By Karen Gullo - Associated Press Writer
Sept. 30, 1999
-- Two unions officials are being accused by the Labor Department
of investing employees' pension funds in "imprudent"
deals with companies owned by a top fund-raiser for President
Clinton and Hillary Rodham Clinton.
Terence McAuliffe, the fund-raiser who recently
offered to help the Clintons buy a home in New York, is not a
defendant in the lawsuit. The Labor Department regulates those
who manage workers' pensions, not those who do business with
A lawsuit filed by the Labor Department says
that in one instance, McAuliffe made $2.45 million on a deal in
which the fund bought him out of a real estate partnership. He
had invested $100, the pension fund $39 million. The lawsuit names
as defendants Jack Moore, former executive secretary of the International
Brotherhood of Electrical Workers, and John Grau, executive vice
president of the National Electrical Contractors Association.
The two managed the unions' National Electrical Benefit Fund,
at the time worth $6 billion.
The department alleges the pension fund lost
money as a result of a loan and a partnership deal that involved
more than $47 million in investments with McAuliffe's companies.
Tax records show the fund did not receive all the principal and
interest due under the loan."Both trustees, Moore and Grau,
authorized each of the imprudent investments," the suit said.
"If the fund had not made these investments, it would have
had the money ... to invest in prudent investments that would
have earned a greater return."
Moore and Grau deny the government's allegations.
A lawyer for McAuliffe says the pension fund made some money on
the investments, just not as much as hoped. "The pension
fund could have done better, but it also could have done a lot
worse," attorney Richard Ben-Veniste said. "The pension
fund is not out any money." James Kefauver, a lawyer for Moore and Grau,
agreed. "It's their position that the fund made money, although
not as much as they would have liked," he said.
The pension fund made a return of 6.5 percent
on the investments with McAuliffe, according to Jim Spellane,
spokesman for IBEW. Other large pension funds made a median return
of 10.9 percent on their investments during the first half of
the 1990s, according to a study by consulting firm Watson Wyatt.
Spellane declined to discuss the transactions
further, citing the litigation.
A former investment banker who made a fortune
in home building, telecommunications and title insurance, McAuliffe
has been a key figure in the Clintons' inner circle. He was the president's chief fund-raiser
in the 1996 election and now is raising money for Mrs. Clinton's
possible Senate bid in New York.
This month he put up $1.35 million as collateral
to guarantee the Clintons' mortgage on a $1.7 million house in
Chappaqua, N.Y. Public interest groups and some Republicans complained
the arrangement was improper because of McAuliffe's political
ties, and the Clintons have decided not to accept his help.
The lawsuit, which was filed in May in U.S.
District Court in Maryland, details business dealings between
the pension fund and McAuliffe dating to November 1990. That is
when the fund formed a partnership with McAuliffe's company, American
Capital Management Co. Records show the company was set up by McAuliffe's
father-in-law, Richard Swann, a former Democratic Party fund-raiser
who owned a failed savings and loan that had been taken over by
the government six months earlier.
The fund paid $39 million for the partnership
to buy a shopping center and apartment complexes from the Resolution
Trust Corp., the federal S&L bailout agency that had taken
over the properties from Swann's institution.
McAuliffe, who owned half the partnership,
put up just $100, the suit alleges. By 1993, the fund had paid
McAuliffe $2.45 million to buy out most of his share, the suit
said. The fund also lent another McAuliffe company $6 million
to buy property in Orlando, Fla., to build and sell homes.
The new investment was supposed to yield
an 18.6 percent return, the suit said. But lot sales and revenues
didn't meet projections, and the loan quickly went into default.
By 1996, the unpaid balance was $8.6 million, tax records show.
The fund finally got out of the deals in
1997. Moore and Grau agreed to let McAuliffe purchase the fund's
share of the partnership and buy off his loan for $30 million.
The fund's 1997 tax records said "the loan price was less
than the loan amount plus accrued interest."
The suit doesn't say whether the fund received
any revenue from the deals.Swann said the fund received $4 million
from lot sales on the Orlando property and other income from the
leases on the apartments and shopping center.
He also said the partnership took out mortgages
on the shopping center and apartments and used those funds to
pay $23 million back to the fund. "We had our accountants
go through the deals and we calculated their return at 10.5 percent,"
© Copyright 1999 The Associated