John J. Flood   Bio & Jim McGough (Biography)
6304 N Francisco Av
Chicago. Il 60659
773-878-1002(tel)
 

 

 

In the Matter of Local Union 734 Newark, NJ

Laborers’ International Union of North America
Independent Hearing Officer

Docket No. 04-26T

Decided: December 30, 2004

FINAL ORDER AND MEMORANDUM

PROCEDURAL HISTORY

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 and Memorandum, 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 Constitution), 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.

 

LEGAL STANDARDS

Trusteeship Requirements

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 institution …

International Constitution, 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.”  EPC p.20, ¶3.

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

Trustee.

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 Trust Agreements:

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 such Trustee.

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

The 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).

The 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 ATTORNEY

Raymond Maria

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

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 Draft Report)).  

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. 32:13-14 (BYRNE).

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.  Tr. (BRYNE)

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 (BYRNE).

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).  Byrne had

____________________________
     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 as follows:

 

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.

24. 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, Discussion.

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.


We will obtain job descriptions of the Funds’ employees and

interview them to ensure that job descriptions are accurate.  We will

then perform walk-through tests of transactions pertaining to their

individual 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).

see also 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 been produced.

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 (ROSADO).  

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 (BYRNE).

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. 96:14-21 (BYRNE).

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.

disclosing the engagement findings to Pocino and Byrne. Tr. 776:24 – 777:3 (CALASTRO).

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 report.

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
other damages.

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).

Pts

                      •           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 Funds.

                      •           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 membership.

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 Funds.  Id.

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, detailed infra.

Auggie Vergalito

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 grossly overpaid.

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 annually.  

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). 

_________________________
8            Auggie Vergalito and his wife Rhoda have three daughters: Stacey Vergalito, Jamie Dolan, and Kim Vergalito.

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 three persons.

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 Report).  

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 (BYRNE).

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 Organizer).

Confidential Officers/Organizers

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.

1996  $ 35,000
1997  $131,000
1998  $152,250
1999  $162,376
2000  $127,749
2001  $ 98,567
2002  $117,199
2003  $146,989
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 Report).

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 excessive.

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

1995

Auggie Vergalito, Organizer

$108,294.00

 

Member of Executive Board

$22,229.00

 

Daniel Castiglione, Business Manager

$111,666.00

 

________________________________
9   Rosado and Gambardella are included to demonstrate
their positions in the organizations and their knowledge of the employment
of the Vergalito family and associates.

 

Local Union 734

 

 

Fiscal Year Ends August 31

 

1996

Daniel Castiglione, Business Manager

$139,082.00

Jamie Dolan, Organizer and Confidential Officer

$35,000.00

Auggie Vergalito, Organizer and Assistant Business Manager

$77,950.00

1997

Rhoda Vergalito, Organizer and Confidential Officer

(Since September 1, 1996)

Jamie Dolan, Organizer and Confidential Officer

Daniel Castiglione, Business Manager

Michael Rosado, President

$64,200.00

 

 $66,800.00

$147,336.00

$61,589.00

1998

Daniel Castiglione, Business Manager

Michael Rosado, President

Jamie Dolan, Organizer and Confidential Officer

Rhoda Vergalito, Organizer and Confidential Officer

$151,756.00

 $79,588.00

 $75,865.00

 $76,385.00

1999

Jamie Dolan, Organizer and Confidential Officer

Rhoda Vergalito, Organizer and Confidential Officer

 Daniel Castiglione, Business Manager

Michael Rosado, President and Business Manager

Joseph Gambardella, Executive Board Member and Vice President

$81,188.00

$81,188.00

$41,534.00

$133,660.00

$59,941.00

2000

Jamie Dolan, Organizer and Confidential Officer

Rhoda Vergalito, Clerk

Michael Rosado, Business Manager

$83,624.00

$44,125.00

 $160,863.00

2001

Jamie Dolan, Organizer and Confidential Officer

Rhoda Vergalito, Clerk

Michael Rosado, Business Manager

Joseph Gambardella, Vice President

$87,171.00

$11,396.00

 $167,686.00

 $100,808.00

2002

Jamie Dolan, Organizer and Confidential Officer
(transferred to Funds in October)

Rhoda Vergalito, Clerk
(transferred to Funds in October)

 

Michael Rosado, Business Manager

Joseph Gambardella, Vice President

$87,008.00
 

 $11,284.00
 

 

$168,569.00

$101,338.00

 

Local Union 734

Fiscal Year Ends August 31

2003

Jamie Dolan, Organizer, Confidential Officer
(Approximately 5 weeks)

 

Michael Rosado, Business Manager

Joseph Gambardella, Vice President

$20,749.00
 

 

 $151,012.00

$92,473.00

Funds

Calendar Year

2002

Jamie Dolan, Confidential Officer

Rhoda Vergalito, Confidential Officer

Bernard Dwyer, Scholarship Fund Director
 

Frank Pernice, Pension Investigator

Isaac Barocus, Brick Office Manager

$11,847.00

 $7,060.00

 $13,535.00
(4th Quarter)

 $137,612.00

 $94,974.00

2003

Jamie Dolan, Confidential Officer

Rhoda Vergalito, Confidential Officer

Bernard Dwyer, Scholarship Fund Director

Frank Pernice, Pension Investigator

Isaac Barocus, Brick Office Manager

$91,218.00

 $35,022.00

 $22,829.00

 $68,897.00

 $96,819.00

 

2004

Jamie Dolan, Confidential Officer

Bernard Dwyer, Scholarship Fund Director

Isaac Barocus, Brick Office Manager

$62,400.00

 $119,600.00

 $123,500.00

 

 

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 (MARIA).

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 year.

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 and Memorandum, 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 11/12/04).

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 issues.

 

DISCUSSION

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 Retirement Fund:

_____________________________
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, 98-04D (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 regularly.

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.

The 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).

The 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.

In 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).  

The 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.

The 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.

The 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.  

The 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.  

The 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.

A 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.

It 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 accounting firm.

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.

CONCLUSIONS

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 Funds.

3. 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.

4. 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 salaries.

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. Supp 1287
(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 the Funds.

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 professional standards.

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 responsibility.

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

 INDEPENDENT  HEARING
 OFFICER

 

Local 734 Raymond Pocino,
 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

 

IPSN  © 1997-2006 All Rights reserved. Not for republication on the internet without permission. 
webmaster