ro second interim report text

8/6/2019 RO Second Interim Report Text

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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK------------------------------------------------------------------ x

UNITED STATES OF AMERICA,

Plaintiff,

v.

DISTRICT COUNCIL OF NEW YORK CITYAND VICINITY OF THE UNITEDBROTHERHOOD OF CARPENTERS ANDJOINERS OF AMERICA, et al,

Defendants.

:

:

:

:

:

09 Civ 5722 (RMB)

------------------------------------------------------------------ x

THE SECOND INTERIM REPORT OF THE REVIEW OFFICER

Dennis M. WalshReview Officer

Fitzmaurice & Walsh, LLP15 Chester AvenueWhite Plains, New York [email protected]

Dated: June 3, 2011White Plains, New York


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Table of Contents

Introduction and Summary ................................................................................................. 1

Part One Benefit Funds.................................................................................................. 18A. New Sole Counsel to the Benefit Funds Board of Trustees...................... 18

B. Retirement of Executive Director Stuart GraBois .................................... 18

C. New Executive Director of Benefit Funds................................................ 19

D. Organizational Review of Benefit Funds.................................................. 20

E. Human Resources ..................................................................................... 23

F. Compliance Program ................................................................................ 23

G. IT Infrastructure........................................................................................ 24

H. Collections Counsel .................................................................................. 25

I. Payment Plans........................................................................................... 26

J. Legal Department...................................................................................... 28

K. Welfare Fund ............................................................................................ 29

Part Two District Council .............................................................................................. 31

A. Investigations ............................................................................................ 31

1. Organized Crime Initiative ........................................................... 31

2. Local 1456 Investigation............................................................... 32

a. Leadership..................................................................................... 32

b. Sipends.......................................................................................... 34

c. Conferences................................................................................... 36

d. Whole Life Insurance Policies...................................................... 38

e. Trustees ......................................................................................... 38

f. Diver Safety .................................................................................. 39

3. Trial Committee............................................................................ 40

4. RO Vetoes and Trials.................................................................... 40a. Petitions for Review and Appeals of Vetos .................................. 42

5. Review of Organizing Department............................................... 43

6. Review of Political Department.................................................... 46

B Inspector General...................................................................................... 49

1. Electronic Scanning Pilot Program............................................... 49

C. Grievance Procedures ............................................................................... 50


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D. IT Program ................................................................................................ 51

E. Records Retention..................................................................................... 52

F. Operation of the Review Officer Hotline.................................................. 53

G. Active District Council Membership and the Out of Work List............... 53

Conclusion ........................................................................................................................ 56


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We are not here to curse the darkness, but to light the candle that can guide us

through the darkness to a safe and sane future. As Winston Churchill said on taking

office ... if we open a quarrel between the present and the past, we shall be in danger of

losing the future. Today our concern must be with that future. For the world is changing.

The old era is ending. The old ways will not do.

- John F. Kennedy, July 15, 1960


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Introduction and Summary

I submit this second semi-annual report pursuant to paragraph 5.m of the

Stipulation and Order entered on June 3, 2010, in United States v. District Council, et al.,

90 Civ. 5722 (SDNY (RMB) (the Stipulation and Order). Exhibit 1. It endeavors to

inform the Court and the parties of the scope and substance of my activities for the past

six months and convey my impressions of certain aspects of the undertaking.

My responsibilities encompass review, investigative and oversight functions

relating to the New York City District Council of Carpenters (the District Council) and

its Taft-Hartley fringe benefit funds (the Benefit Funds or the Funds).

I gratefully acknowledge the important assistance and ongoing undertakings of

the United States Attorney for the Southern District of New York, the New York City

Police Department, the office of the District Attorney of New York County, the Federal

Bureau of Investigation, and the United States Department of Labor Office of Labor

Racketeering.

I also thank the rank and file members of the District Council who have provided

me with insight and information and shown their deep commitment to the noble goals of

organized labor.

The District Council

Though proceedings pending in the District Court will likely lead to an election of

District Council officers in December of this year (preceded by local union delegate

elections in the fall), the District Council is still under supervision by the United

Brotherhood of Carpenters and Joiners of America (the UBC).

Much has changed at the District Council (including its affiliated local unions) in

the last half year. The significant turnover in employees, whether by veto, resignation or


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retirement has continued and as a result the District Council has been strengthened. The

implementation of new policies and procedures, the creation of new functions, the hiring

of new employees, the provision of training and the improvement and broadened use of

technology have made the District Council a more business-like institution. Employees

of the District Council have been given the opportunity to flourish and have their

contributions recognized in a fair and corruption-free environment. Though still not

completely satisfied, I am less concerned now than I was last December about the

character and fitness of the workforce at the District Council.

A policy of fiscal prudence is generally taking hold at the District Council and the

local unions, but work remains in this regard; though I prefer to appeal to the better

nature of decision makers when it comes to expenditures, I have and will continue to

exercise my veto authority in this regard as well.

One must recognize though, that the improved condition of the District Council

has been gained only through the extraordinary but ephemeral opportunities presented by

present circumstances. The District Council will soon hold an election. Before that day,

the best methods of governance and administration of the District Council must be

appropriately determined and codified to institutionalize such practices and safeguard the

gains made by the District Council over the past year. The last, best hope for the happy

future of this Union will be lost forever if democracy hands the keys of this house over to

charlatans, buffoons or minions of a caporegime in the Genovese family, without having

built it upon a foundation of the surest granite.


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Selected Matters of Interest

Bylaws Proposed by the United Brotherhood

I received the first draft of proposed District Council bylaws from the UBC on

April 5th

. I made a number of comments, which I placed in the document and sent it back

to the UBC in anticipation of meeting with UBC counsel. This first draft with my

comments was made available to interested members for in-person inspection. Some two

dozen members and in some cases their counsel reviewed the document. It is attached

hereto as Exhibit 2.

After meeting with counsel for the UBC and engaging in a mutually beneficial

dialogue, I was sent and reviewed a second draft. Another lengthy meeting was held that

was followed by a third draft, which is now under formal review pursuant to Paragraph

5.b of the Stipulation and Order and which has been promulgated for comment through

June 9th. The third draft is attached hereto as Exhibit 3.

In my view, the draft bylaws should pass the following test: do they provide for

and codify the best lawful methods to insure the transparent, ethical, efficient and

democratic governance and administration of the District Council regardless of who

holds the reins of power? Even if that test is too strict or subjective for some, considering

the objectives of the Stipulation and Order (i.e., the eradication of corruption and

racketeering as they affect union carpenters and union employers; see final Whereas

clause), there are plainly provisions of the draft bylaws that are insufficient to achieve

these objectives. See Stipulation and Order, Paragraph 5.b.iii.e. Further, pursuant to

Paragraph 5.b.iii.c, all aspects of the bylaws must comport with federal law. There are


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sections of the draft bylaws that present questions in this regard and must still be

discussed to assure that there are no such issues.

At the close of the comment period, I will again meet with representatives of the

UBC to discuss these propositions, share my views and review the comments I have

received from members. If necessary, I will veto any section of the proposed bylaws that

does not pass muster pursuant to Paragraph 5.b and then make a formal recommendation

pursuant to Paragraph 5.h.viii in substitution for the vetoed matter.

The District Council and Local Union Restructuring Plan

I received notice on May 27

th

of the UBCs restructuring plan as set forth in a

letter of the same date sent by counsel for the UBC to the Court. Letter of Kenneth

Conboy dated May 26, 2011 and Exhibit D thereto, attached hereto as Exhibit 4. I then

had a message posted on the District Council website inviting members to send me

comments on the restructuring plan (which is available on the District Council website

and private blogs). The comment period runs through June 10th.

The restructuring plan is thus under review pursuant to Paragraph 5.b. After the

close of the comment period, I will meet with counsel to discuss the comments, my views

and any associated issues.

