The Teamster's largest pension fund once loaned money to a hotel-casino that used gambling chits as collateral, a Labor Department official testified yesterday.
"It is not common practice in financial management," said Eamon Kelly in a wry observation on the unothodox investment practices of the $1.4 billion Teamsters' Central States, Southeast and Southwest Areas Pension Fund.
The fund's portfolio is filled with so many high-risk, low-return and organized crime-connected loans that it is impossible to tell its true value, Kelly told the Senate Permanent Subcommittee on Investigations. Because of bad loans, he said, it may even be losing money faster than it makes it.
Kelly declined to give the subcommittee details of the gambling chit loan, but it was learned that it involved $4 million in "markets," or gambling IOUs, that was put by owners of the Aladdin Hotel in Las Vegas to help secure a $5 million loan last year. The owners were identified as Richard L. Daly and Peter J. Webbe of St. Louis. The markers were IOUs from unnamed persons who gambled at the Aladdin, sources said.
A subcommittee aide said the loan was due last month but has not been repaid. The fund is reportedly considering a 45-day extension.
Labor Secretary Ray Marshall, Kelly and other officials testified for more than four hours on the departments's investigation of te huge fund, which serves 450,000 teamsters in 22 states and invests about $8 million monthly from the $29 million it takes in each month in contributions.
Last spring, the Labor Department, acting in conjunction with the internal Revenue Service, forced the resignations of Teamster President Frank Fitzsimmons and three others as fund trustees. Under threat of court action, the government also required the fund's assets - 70 per cent of which are tied up in real estate loans - to be put under the control of independent financial managers.
The fund's fiduciary is now the Equitable Life Assurance Society of the United States, one of the nation's largest insurance companies.
Marshall testified that the new arrangement "provides a sound basis for proper future management" and "contains great promise of ending, once and for all, the years of suspicion, allegations and demonstrable wrongdoing that have surrounded asset management of the fund and the people associated with it."
Now, said Marshall, the department will seek restitution of pension funds lost through illegal actions. The department, he disclosed, is also beginning to investigate the Central States Health and Welfare Fund as well.
Subcommittee members pressed Marshall to elaborate publicly on details of the findings thus far and to push aggressively for criminal indictments. Marshall and his aides demurred on many details, arguing their disclosure might jeopardize court cases, and said that the Justice Department is largely responsible for criminal prosecutions under the federal pension law.
But they noted that some indictments have been obtained in the apst and said that press accounts of profiteering from the fund by organized crime figures were accurate.
In response to questions by Sen. Charles Percy (R-Ill.), who said he has been told that "perhaps as much as one-half of the fund's assets" may have been lost because of bad investments. Kelly said there is currently no way of knowing the extent of losses or the fund's real value.
It is possible. Kelly told the subcommittee, that the rate of return on investments "may very well be negative."
He said at least 10 per cent of the loans were secured without appropriate collateral or at insufficient interest rates.
Kelly said Equitable and its associated investment managers are scheuled to evaluate the assets by Sept. 1 but added that the job may be so enormous that an extension could be necessary.