.3d 1429 (9th Cir. 1993). “Congress amended ERISA in 1980 to
confront the problems of loss of investment income [and] excessive
administrative costs . . . .” Carpenters Health and Welfare Fund
of Philadelphia and Vicinity v. Building Tech Inc., 747 F. Supp 288
(E.D. Pa. 1990) (emphasis added). Excessive salaries of fund employees
are a legitimate subject of suits against fund administrators. See
Dole v. Formica, supra.
this matter the relationship of the employees and the excessive salaries
for non-essential jobs is more than evident. The administrative costs
of over 20 percent for the Welfare & Educational Fund and 40 percent of
costs for the Pension Fund are far beyond the norm of seven to ten
percent. The attorney for Rosado argued that the GEB Attorney offered
no evidence regarding a standard for determining the appropriate level
of administrative costs. However, the GEB Attorney presented testimony
from Raymond Maria, former Deputy Inspector General of the U.S.
Department of Labor, that the industry average is between seven and ten
percent of contributions. The IHO accepts Maria’s testimony. Under any
standard of review, administrative costs of 20 percent to 40 percent of
contributions are excessive. See Whitfield v. Tomasso, 682 F.
Supp 1287 (E.D. NY 1988) (holding 17 percent to 55 percent of funds’
income excessive; normal limit is ten percent).
payment of excess salary for employees or vendors of a fund may be a
fraud upon the fund. In United States v. Koolish, 340 F.2d 513
(8th Cir. 1965), the mail fraud convictions of the administrators of the
Sister Elizabeth Kenny Foundation were upheld by the court. The
administrators of the fund expended costs in excess of 40 percent, by
spurious and excessive charges. The court held that the defendants
perpetrated a fraud on the fund through their excessive costs which
personally benefited them. The Court found a fraudulent scheme and
conspiracy established by circumstantial evidence supported by the
relationship of the parties and their overt acts. The Court said:
“We are fully satisfied from an examination of the tremendous record
here that substantial evidence supports the jury finding that there was
an overall conspiracy to defraud and to obtain money from the Sister
Kenny Foundation, and its donors, that each of the … [defendants]
cooperated with the others and each knowingly joined in this conspiracy
. . . .”
Koolish, 340 F.2d 513.
facts in this matter are far more egregious than those in Koolish.
The record reveals that Auggie Vergalito and his close family and
friends systematically caused family members to be hired as employees of
the Funds and Local 734 for non-essential and/or part-time jobs at
grossly excessive salaries. The conduct of Auggie Vergalito, his family
members, and cohorts is a possible violation of 18 U.S.C. 1341, the mail
fraud statute. The IHO directs the Inspector General to send the record
of these proceedings to the United States Attorney, the FBI and also the
Attorney General of New Jersey.
conduct of Auggie Vergalito, his family, and cohorts may also constitute
a civil fraud which is actionable in a lawsuit by the Funds. Where
persons knowingly receive grossly excessive salaries for non-essential
jobs, those persons, and those who appointed them, may commit a fraud
upon the Funds and may be liable for repayment to the Funds. See Dole
v. Formica, supra.
Trustees owed a fiduciary duty to examine the operation of the Funds and
to be on guard to detect indications of wrong doing. The IHO holds that
the signs of fraudulent activity in this matter were so continuous and
so notorious that a reasonable trustee should have become aware of them,
and proceeded to an immediate audit and inquiry. Rosado and
Gambardella, in addition to acting as Fund Trustees, served on the Local
734 Executive Board and knew Jamie Dolan and her mother were employed as
Confidential Officers to the Union in addition to the Funds.
gross extremes of this factual situation are further aggravated by the
deliberate refusal of the Funds’ Trustees to agree to the engagement of
the Schultheis Accounting Firm. The IHO cannot accept the dubious
reasoning given by the Union Trustees for failing to recognize Byrne and
Pocino as Trustees of the Funds and refusing to agree to the
engagement. Rosado through his attorney contends that Byrne was never
formally appointed as a Funds’ Trustee until Pocino did so in a letter
of October 21, 2004. Both Rosado and Calastro made similar statements
in their testimony. The Trust Agreements state that the Union may
nominate a Funds Trustee by a vote of the Local 734 Executive Board.
Supervisor has the power of a trustee appointed pursuant to Article IX,
Section 7, of the International Constitution. He may remove any or all
of the officers of a union, but is not required to do so. In the
Matter of Local Union 43, IHO Order and Memorandum,
03-07T, (March 31, 2003). As the Supervisor has the power to
overrule or remove the Executive Board, it would place form over
substance to require the Supervisor to submit his person nominated to be
a Funds’ Trustee to a vote of the Executive Board. Thus, the June 29,
2004 direction Pocino and Byrne gave to Rosado at the Foresgate County
Club, that Byrne would replace Gambardella as a Union Trustee to the
Funds, was a direct order.
would have been preferable if Pocino had sent the Employer Trustees a
formal notice of Byrne’s appointment. Notwithstanding the lack of
written notice, Byrne’s appearance at the meeting on July 27 constituted
actual notice to the Employer Trustees of Byrne’s appointment. The
appearance by Byrne and the non-appearance by Gambardella are further
evidence of Byrne’s appointment. Moreover Byrne then made several
motions regarding the commencement of an engagement of an accounting
firm, placing his name on the fiduciary board, and the approval of Byrne
to sign the accounting firm’s engagement letter, which were approved by
the employer trustees and Rosado. This is more than ample evidence that
Byrne was appointed the union trustee. For what other reason would he be
present, and what other reason would he be making motions on behalf of
the funds trustees?