Preliminarily, I note that the geographic jurisdiction of the work of Locals 1456

(to be dissolved and joined in a new heavy construction local with the members of Local

Union 1536, also to be dissolved) and 2287 will be curtailed and wonder what affect this

will have on precious fringe benefit payments to the Benefit Funds. Further, members of

Local Union 740 (a small specialty local composed of some 300 millwrights) will be

joined with a local based in Syracuse. One assumes that the work of millwrights within


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the geographic scope of the District Council will still be subject to the Consent Decree

and the Stipulation and Order and that fringe benefit payments for work in the New York

City area will go to the New York City Funds.

My assessment of local unions affiliated with the District Council was set forth in

my first interim report.1/ See First Interim Report at 35-38 (fiefdoms which breed

corruption). Since then, I have witnessed first-hand (particularly at Locals 157 and

1456) the further erosion of the role of local unions in adequately serving their members

and the ability of their fiduciaries to grasp and effectively meet their strict obligations.

Perhaps because of corruption and malfeasance, the concentration of authority in the

District Council and the paucity of relevant information presented at local union

meetings, interest by local union members in attending local union meetings has reached

an all-time low. For example, at the meeting of Local 157 held in May at which

nominations for office were to be received and where over 10,400 members had received

postcards notifying them of the meeting, I witnessed only 150 or so members attend this

sad and ineptly conducted event, most of which was unintelligible due to a woefully

inadequate sound system.

I have no objection to the combining or dissolution of local unions when the

interests of members are better served and their rights fully protected by doing so. I

endorse the realization of efficient, cost effective operations achieved through such

combinations. However, whether through local unions or full service councils,

members must be served and their rights enforced and respected. The lawful

expectations and needs of all members must be met. As I mentioned in my first report,

1/ I firmly addressed the topic of constituent local unions in my First Interim Report and

supplement that report with additional information and observations herein.


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members must have a meaningful ability to participate through democratic means in the

affairs of the union and on all questions that affect their trade, bargaining unit and job

opportunities. They must be able to speak to and associate with each other, and be fully

informed on all matters relating to the governance and administration of the union. They

must be free to disagree with each other and with their leadership and have the

opportunity to address officials accountable to them without fear of reprisal or

retribution. State of the art technology, professional grade sound and visual systems in

modern, comfortable and well-lighted venues must be used for meetings where members

must be informed of all information of which they have a right to know -- from the

precise details of proposed expenditures to the state of their pension fund and medical

benefits. The traditional system used in New York City has failed the membership and I

believe that the dwindling numbers of members participating in union meetings reflects

their agreement with this proposition.

I also note that the chartering of Local Union 395 as an interior systems local

would require an adjustment of the so-called 50/50 rule in order to achieve what I

perceive to be its intended purpose. Such a change must only be implemented upon firm

evidence that the District Council -- and employers -- are willing to join together to

implement broad reforms to eliminate all manner of fraud and corruption from the

industry. In order for such a change to be considered, contractors who would seek relief

from the 50/50 rule should, for example, have to sign on to a Joint Compliance

Program (JCP) with the District Council. Material provisions could include

agreement to (1) use electronic scanners to record work hours (and could include a

requirement that such costs be shared); (2) use site security cameras linked to the internet


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public address system to the event and provide two microphones on opposite sides of the

room for members to use. I also held forums on March 30th

and May 23rd

. Each event

has run for at least three hours. The first two forums were packed to capacity

(approximately 350 members) and the third was also well attended.

I also took applications from members to join a Review Officer Advisory

Committee. ROMAC was thus formed and had its first meeting in April. The

meetings will allow me to pose specific questions and propositions to a reasonably sized

group to gain their views on a variety of issues. The first ROMAC meeting had almost

perfect attendance and we engaged in a collegial dialogue for over three hours.

I have no objection to the recording of any of the foregoing events should a

member choose to do so. I have been extremely gratified at the response I have received

from members, who have expressed great enthusiasm for the events.

In addition to the forums and the ROMAC, my office has an open door policy.

Any member can go to the District Council during business hours and expect to be able to

see an RO staff investigator. I have also had many meetings with individual rank and file

members and groups of members to discuss whatever concerns or observations they may

have about the Union. My staff receives calls directly at the District Council throughout

the day. I receive calls throughout the day on my office line. Indeed, the frequency of

calls to these lines greatly exceeds the number of calls we receive on the so-called

hotline. We strive to address and hopefully resolve all matters within 24 hours.

Improvements in District Council Operations

Since my last report, the District Council human resource function has become

embedded in daily operations. Some 20 new representatives were hired by the District


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Council in the first part of the year. They were all selected after participation in a lengthy

and objective assessment and interview program (which must expressly be part of District

Council operations henceforth). A personnel policy has also been implemented. Exhibit

5.

We reviewed the performance of the District Council grievance department over

the last five years and found that it was deeply flawed, and lacked all manner of

procedures and accountability. The employee who headed the department has resigned.

We worked with the District Council to implement mandatory procedures, a grievance

committee with redundant accountability, strict controls and a tracking system. Certain

cases that were improperly handled in years past have been revisited. Performance has

been drastically improved. See infra at 50.

We are conducting an ongoing review of the District Council Organizing

Department in an attempt to determine the relationship between its significant funding

and its efficacy. The department conducts demonstrations, picketing (look for the large

inflated rat) and engages in the area standards campaign. It is funded by an assessment

of $.50 per hour taken from the pay of all working members and has a reserve of over

$20 million at its disposal. See infra at 42-45.

We reviewed the functioning of the District Council Political Department during

the Forde regime and found insufficient oversight of PAC costs, particularly in the area

of food, drink and travel and entertainment, where excesses were identified. Those

expenditures have been drastically curtailed and the department is now adhering to

District Council policy with regard to, and is notifying the Review Officer of, all

expenditures. See infra at 45-48.


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The Organized Crime Initiative

My staff and I have required dozens of persons employed by or affiliated with the

District Council (and the Benefit Funds) to tell us what they know, if anything, about the

presence within and influence of organized crime figures upon the District Council and

Benefit Funds. See Paragraph 7 of the Stipulation and Order. Unless a deposition is

required, such persons are then required to provide me with a sworn declaration (as

authorized by Paragraph 5.d of the Stipulation and Order) to confirm and memorialize

their knowledge or lack thereof. All persons are free to consult with a lawyer before

signing such a document.

I have included the trustees of the Benefit Funds in this undertaking, as well as a

number of candidates for office at local unions. All of the trustees of the Benefit Funds

have cooperated in this regard and provided signed declarations.

A number of persons have decided to resign or retire from their positions rather

than provide a declaration or be deposed in this regard. Forms of the various declarations

utilized are attached hereto as Exhibit 6. The organized crime initiative has also utilized

surveillance, data analysis and information from members who have consistently

provided me with reliable information.

The initiative also revealed that certain persons in the employ of the Benefit

Funds had personal or familial relationships with members and associates of the

Genovese family. Two of these persons resigned after being interviewed in this regard.

Vetoes

I exercised my veto authority as necessary and appropriate during this reporting

period. Notably, on April 12th, I vetoed the employment of Lawrence DErrico as a


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employment as a business representative of the District Council pursuant to the terms of

an agreement with this office executed on May 10, 2011.

The investigation of Local Union 1456 is discussed in detail at 32-39. The Harkin

resignation letters and the settlement agreements with Koballa and Olsen are attached

hereto as Exhibits 12, 13 and 14, respectively.

