Bureau Of National Affairs

Volume 01 Number 219

Monday, November 26, 2001

ISSN 1523-5718

 

 

Former Laborers' Leader Gets Jail Term

For Taking Pension Related Payoffs

 

PORTLAND, Ore.--A former business manager for the Laborers' International Union of North America received a 15-month prison term Nov. 21 for taking payoffs from the owner of an investment company that managed a share of the union's pension funds (U.S. v. Abbott, D.Ore., No. CR01-70BR, 11/21/01).

 

In addition, John D. Abbott was ordered to pay $194,940 in restitution to several northwest Laborers' trust funds that had invested money with Capital Consultants LLC, a Portland investment management company that once managed pension funds for the Laborers' union. Abbott also was ordered to pay back taxes and interest for understating his income.

 

Judge Anna Brown in the U.S. District Court for Oregon followed the recommendations of the U.S. attorney's office in her sentencing.

 

Abbott had pleaded guilty earlier this year to accepting $194,940 in gratuities from Jeffrey Grayson, Capital Consultant's principal owner, during the period from 1990 to 1998.

 

Until late 1998, Abbott was the business manager of the Oregon, Southern Idaho, and Wyoming District Council of Laborers. While in that leadership position, he was a trustee of a number of the council's pension plans, as well as of a health and welfare plan and a vacation plan. A significant portion of the union's funds were invested and managed by Capital Consultants.

 

Abbott's sentencing is the latest development in the story of Capital Consultants that allegedly lost more than $100 million in union trust pension funds. The firm has been in federal receivership for more than a year and is subject to a number of civil lawsuits by federal regulators and union trusts. Also, some of the trusts are being sued by union members.

 

$407 Million in Union Funds

 

At the time of the federal takeover, the firm had $927 million under its management, a large share of which was union pension funds. Funds from the jointly administered labor-management plans and other union plans accounted for $407 million of the risky private investments made by the firm, most of which have done poorly and may be nearly worthless, according to court documents.

 

It is unclear how much the Laborers' union lost under Capital Consultant's management. In one of the civil lawsuits filed by some Laborers' union members against the plans' trustees, Hazzard v. Capital Consultants, LLC, the plaintiffs alleged losses of $25 million (27 BPR 2543, 10/17/00).

 

Lee Clinton, business manager for the Oregon, Southern Idaho, and Wyoming District Council of Laborers, was at the sentencing. He told BNA the union does not have an estimate on how much it may have lost through Capital Consultants. However, the $25 million figure could be right, he said.

 

Abbott had pleaded guilty to taking payoffs from Grayson in exchange for helping place pension funds with Capital Consultants. The secret payoffs were in violation of both their fiduciary duties to the plans, according to the original indictment.

 

Abbott pleaded guilty to racketeering charges under Title 18 U.S.C. 1954. He also pleaded guilty to understating his 1997 income on his federal tax return by $76,560.

 

Brown said Abbott's sentence was not based on the assumption that his actions caused the loss of funds invested with Capital Consultants. She also cited the assistance that Abbott has provided to the government in its other actions against Capital Consultants. And she noted his apology to union members and his family. Still, a sentence is necessary in order to recognize the breach of trust involved in the crime, Brown said.

 

Abbott was in a position of fiduciary responsibility when he accepted the gratuities, the judge said. Had the plans' other trustees known that he was taking payoffs from Capital Consultants, the trustees would most likely have dismissed both Abbott and the company, she added.

 

Because of Abbott's cooperation, and the "very valuable" evidence it produced, the government recommended reducing his sentence from a maximum of 33 months to 15 months, U.S. Attorney Lance Caldwell said. Brown sentenced Abbott to 15 months for each count to run concurrently.

 

Copyright © 2001 by The Bureau of National Affairs, Inc., Washington D.C.


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