The GEB Attorney has presented evidence of the possible influence of the
Genovese Crime Family in the operation of the Funds. There is credible
evidence that Auggie Vergalito, the former Assistant Business Manager of
Local 734, is an associate of the Genovese crime family. There is a
preponderance of the evidence that he has met regularly with ruling
members of the Genovese Crime Family.
In the LIUNA reform movement, once evidence of organized crime is
uncovered, the Union cannot ignore it. See In re Local 1058, IHO
Order and Memorandum,
00-08T (March 9, 2001). The influence of the Genovese family may
well supply the reason why the members of the Vergalito family occupied
so many non-essential and/or part-time jobs at the Funds and Local 734
at excessive salaries. This is a typical characteristic of organized
crime influence. It may also explain the often questionable actions of
the Union Trustees, attempting to thwart the review of the Funds by the
IHO need not reach the issue whether the influence of the Genovese
family should be a reason for the Trusteeship. The need for a
Trusteeship is clear from the gross mismanagement of the Funds, the
Funds’ Trustees’ failure to detect the mismanagement, and the Funds’
Trustees’ refusal to permit a review which would have revealed it.
Notwithstanding this independent reason for the Trusteeship, the record
presents a strong possibility of organized crime influence, and the
Local 734 Trustee must pursue the influence of organized crime and
remove it from the operation of the Union and the Funds.
1. Byrne and Pocino were lawfully
appointed as Union Trustees of the Funds by Supervisor Pocino.
2. Rosado and Gambardella attempted to
thwart the appointment of Byrne and Pocino as Union Trustees of the
This record discloses gross improprieties in the operation of the Funds,
as well as Local 734. Rosado and Gambardella were officers of Local 734
and Trustees of the Funds, and thus their conduct as trustees is within
the jurisdiction of the LIUNA Ethical Practices Code and the Ethics and
Disciplinary Procedure. The General Executive Board Attorney and the IHO
have jurisdiction to investigate their conduct. See supra, Local
1175 and In the Matter of Clemenza.
Since at least 1996, a group of individuals, either related to or
closely associated with Auggie Vergalito, devised a scheme to defraud
the Funds and Local 734 out of money and services. These individuals
are Auggie Vergalito, his wife Rhoda Vergalito, his son-in-law John
Fritzsch, his daughter Jamie Dolan, his son-in-law Edward Dwyer, his
associate Peter Rizzo and his business associate Isaac Barocus.
5. Part of the scheme involved employing
Auggie Vergalito, his relatives, and close associates in non-essential
or part-time jobs at the Funds and Local 734 at grossly excessive
6. The GEB Attorney has proven that the
Welfare & Educational Fund expended up to 20 percent of its
contributions, and the Pension Fund expended up to 40 percent of its
contributions in grossly excessive salaries for non essential or
part-time jobs at the Funds and Local 734. Normal administrative costs
are between seven and ten percent. Under any standard of review, the
administrative were excessive. See Whitfield v. Tomasso, 682 F.
(E.D. NY 1988).
7. This scheme is a possible
violation of the mail fraud statute. See
18 U.S.C. § 1341. The Inspector General is directed to deliver a
copy of this Final Order and Memorandum to the FBI, the United States
Attorney for New Jersey, and the Attorney General of New Jersey.
8. Under the facts of this matter, the
Vergalito family members and close associates were paid salaries which a
reasonable administrator would know were for positions that were not
essential for the operation of the Funds, at salaries which a reasonable
administrator should recognize were grossly excessive. The
administrator and those receiving the salaries possibly have committed a
civil fraud upon the Funds, and may be liable to repay those Funds.
9. Under the facts of this matter the
fraud was so continuous and so notorious, that the union trustees either
had actual knowledge of it or should have easily detected it. The union
trustees have breached their fiduciary duty and should be liable to the
Funds for their lack of oversight and supervision.
10. This breach of duty on the part of
the Union Trustees is so extensive that it is sufficient grounds for a
trusteeship over the Local Union.
11. The Union Trustees’ breach of duty
is further aggravated by their continuing obstruction of the proposed
review of procedures. The trustees’ reasons for hindering the review of
procedures are not credible. At the very least, the union trustees
abandoned their independence, and breached their fiduciary obligation to
12. Local 734’s Trustee is directed to
examine the role of prior Local 734 accountants, and prior accountants
and actuaries for the Funds, to determine whether the failure to
discover these abuses resulted from a departure from the applicable
13. There is credible evidence that the
former Assistant Business Manager, Auggie Vergalito, is an associate of
the Genovese Crime Family. The IHO need not determine if the influence
of organized crime is grounds for the trusteeship. There is ample
independent empirical evidence of mismanagement and breach of fiduciary
14. Once the possible influence of
organized crime has been shown, the investigative machinery of LIUNA
cannot ignore it. See Local 1058, 00-08T. The trustee is
directed to pursue all allegations and indications of organized crime
influence, utilizing the Inspector General, the GEB Attorney and any
relevant law enforcement agency.
15. The facts disclosed in this record
are a disgrace to the labor movement. The hard working men and women of
this or any other union deserve far more than the persons identified
above who misused the Funds and Local 734.
PETER F. VAIRA
Local 734 Raymond
Local 734 Trustee Patrick Byrne,
Local 734 Deputy Trustee Bruce Leder, Esquire
Walter F. Timpone, Esquire
Albert Kroll, Esquire
W. Douglas Gow, LIUNA Inspector General
General President Terence M. O’Sullivan
Patrick Slevin, Esquire