The District Council Trial Committee

The Trial Committee provides a serious forum for union justice that has been well

run, diligent and highly effective. It has rendered well-considered and decidedly fair

judgments in dozens of matters. Chairman Mack and Vice-Chairman Zazzali have

considered and approved settlements in dozens more cases, many brought by IG Scott

Danielson (who has brought charges against all of the union members who were

defendants in the Forde RICO case). It provides substantive and procedural process that

greatly exceeds the requirements of the LMRDA and the District Council may be

justifiably proud of its existence and achievements. See infra at 39 and Exhibit 15.

Costs Associated with the Review Officer and Trial Committee

From June 3, 2010 through April 2011, the average monthly fee paid to

Fitzmaurice & Walsh, LLP for my and Mark Fitzmaurices services as RO and Staff

Counsel, respectively, was approximately $34,000. Billable man hours have ranged from

165 in August to 257 in November. I do not mark up the additional costs I incur for

investigative and legal services. These additional costs have averaged $40,000 per month.

They are passed to and reimbursed by the District Council and I make no money from

these necessary services. I have not billed the Union for any travel time,


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transportation or parking costs, administrative overhead, meals or any phone costs,

including the bill for the Hotline that I operate.

Thus, the average monthly cost to the District Council for the foregoing services

has been approximately $74,000, which is less than the median amount contemplated by

Paragraph 8.b.i of the Stipulation and Order (which specifies an expected range of

$65,000 to $85,000 per month).

The average cost of the judicial and administrative services provided by the

Chairman and Vice-Chairman of the Trial Committee has been approximately $40,000

per month.

The Benefit Funds

Improved Relationships and New Counsel

The relationship between the union and employer trustees of the Benefit Funds

has significantly improved in the past six months. The trustees agreed in mid-December

to the selection of Raymond McGuire of Kauff, McGuire and Margolis LLP to serve as

counsel to the Benefit Funds. He and his colleague Elizabeth OLeary have quickly and

fully grasped the many issues that must be confronted by the Benefit Funds and have

assisted the trustees and this office in attempting to improve the operations and

procedures of the Benefit Funds.

Changes in the Composition of the Board

The composition of the Board of Trustees has changed since December. Messrs.

Harkin and DErrico are no longer trustees on the Union side. They have not yet been

replaced; Douglas McCarron, Frank Spencer and John Ballantyne are the sole Union

trustees. John DeLollis, the new Director of the Wall-Ceiling Association, has replaced

Michael Weber in the seat formerly held by Joseph Olivieri. Bryan Winter has succeeded


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John Brunetti as the trustee representing the Cement League. George Greco, the trustee

from the Manufacturing Woodworking Association, resigned on May 27th

. The MWA

has designated Catherine Condon of Celtic Cabinet Corp. in Brooklyn as his successor.

The Board is rounded out by employer trustees Kevin OCallaghan, Paul OBrien and

David Meberg.

The Executive Director Position

Stuart GraBois has submitted his notice of retirement to the Board. He is

currently serving as Executive Director pursuant to the terms of a short-term professional

services agreement. After engaging the Segal Company to conduct a diligent nation-wide

search for a suitable replacement, the Board has selected Joseph Epstein of Naperville,

Illinois, to serve as its new Executive Director. Mr. Epstein is a native New Yorker who

is currently serving as the Director of Employee Benefits of Painters District Council 30

in Illinois. He formerly served as the Benefits Director for the State of Maryland.

It is expected that Mr. Epstein, as enabled by the Board and assisted by

appropriate professionals, will immediately begin assessing the operations of the Funds

and endeavor to improve its operating efficiency and technological capabilities. He is

familiar with the findings I related in my first report and will also have the benefit of a

recent management study conducted by the Segal Company.

New Collections Counsel

The Segal Company also assisted the Board in the process of selecting new

collections counsel (to replace ODwyer & Bernstein). A request for proposal led to the

receipt of submissions from a number of qualified firms, three of which made in-person

presentations to the Board. Virginia & Ambinder was selected by the Board on May 25th.


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The firm brings extensive experience to its new role, including as collections counsel for

Local 1 of the Plumbers Union in New York. There is currently almost $3 million owed

by contractors in uncollected judgments payable to the Benefit Funds.

New Procedures for Consideration of Payment Plans

We examined the process employed by the Benefit Funds to consider and grant or

deny payment plans to delinquent contractors (and track the progress of collection) and

identified a number of areas that we felt could be improved. Working with Mr.

McGuires office, the trustees and Mr. GraBois office, a number of improvements have

been implemented, including the use of database research regarding the assets of

contractors, prior judgments and liens, and interviews of contractors. See infra at 26-28.

An Operating Deficit Creates Significant Problems for the Welfare Fund

On May 16th

, the Administrative Committee of the Board of Trustees was given a

presentation by the Segal Company that illustrated the urgent need to cut costs associated

with the Welfare Fund (medical benefits) due to the heavy cost of the plan and the drop

in man hours. Based on current projections, if no more than 15 million hours worth of

contributions is received by the Welfare Fund in the average fiscal year, it will exhaust its

reserves in 2013. See infra at 29 and Exhibit 16. As a result, the trustees have been

presented with a range of options to cut costs of up to $5.60 per man hour, and range

from an increase in co-pay amounts, deductibles, loss of dental coverage and increased

auditing to find and prevent fraud. See infra at 29-30.


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An Observation

I have had expressed to me by some members great antipathy towards the UBC,

which they believe is secretive and dictatorial. Alternatively, I witnessed first-hand the

raucous and discourteous reception given to Frank Spencer by members of Local 157 at

the January meeting of the local (the first to include the former members of Local Union

608, which was dissolved by the General President McCarron on corruption grounds in

December) when he attempted to address members and present information to them

regarding the formation of Local 395 and the condition of the Benefit Funds. Those who

are blind with anger will not recognize the heavy responsibility of fiduciaries to shepherd

the interests of so many dependents. Those who do not report the view from the

mountain top have climbed for naught.

To the extent that there are sides, both (or all) could do better to understand the

positions of others. From the beginning of my tenure, I have urged complacent members

to surmount apathy and participate in the affairs of the Union. I grow increasingly

pessimistic that such improvement in affairs is indeed possible. Whether one supports or

decries the policies and programs of the UBC, failing to seek information and participate

in union affairs and meetings is an abdication of responsibility. Even then, everyone who

participates in the debate about the future of the labor movement and the District Council

must be armed with facts and listen to what others have to say. Those who decline to so

participate and act responsibly will have ceded their right to lament any particular

outcome.


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Liberty lies in the hearts of men and women. When it dies there, no

constitution, no law, no court can save it. No constitution, no law, no court can

even do much to help it. The spirit of liberty is the spirit which is not too sure

that it is right. The spirit of liberty is the spirit which seeks to understand the

minds of other men and women. The spirit of liberty is the spirit which weighs

their interest alongside its own without bias. The spirit of liberty remembers thatnot even a sparrow falls to earth unheeded.

-Billings Learned Hand, May 21, 1944

*****

Certain of the above-mentioned and other matters are detailed in the pages that

follow.


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Part One Benefit Funds

A. New Sole Counsel to the Benefit Funds Board of Trustees

Prior to and during the first six months of the ROs tenure, dual counsel

ODwyer and Bernstein for the union trustees and Schulte Roth & Zabel for the employer

trustees - represented the Benefit Funds Board of Trustees. The union trustees and the

employer trustees had an acrimonious relationship. A dispute regarding counsel,

chronicled in detail in the First Interim Report, interfered with the important business of

the trustees and the reform efforts I was pressing. See First Interim Report at 55-58.

Effective December 15, 2010, Schulte, Roth & Zabel resigned as co-counsel.

(ODwyer and Bernstein had resigned at the September 16, 2010 Board of Trustees

meeting but retained certain collections matters). Kauff, McGuire & Margolis was

retained as sole counsel for a one-year period ending December 15, 2011, with Ray

McGuire, Esq., assisted by Elizabeth OLeary, Esq., being the primary contact. In

conjunction with the change of counsel, three pending deadlock disputes were cancelled

and dismissed with prejudice.

The union and employer trustees are now working together harmoniously and

productively to grapple with the many issues large and small facing the Benefit Funds

and Mr. McGuire and Ms. OLeary are providing practical, hands-on and effective

guidance with respect to those issues.

B. Retirement of Executive Director Stuart GraBois

The long-time Executive Director of the Benefit Funds, Mr. GraBois, announced

his retirement on April 29, 2011 and is now serving the Funds pursuant to a short-term

consulting agreement in order to facilitate transition to a new Executive Director. This,


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together with the retirement and resignation of other Benefit Funds staff, presents an

opportunity for the Funds staff to have a streamlined organizational structure and focus

on providing services to union members with increased efficiency.

C. New Executive Director of Benefit Funds

In light of Mr. GraBois anticipated retirement, the Benefit Funds Board of

Trustees retained Segal Company to issue an RFP for a new Executive Director. A

robust process ensued. On March 28, 2011, an advertisement for the position was placed

by Segal with the International Foundation of Employee Benefit Plans, BenefitsLink,

Monster and the New York Times. Segal received 43 resumes, from which it selected

several candidates for telephone interviews. In early May 2011, Segal representative

Courtney DeVine conducted an initial round of telephone interviews of these candidates,

recommending the four most highly qualified candidates for a second round of telephone

interviews. In mid-May, 2011, Mr. McGuire conducted the second round of interviews,

with Ms. OLeary of his firm, Ms. DeVine of Segal and a representative from my office

participating. On May 18, 2011, one of the four remaining participants withdrew from

consideration for the Executive Director position, leaving three candidates for the

Executive Director position. Counsel to the Board of Trustees provided the trustees with

summaries of the interviews of the finalists. Segal conducted reference checks and

summarized those for the Board of Trustees.

On May 24, 2011, the Benefit Funds Board of Trustees conducted in-person

interviews of the three finalists. At the May 25, 2011 meeting, the trustees interviewed

two individuals from that list of three. The trustees determined to offer the Executive


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Director position to Joseph Epstein.2/ He clearly is knowledgeable about administering

funds, has significant, relevant experience and is committed to an organizational

restructuring of the Benefit Funds. There is every reason to believe that he will be

installed as Executive Director around July 15, 2011. Mr. GraBois is expected to assist in

the transition until at least July 29, 2011.

I note that for a period of time, the third party administrator option was being

pursued simultaneously with the new Executive Director search. However, with the

hiring of a new Executive Director, that option is not currently being pursued.

D. Organizational Review of Benefit Funds

In light of the then-anticipated retirement of numerous senior funds staff members

by July 2011, in November 2010, the Benefit Funds Board of Trustees also retained Segal

to conduct an organizational review of the Benefit Funds office. The objective was for

Segal to review the Funds to identify potential staffing gaps, analyze the impact that staff

turnover would have on overall benefits administration and propose short term changes to

address that impact as well as a longer term plan to achieve maximum organizational

production and efficiencies. While the number of retirements then expected has not come

to pass, this was still a useful review.

In February 2011, Segal reported to the Board of Trustees on the more immediate

issues presented. Segals core findings included that the Funds appear to have an

inefficient organizational structure, too many separate departments with narrow

functions, too many managers, too many staff members in some departments and that the

Funds lack a strong management function/team supporting the Executive Director.

2/ This offer is contingent upon completion of a background check. Mr. McGuire will negotiate thespecific terms of the employment agreement.


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Segal recommended a revised organizational structure, which is set forth in

Exhibit 17. Especially when compared with the former organizational structure, see

Exhibit 18, the likely effectiveness of a more streamlined structure is immediately

apparent. If this recommendation were adopted, the Executive Director would have as

direct reports a Director of Operations, to whom the Managers of Office Services,

Members Services and the various funds (some consolidated under one manager) would

report; a Human Resources Manager; a Legal Manager; an Information Technology

Director; and a Finance Director, to whom a Corporate Accounting Manager and an

Employer Services Manager would report. This essentially represents the centralization

of management according to key functions, rather than a random assortment of managers

supervising overlapping functions.

At the time of its report, Segal noted that the Benefit Funds had approximately

100 employees, with 19 eligible to retire and many of those 19 being managers or

supervisors (secondary supervision supporting the managers). Segal noted that for most

departments, staff had been adequately cross-trained so they could temporarily if not

permanently assume management responsibilities. Segal viewed the pension department

as being at the greatest risk with three managers eligible to retire, and indicated that the

funds might retain these senior staff on a consultancy basis pending the training of

existing staff or hiring of experienced new staff.

Since the filing of the First Interim Report, a number of individuals have resigned

from the Benefit Funds. Among senior management, the Manager of the Contractor

Services and Benefits Shortages Departments resigned and his duties and responsibilities

are being handled by another Manager. The Members Services Manager also resigned


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and her duties and responsibilities are likewise being covered by another Manager. The

Special Projects Manager resigned. All told, approximately ten Benefit Funds employees

have recently left the Funds, either through termination or resignation. The trustees have

agreed that Assistant Director and Welfare Fund Manager John Pirrone, who indicated

that he would retire effective July 1, 2011, should be given a consulting agreement

whereby he will work three days a week and be paid on a pro rata basis.

A priority for the new Executive Director will be reviewing Segals

Organizational Review Report as well as its just issued Operational Review Report. The

new Executive Director must also perform his own review of the Funds and remaining

staff to ascertain how he thinks the funds should be best structured, the capability of

current staff to fulfill necessary functions, and the need to train and/or hire staff in order

to ensure the sound and efficient operation of the Funds; he also must implement the new

streamlined organizational structure with appropriate staff.

As part of this restructuring, it will be incumbent upon the new Executive

Director to assemble a strong management team to report to him on their departmental

functions and to run each of their functions effectively and efficiently. Each of the

Executive Directors direct reports is critical to the running of the Funds and should be

selected with that in mind. Senior management should be groomed such that a seamless

succession would occur if the Executive Director were to leave. Other staff should be

mentored to rise within the organization and take over the responsibilities of their

managers and supervisors when called upon.


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E. Human Resources

I specifically note that it is critical that, early in his tenure and through a

competitive process, the Executive Director hire an experienced Human Resources

Director who will immediately develop and/or refine a state of the art (1) personnel

policy, addressing among other important topics discrimination and sexual harassment;

(2) protocol for hiring, firing and reviewing personnel, with strong restrictions on

nepotism and cronyism; and (3) training presentations and materials to ensure that staff is

well versed in the policies and protocols. See First Interim Report at 52 for a complete

list of the minimum requirements of a Human Resource function. Some strides have

been made, but the HR Director should bring his or her expertise to bear to ensure the

development of excellent policies, protocols and training fine-tuned to the particular

needs of the Benefit Funds in the challenging environment in which it operates. Hiring an

HR Director and focusing that Directors attention to the above should be a top priority of

the new Executive Director. I have been pressing for the Benefit Funds to hire an HR

Director since the beginning of my tenure because I view this basic, uncontroversial and

important function as a critical hedge against corruption. The new Executive Director

should accomplish the above before I issue my next interim report.

F. Compliance Program

I also view the hiring of a Chief Compliance Officer (CCO) and the

development of a compliance and ethics program as an early priority of the new

Executive Director and another critical hedge against corruption. See First Interim

Report at 52. Indeed, I had pressed for this.3/

Mr. GraBois had agreed to fill this position

3/ Shortly after my appointment as RO, on June 24, 2010, I inquired whether the Benefit Funds hadan effective compliance and ethics program as contemplated by Chapter 8 of the United States Sentencing


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and develop the program. See id. at 53 n.8. With Mr. GraBois departure, it is necessary

to focus on hiring a qualified and dedicated replacement for Mr. GraBois as CCO and to

do so with alacrity. The CCO will be responsible for developing a compliance and ethics

program consistent with Chapter 8 of the United States Sentencing Guideline. The hiring

of a CCO and development of a compliance and ethics program should also occur before

I issue my next interim report.

Though the Funds trustees agreed to create the position and develop the function,

I note that the CCO position was not included on Segals organizational chart. At the

May 25, 2011 meeting of the Benefit Funds Board of Directors, Segal mentioned the

possible creation of a CCO position. As the position already existed, it appears Segal

was not aware of the fact. As is the case with the position of Human Resources Director,

I do not view the CCO position as an optional one. Moreover, the CCO should have a

direct reporting line to the Executive Director and/or to the Benefit Funds Board of

Trustees as he or she deems appropriate under a given set of circumstances.

G. IT Infrastructure

Since the issuance of the First Interim Report, the District Council has taken steps

to develop its own information technology (IT) infrastructure, rather than continue to

utilize the infrastructure of the Benefit Funds. See infra at 50-51. Unfortunately, the

Benefit Funds have made little progress with modernizing their own IT infrastructure.

Segals Operational Review Report advises that the Funds are in the process of upgrading

its current system and implementing a web-based system created by a vendor. The

earliest they expect the system to be completed is August 2012. The slow pace of this

Guidelines. On July 8, 2010, I issued a formal recommendation that the trustees conceive and implementsuch a program. As noted, I think developing such a program must be one of the highest priorities ofwhoever is retained as CCO.


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endeavor is unacceptable and hard to understand. The District Council has made

significant progress in the same period of time and had no system whatsoever upon which

to build. The trustees have asked Segal to assess and report on the vendors efforts. Of

course, this project must be completed promptly and should be directly and actively

supervised by the Director of Operations or a Special Projects Manager and an IT

Director (with frequent progress reports).

H. Collections Counsel

With the resignation of ODwyer and Bernstein, the Benefit Funds Board of

Trustees sought new counsel to represent the funds in seeking payment from employers

who are delinquent in making their contributions for benefits. Ultimately, Segal issued

an RFP with objective criteria for selection of collections counsel. (In Fall 2010, Segal

presented a list of certain firms to which others were randomly and subjectively added,

but I regarded that effort as a non-starter. That process was set aside in favor of an RFP).

In addition to being distributed to certain firms generally considered to be qualified by

objective standards, beginning February 8, 2011, for three days, the RFP was posted in

the print and on line editions of the New York Law Journal. Expressions of interest were

due February 14, 2011. Thereafter, ten law firms submitted proposals for consideration,

which Segal analyzed and summarized by the end of March 2011. In April 2011, counsel

to the Benefit Funds selected three highly qualified finalists for the Board of Trustees to

consider.

At the May 25, 2011 Board of Trustee meeting, the three finalists made

presentations to the trustees. The Board of Trustees selected Virginia & Ambinder as

their new collections counsel. That transition is expected to begin immediately.


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I. Payment Plans

There is little more important to the long-term health of the Benefit Funds than

the collection from employers of the total amount of benefit payments due and owing

from them on behalf of union members. Of course, employers do not always pay the

benefits they owe on a timely basis and too often they do not pay at all. Payment plans

are formal written agreements between the Funds and employers which set a schedule of

payments in fixed amounts, with interest and include stipulated confessions of judgment

and personal guarantees in event of default. First Interim Report at 60. Among issues

of concern to this office were the Benefits Funds failure to conduct a public records

search regarding employers before entering payment plans with them and the typical

practice of not requiring the posting of collateral by employers. Id. at 60-61.

On January 18, 2011, members of my staff conducted a follow up interview with

Benefit Funds staff member Kathleen Flannelly, who has handled payment plans on a

daily basis;4 / my staff previously interviewed Ms. Flannelly on August 23, 2010. I,

together with members of my staff, also attended meetings of the Delinquency

Committee of the Benefit Funds together with counsel to the Benefits Funds, the trustees

on the Delinquency Committee and Benefit Funds staff, including Ms. Flannelly, on

February 22 and March 29, 2011.

The meeting of February 22nd addressed, among other things, the delay or failure

to collect on confessions of judgment. It was determined that the payment plan spread

sheet distributed to trustees on the Delinquency Committee will include a new column

regarding the status of collecting on confessions of judgment so they can better track

4/ Another staff member is presently and temporarily handling payment plans.


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be sent to employers who request payment plans, which was developed with reference to

the U.S. Probation Departments financial disclosure form and seeks to obtain current

information and documentation regarding an employers financial status as well as future

prospects in order to assess need for a payment plan, the ability to pay and the nature of

any plan to be awarded. Counsel also revised the Payment Plan Approval Template to

require Funds staff to provide additional information the trustees would like to have in

making their decisions, including the nature of any audit findings and whether

underpayment was the result of clerical error or failure to report employees. Finally,

counsel created a Monthly Payment Plan Status Chart, to provide the trustees with a one-

page summary providing overall volume, dollar amounts, defaults and collection efforts

and thus address the trustees desire to be better able to track progress on payment plans.

It was agreed that the trustees will also need a summary method of tracking the progress

of each matter referred to collections counsel. These various documents can be finalized

with input from new collections counsel, who should address this matter expeditiously.

I also note that the Delinquency Committee meetings and communications among

counsel, trustees and staff between meetings have become increasingly more robust and

fruitful. The involvement of new collections counsel will further enhance this process

and its ultimate objective: collection of the total amount of benefit contributions due and

owing to the funds.

J. Legal Department

The Executive Director must consider the suitability of individuals who are not

lawyers managing and supervising the Legal Department and whether having an attorney

in residence at the Funds would be a prudent and efficient step that also would benefit


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other aspects of the administration of the Funds. While having a non-lawyer handle

payment plans may work at smaller funds, it might be advantageous for these Benefit

Funds to have in house counsel supervise the payment plan process, liaise with

Collections Counsel regarding the wisdom of arbitration or litigation and follow up to

ensure that collection efforts continue once confessions of judgment are obtained.

In house counsel might also have wider duties and responsibilities, such as

conducting RFPs for and negotiating with vendors, working with the Human Resources

Director on employment issues, advising the CCO in carrying out his or her duties and

otherwise performing the functions in house counsel typically performs. It would in all

likelihood improve the Benefit Funds organizational effectiveness and create

efficiencies.

K. Welfare Fund

On May 11, 2011, I and my counsel, the Benefit Funds Board of Trustees (with

the exception of one trustee), the trustees counsel and the Executive Director attended a

meeting discussing the condition of the Welfare Fund. Segal advised of a potential

problem with the Funds long-term viability and alternative plan designs. Through

March 2011, the number of man hours worked in the fiscal year ending June 30 totaled

11.5 million, which will likely annualize to approximately 15 million hours. At that

level, the Welfare Fund will have yearly deficits and ultimately be depleted in 2013.

(The calculation did not take into account investment income and losses). The trustees

decided to schedule a working meeting to begin consideration of specific cost-saving

steps that will have to be made immediately.


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On May 16, 2011, the Board of Trustees, their counsel and I had that working

meeting. Among the coverage changes discussed were the requirement of a deductible,

instituting or increasing co-payments for doctors visits, eliminating dental coverage and

adopting a generic prescription drug program.

Later on May 16th, at a previously scheduled status conference, counsel for the

Benefit Fund trustees reported to the Court regarding the status of the Welfare Fund. The

Court inquired whether participants in the fund directly receive monthly or quarterly

reports.

On May 18th, counsel for the Benefit Fund trustees submitted a letter to the Court

advising that consistent with the practice of other benefit funds, the participants do not

receive such monthly or quarterly reports; they receive a Summary Annual Report.

However, counsel appreciated the point and had inquired preliminarily of Segal regarding

providing information to participants regarding the status of the Welfare Fund, including

cost of benefits, the required contribution rate to remain solv[a]nt, and reserve levels and

indicated the topic would be raised with the trustees at their May 25, 2011 board meeting.

Exhibit 19. This issue continues to be a priority for all concerned.


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Part Two District Council

A. Investigations

1. Organized Crime Initiative

On March 4, 2011, I began my organized crime initiative. This initiative was

undertaken to determine what knowledge, if any, District Council employees, local union

officers and Benefit Funds trustees and employees have regarding organized crime

influence and control over the union. Separate declarations have been developed, which

recognize ones position within the union. See Exhibit 6.

Investigators from my staff have interviewed, and continue to interview,

personnel. If an interviewee has no knowledge other than that learned through the media

or court records, he or she signs a declaration to that effect and no other action is taken. 5/

If an interviewee has knowledge from sources other than the media and court records, a

rider that details this knowledge is attached to the declaration.6/

To date, we have interviewed 64 people. A small number of persons have refused

to be interviewed and resigned their positions as District Council representatives and

local union officers. Eight others who were interviewed refused to sign a declaration.

Each has either retired or resigned his position at the District Council, Labor

Management Fund or local union.

We will continue with this initiative as necessary. My office is currently

interviewing many of the candidates in the local union elections to be held in June.

5/ It is important to note that each person is told that the declaration is a serious legal document andthat he or she has the right to discuss the declaration with an attorney. Each person is also given a week,and more if requested, to consult with an attorney before signing the declaration.

6/ All declarations and riders are kept by the RO and are not publicly available.


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2. Local 1456 Investigation

My office has investigated aspects of the finances and administration of Local

Union 1456 (often referred to as the Dockbuilders). The investigation has led to the

resignation or removal of individuals from high-level positions. As described below, my

office continues to investigate practices of Local 1456.

a. Leadership

Charles Harkin was the President and Business Manager of Local 1456. He was

also a District Council business representative. Harkin was interviewed on January 13,

2011, about dinners at Marinella restaurant in New York City.

Harkin said that the Executive Board and guests he invited would eat at Marinella

restaurant once a month between the board and general membership meetings of the local

union. There was no log kept of Marinella dinner attendees. The cost of these dinners

ranged from $1,500 to $3,000. There was no limit to the amount of food and drink an

attendee could order. The bill for the dinners was paid for by the local union. Harkin

admitted that the amount, location, and list of dinner attendees, was never divulged to or

approved by the general membership from at least 2006 through 2009.7/

Based on Harkins interview, a deposition was scheduled for April 15, 2011. The

afternoon before the deposition, we received a facsimile indicating that Harkin would be

unable to attend. On April 20, 2011, I issued a Notice of Possible Action. See Exhibit

20. Effective April 27, 2011, Harkin resigned as President of Local Union 1456;

effective April 29, he resigned as a trustee of the Benefit Funds; and effective April 30,

7/ The expenses for two Marinella dinners in particular were the subject of a veto and was fullybriefed in the District Court. The veto was upheld. See Exhibit 7.


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he resigned as a business representative and withdrew his membership in the union.

See Exhibit 12.

The investigation revealed a trail of unapproved (that is, not presented to the

membership for consideration) credit card expenditures by Harkin and other board

members. Based on a review of American Express credit card bills and meeting minutes,

it appears approval by and notice to the membership was neither sought nor given for any

of these credit card expenses between 2006 and 2009. Unauthorized expenditures

between 2006 and 2009 paid for, among other things, Marinella dinners, stipends, airfare

and accommodations for certain officers and others; fine dining at New York restaurants;

services purchased at a spa; and a 2009 Cadillac DTS (which cost $1,300 per month).

The practice of awarding Christmas bonuses to select board members was also

uncovered. Between 2006 and 2009, Charles Harkin, John Harkin, Michael Koballa and

Gary Shelton were given checks in the discretion of Charles Harkin. The amount given

to John Harkin, Koballa and Shelton each year was $5,080.46. Charles Harkin received

$5,615.20. Local union meeting minutes contained only vague references to usual and

customary Christmas bonuses without specifying the amounts or the recipients.

There is no approval in meeting minutes for an expense of $1,258.24 for

Christmas Meeting-Drinks-12/11/07, as noted in the digest of the operating account.

Former business agent John Harkin also used an American Express card. Meeting

minutes from 2006 through 2009 contained no record of approval by or notice to the

members of John Harkins credit card expenditures for fine dining, beverages, limousine

services, and golf green fees totaling over $20,000. John Harkin retired last year.


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The Advisory Board consists of members and retired members of Local 1456.

Based on interviews of current and newly appointed Advisory Board members,

appointments to the Advisory Board were made by Charles Harkin. Shortly before his

resignation, Harkin appointed six new members to the Advisory Board. With the

exception of the husband of the Local 1456 Office Manager, all new appointees were

related to former Local 1456 board members. The RO staff interviewed four of the five

new appointees. Those interviewed stated they did not know they were being considered

for the Advisory Board until announcement of their appointments. All accepted their

appointments but were unclear of the duties of the position. Advisory Board members

received a $100 stipend and an invitation to the Marinella monthly dinner.

A $200-a-day stipend was typically given to certain board members for travel.

According to Olaf Olsen, such stipends were granted in the sole discretion of Charles

Harkin. In February 2008, Charles Harkin, John Harkin, Michael Koballa and Gary

Shelton traveled to Florida for 18 continuous days. The Harkins each were given $3,800

and Koballa and Shelton each was given $3,600. The Finance Committee, the Audit

Committee and the trustees never reported this fact to the membership.

According to Michael Koballa, the H column in schedule 11 of the LM-2 forms

reflected the aggregate amount of stipends received by the officers of Local 1456 during

the year. According to the LM-2 forms, the officers of Local 1456 received total stipends

of $216,654.00 in 2007; $217,877.00 in 2008; and $221,633.00 in 2009.

c. Conferences

During the period between 2006 and 2009, few of the conferences attended by

certain board members and others were approved in the general memberships meeting


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minutes. Certain associated expenses in the form of stipends, airfare, hotel

accommodations, and lavish dinners paid for by union credit cards were never reported to

the members.

The choice of labor conferences attended by board members is also questionable.

For instance, members of the board attended the Public Employee Conference (PEC) in

San Juan, Puerto Rico, each year between 2006 and 2009. It is difficult to see the benefit

to members of Local 1456 from the boards attendance at this conference. Fewer than 30

of the over 1,400 members of the Dockbuilders are civil service employees. William

Lacey, Civil Service Employee Representative for the District Council, could not identify

any reason why Local 1456 officers would attend the PEC. Nonetheless, in 2007 and

2008, board members arrived in Puerto Rico two days before the start of the conference.

They enjoyed two vacation days paid for by the members, plus their salary, stipends and

credit card expenses.

Each year between 2006 and 2009, one of the winter conferences attended by

Local 1456 board members was the Wall-Ceiling Association Conference, held to discuss

matters pertinent to the dry wall industry. Local 1456 does not perform work in this

industry. Nonetheless, credit card expenses, airfare, hotel accommodations, and stipends

were incurred by fiduciaries at the expense of the membership of the local union.

In 2008, there was a gap of four days between two winter conferences. Instead of

returning home, some board members with their wives chose to remain in Florida and, in

essence, enjoy a four-day vacation paid for by the membership. Salary, stipends, first

class accommodations, rental cars and lavish dinners were subsidized by the membership.

According to Olaf Olsen, the wives expenses were paid for by Local 1456. None of the


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2008 winter conferences were mentioned in any of the Executive Board or general

membership meeting minutes. Olsen also stated that none of these expenditures were

disclosed to the membership after they were incurred either.

d. Whole Life Insurance Policies

In November 2009, Terry Mooney, an accountant assisting the District Council

while under supervision, reviewed certain LM-2 reports filed by Local 1456. He

discovered that certain board members had purchased whole life insurance policies with

local union funds. The policies were purchased from Metropolitan Life Insurance

Company (Met Life) for Charles Harkin, John Harkin, Michael Koballa and Gary

Shelton, who were also the beneficiaries of the policies. When Mooney discovered the

policies, he told the board members to cash out the policies and return the money to the

general fund.

While the investigation is still ongoing, based on conversations with employees

from Met Life, it appears that each policy that was cashed in was assessed an early cash

out penalty of nearly 80 percent of the value of the policy. For instance, Charles Harkins

policy had a cash surrender value of $9,251.83 as of November 30, 2009. The policy was

cashed out on November 30, 2009. However, due to an early cash surrender penalty,

only $1,596.86 was returned to Harkin.8 / The result was a net loss to the membership in

the amount of $7,654.97. It appears that there is a comparable loss on each of the other

policies, for a total loss of over $30,000.

e. Trustees

8/ Harkin returned the $1,596.86 to the general fund of the local.


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Section 40 (c) of the Constitution of the United Brotherhood of Carpenters states,

The Trustees shall audit all books and accounts of the Financial Secretary and the

Treasurer, audit all receipts and accounts of any other person authorized to collect funds,

examine the bank books(s) monthly, and shall report to the Local Union monthly in

writing. Based on our review of Local 1456s general meeting minutes, the testimony

of Olaf Olsen and interviews of the trustees, it does not appear that from 2006 to 2009,

such written reports were presented to the membership.

In 2009, the trustee stipends were $356.88 for each meeting. Despite receiving

substantial stipends, the trustees failed to perform their required duties and in fact

participated in generating unapproved expenditures by attending conferences and meals

and collecting travel stipends.

f. Diver Safety

My office received calls from Local 1456 divers alleging that certain companies

that are signatory contractors with Local 1456 are not following rules and regulations

related to diver safety. The callers alleged that certain signatory contractors are not

employing a full dive crew with a proper tender to monitor the safety of a diver when he

is underwater.

Three accidents have occurred on union sites in the last two years, one of which

resulted in the death of a union diver. Based upon the callers allegations, my office and

the IGs office made visits to four locations at which divers were employed. We have

also performed interviews of union members and made inquiries with government

agencies that have jurisdiction over diver safety. This matter remains under

investigation.


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3. Trial Committee

Since its inception, the Trial Committee has adjudicated 298 cases. The vast

majority of these cases have been resolved through guilty pleas, trials and plea

agreements. A summary of the Trial Committees activities is attached as Exhibit 15.

4. RO Vetoes and Trials

My office continues to vigorously investigate wrongdoing and malfeasance by

District Council representatives, shop stewards, employees and members. Several

matters addressed in the last six months have resulted in charges, trials or vetoes.

Lawrence DErrico

Lawrence DErrico was the Director of Operations of the District Council and had

been a business representative since the mid 1990s. On April 21, 2011, I vetoed his

employment with the District Council and his position as President and Delegate of Local

Union 157 for giving materially false answers to questions posed to him in a deposition.

The Notice of Veto is attached as Exhibit 7.

Frank Marino

Frank Marino was the President and Business Manager of Local 2870 and was

employed as a District Council business representative. He had served as a trustee of the

District Council. On March 23, 2011, I vetoed Marinos employment with the District

Council for being the beneficiary of unauthorized expenditures as well as dereliction of

his duties as a fiduciary for the membership. The Notice of Veto is attached as Exhibit 8.

Michael Dolphin


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Michael Dolphin was arrested on January 20, 2011 for participating in a

racketeering conspiracy. In the indictment, Dolphin was described as an associate of the

Gambino Crime family. After sending a Notice of Possible Action and receiving a

submission from Dolphins attorney, I vetoed Dolphins shop steward certification on

February 25, 2011. The Notice of Veto is attached as Exhibit 21.

Sam Bailey

My office charged former District Council business representative Sam Bailey

with seven counts of improper conduct. After a trial before the Trial Committee, Bailey

was found guilty. The judgment is attached as Exhibit 22.

John Thomassen

My office charged former District Council and Benefit Funds employee John

Thomassen with six counts of improper conduct. Thomassen, who had resigned from the

Union, asserted that the Trial Committee lacked jurisdiction.9/ After a trial before the

Trial Committee, which Thomassen did not attend, he was found guilty. The judgment is

attached as Exhibit 23. Thomassen has appealed the judgment against him to the UBC.

Michael Koballa

As referenced supra, I vetoed Koballas employment with the District Council.

He withdrew a Petition for Review filed with the Court upon entering into a settlement

agreement with my office. The Notice of Veto and Settlement are attached as Exhibit 9.

Michael Murphy

Michael Murphy was employed as a District Council business representative. On

February 7, 2011, I vetoed Murphys employment with the District Council for violating

9/ The District Council and this Office have asserted to the Chairman of the Trial Committee thatcharges may be pursued against ex-members for conduct that occurred while they were members and citedprecedential authority.


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the Job Referral Rules, improperly receiving property and benefits from an employer and

wrongfully disclosing confidential information regarding investigations being conducted

by the then existing District Council Anti-Corruption Committee. The Notice of Veto is

attached as Exhibit 10.

a. Petitions for Review and Appeals of Vetoes

As indicated in the First Interim Report, Paul Willoughby, John Holt and John

Daly filed Petitions for Review with the District Court regarding veto decisions that I had

made; the matters were fully briefed and oral argument was heard. First Interim Report

at 14. By Decision and Order dated December 21, 2010, reported as United States v.

District Counsel, 2010 WL 5297747 (S.D.N.Y. 2010), the District Court upheld my

vetoes. See Exhibit 24.

Thereafter, Messrs Willoughby and Daly filed Notices of Appeal. Ultimately,

they together with the government and I stipulated to withdrawal of the appeals, which

was so ordered on May 20, 2011. See Exhibit 25.

During my second six months, two additional Petitions for Review were filed. On

February 3, 2011, Local 1456 member Michael Koballa filed a Petition for Review of my

veto of his employment as a business representative of the District Council. I reached a

settlement with Mr. Koballa on February 24, 2011, which included his withdrawal of the

Petition for Review.

On March 28, 2011, Local 1456 filed a Petition for Review of my veto of

expenditures for certain meals at Marinellas restaurant. On April 20, 2011, I filed a

memorandum in opposition. By Order dated May 16, 2011, the District Court upheld my

veto. See Exhibit 11.


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5. Review of Organizing Department

The current staff of the Organizing Department consists of its Director, Ed

McWilliams, and eight Council representatives. Ray Brugeuras was the Deputy Director

until his resignation in March 2011. His position has not been filled. The number of

Council representatives ranged from a high of 12 in 2010 to the current eight. Of these

eight representatives, six are recent hires. The department has one full time secretary.

The Organizing Department is funded by a $.50 per hour assessment on the wages

of the District Council members. My office has analyzed the financial statements of the

Organizing Department for the fiscal years ending June 30, 2007 through June 30, 2010.

The assessments for the fiscal years 2007, 2008, 2009 and 2010 were $8,963,474;

$11,638,542; $10,561,785; and $8,865,411 respectively.

The expenses of the Organizing Department consist substantially of the wages

and benefits of McWilliams, the Council Representatives, and the groups secretary.

Over the period reviewed, the wages and benefits ranged from $2.4 to $3 million. The

Organizing Department also operates an entity known as Area Standards Incorporated

(ASI). The expenses of this entity consist of wages paid to its staff. The Organizing

Department has other expenses such as office supplies, leases of office equipment, jobsite

research, vehicles, and shirts that are distributed to members when they assist in

Organizing Department activities. Revenue and expense statements for the period

reviewed are attached as Exhibit 26.

For each year reviewed, the Organizing Department has not expended the full

amount of the assessment. Revenue has exceeded expenses each fiscal year by $3


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million to $6 million. The department currently has $21.5 million in bank accounts and

certificates of deposit.

The current activities of the Organizing Department include implementing

procedures established by the UBC called the Area Standards Program. This program,

initiated by the Council in 2009, seeks to protect the wages and benefits of members of

the District Council by conducting public information campaigns directed to all parties

involved in a particular non-union construction project.

The District Council representatives assigned to the Organizing Department visit

non-union jobsites to gather relevant information. Each visit is documented and entered

into a database. Written notification is sent by certified letter to all parties with the

results of the initial investigation and the intent of the Council to take action to protect

and uphold the Area Standard wages and benefits. Public demonstrations by Council

members are conducted against the primary employers at the selected jobsites, while

handbills, banners held by ASI employees, and other informational activities are reserved

for secondary entities such as building owners and end users of a companys products.

In order to better determine the effectiveness of the Organizing Department, my

office requested a statistical analysis from McWilliams that would quantify the number of

man-hours his department created for Council members each month. For March and

April of 2011, McWilliams submitted an analysis that listed the various activities

performed, such as visiting job sites, distributing handbills and engaging in

demonstrations, and the frequency of each activity. McWilliams also prepared a list of

the jobsites in which the carpentry contractor decided to pay the Area Standard wages

and benefits.


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McWilliams attempted to report successful results but did not include the number

of man-hours the Organizing Department created for District Council members. After

repeated requests, McWilliams finally advised that he was unable to provide this

information. McWilliams stated that a significant part of the Organizing Departments

activities is not quantifiable in man-hours created for union members. In his view (a

view shared by others who worked at the District Council), the presence of the

Organizing Department in New York City serves as a deterrent to many owners and

contractors from using non-union labor.

McWilliams and several of the business representatives were interviewed by RO

staff to provide their thoughts on the status and possible direction of the Organizing

Department. They advised that the Organizing Department faces several obstacles in

achieving its goals and mission. The primary obstacle is the significant disparity in union

and non-union rates of pay and amounts of benefits. McWilliams explained that the

typical rate of pay for non-union workers is $15 per hour, with no overtime and no

benefits. McWilliams also explained that there are very few non-union contractors who

are willing to become union signatories. Very rarely are he and his staff able to turn a

contractor based on a financial meeting. McWilliams and his staff continue to emphasize

to the owners or contractors the greater productivity and professionalism of the District

Council members compared to the non-union workers. McWilliams and his staff advised

that they have spent countless hours over the years in reporting abuses by contractors,

particularly prevailing wage violations, to the appropriate law enforcement agencies and

that there has been only a minimal response by these agencies. The Market Recovery

Program, which offers lower rates to contractors in certain areas and is still in effect, has


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had only marginal success because the union signatory contractors have not gone after

this market.

McWilliams advised that he could increase his success rate and hours generated if

he concentrated his activities solely toward large office building jobsites in Manhattan

instead of covering all five boroughs of New York City.

I have endeavored to encourage cooperation and coordination between the

Organizing Department and the Political and Labor/Management Departments. The

Organizing Department has pledged to identify jobsites to these other departments and

enlist their input and efforts in trying to increase man-hours.

6. Review of Political Department

Former District Council Executive Secretary Treasurer Mike Forde created the

Political Department in 2000 after he was elected. The current staff of the Political

Department consists solely of Director Stephen McInnis. Marina Vranich was the

Deputy Political Director from 2004 until her resignation in March 2011.

The mission of the Political Department is to influence legislation at New York

State and New York City levels. This involves periodic meetings at the New York State

Legislature and Governors Office in Albany, New York, as well as the Mayors Office

in New York City. The Political Department conducts field operations such as get out to

vote drives. The Political Department also assists campaigns, particularly if there is a

pertinent economic development issue, and makes campaign contributions.

The Political Department is funded by a $.05 assessment on the wages of the

District Council members. My office has analyzed the financial statements of the

Political Department for the fiscal years ending June 30, 2007 through June 30, 2010.


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The assessments for the fiscal years 2007, 2008, 2009 and 2010 were $1,057,187;

$1,155,132; $1,055,129; and $882,045 respectively.

The expenses of the Political Department consisted primarily of the wages and

benefits of the Director and Deputy Director, political donations and lobbying expenses.

Total salaries averaged approximately $300,000 per year and political donations ranged

from $237,000 to $369,000 per year, depending on the political cycle. Lobbying

expenses ranged from $96,000 to $174,000 per year. Other expenses include rent,

meetings with government officials, and officials from the political departments of other

unions. It should be noted that the expenditures decreased significantly in the fiscal year

ending June 30, 2010. The revenue and expenditures of the Political Department for the

reviewed period are attached as Exhibit 27.

A Political Action Committee (PAC) was also created after Fordes election in

2000. The PAC is staffed by the Executive Delegates from the local unions affiliated

with the District Council. The purpose of the PAC is to consider and review the

expenditures of the Political Department. My office reviewed the minutes of the PAC

from its inception to the present. All donations to candidates were listed and approved

and we found no donations that were seemingly unrelated to the mission of the District

Council. However, the expenses relating to meetings with government officials,

lobbyists, and officials from the political departments of other unions were not listed in

the minutes and thus were not specifically approved.

RO staff reviewed the expenditures of the Political Department from January 1,

2007 to December 31, 2009. A substantial number of expenditures were for restaurants

and hotels. According to notations on the credit card receipts, the expenditures fell into


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the following categories: those related to UBC events or programs, those related to

District Council events or programs, and those related to lunch and dinner meetings with

members of government officials staffs, lobbyists, and officials from other unions. The

Political Department provided documentation from the UBC to support the expenditures

related to the UBC events. The UBC Supervisor, Frank Spencer, reviewed the District

Council-related expenditures and found some of them, such as conferences in Florida, to

be unnecessary and not helpful to the creation of jobs for District Council members.

RO staff also found some of the restaurant and hotel expenditures to be excessive

and their justification questionable. The likelihood that certain expenditures would assist

in developing jobs for members was insufficient. Some of the charges were incurred at

expensive New York restaurants. A particularly egregious expenditure was a dinner at

the Building Trades conference in Washington, D.C. on April 5, 2008. The amount was

$10,000 for 42 people, included several District Council members who have since

resigned or been incarcerated. See Exhibit 28. A staffer had negotiated and secured a

reasonably priced food and beverage menu but, according to information we obtained, it

was overruled by then-District Council President Peter Thomassen.

McInnis advised that, at the time of these expenditures, there were no specific

guidelines in place. There is now an approval process with respect to expenses and

expenses have significantly decreased. To the extent the District Council personnel

policy is insufficient in this regard, expense guidelines indicating specific acceptable

dollar amounts for hotels and restaurants should be put into effect.

RO staff also has attempted to learn more about the results of the Political

Department in relation to creating jobs for District Council members. No specific


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administering the Records Retention Policy, is now addressing practical adjustments that

might be appropriate in view of the functionality of the email system.

The vendor has also created a backup and recovery system, separate and apart

from the email system. This is primarily intended for disaster recovery, but is an

additional means for recovering documents if necessary.

The District Council still shares the Benefit Funds network. Its email system is

routed through the Benefit Funds internet connection. The second phase of the District

Councils plan is a network split. The split is expected to be effectuated by October 2011

at the latest.

The District Council has determined not to create an in-house IT Department but

rather to outsource to the vendor. The vendor, not the Benefit Funds, now handles the

District Councils day-to-day technological problems.

E. Records Retention

The District Council is also employing a two-phase plan with respect to records

retention (an area addressed by the Stipulation and Order). Preliminarily, the District

Counci

ro second interim report text

Documents