Hearring Testimony Pages 1 - 212

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IN THE MATTER OF THE HEARING REGARDING THE EMPIRE STATE

REGIONAL COUNCIL OF CARPENTERS

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DATE: March 30, 2010 TIME: 8:40 A.M.

PLACE: Crowne Plaza Hotel Ten Eyck Plaza

Albany, New York 12207

B E FOR E

HEARING COMMITTEE:

MICHA~L V. DRAPER, CHAIRMAN

UBC District Vice President, Western District BOBBY J. YEGGY

UBC District Vice President, Midwestern District

C. DANNY MAPLES

{mc District Vice president, Southern District

A P PEA RAN C E S

FRANK SPENCER

UBC District Vice president, Eastern District

PATRICK B. MORIN

Executive Secretary-Treasurer, of the Empire State Regional Council

A.S.E. REPORTING SERVICE (518) 458-1091

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THE CHAIRMAN:, Good morning, Brothers and sisters.

AUDIENCE: Good morning.

THE CHAIRMAN: This is a hearing being held under the Constitution and Laws of the united Brotherhood. We will begin this hearing by reading into the record the Notice stating the purpose of this meeting. The Notice is a letter dated March 10, 2010, to Mr. Patrick B. Morin, Executive Secretary of the Empire State Regional Council from the General President:

"Dear Sir and Brother, thIs will constitute formal notice of a hearing that is being held pursuant to section 10-H of the UBC Constitution regarding the Empire State Regional Council of the Carpenters.

Based on the information brought to my attention, it appears that the affairs of the Council are being conducted in a manner detrimental to the welfare and best interest of the Council, the United Brotherhood of Carpenters and Joiners of America (UBC) , and its members and/or contrary to the


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provisions and requirements of the Bylaws of the Council and/or UBC Constitution. Therefore, in accordance with section 6-D and 10-H of the UBC Constitution, a hearing will be conducted into the Council's affairs to determine if supervision by the UBC over the Council should be imposed.

The hearing will take place pursuant to the following arrangements: The Place is here. The date is March 30th and 31st.

The time of the session is 8:30 to 11:30.

We will break for lunch, have a 1:00 to 4:00 session and then in the evening, a session

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from 6:00 to 8:00 p.m.

However, if no one .else present at any session wishes to testify or otherwise present their views and other evidence, the Chairman shall have the discretion to adjourn the hearing until the next scheduled session, or if at the last session, to conclude the hearing.

By copy of this letter, all officials and delegates of the Council and all members of Local Unions affiliated with the Council


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4 are hereby notified of the date, time and place of the hearing and are hereby invited to appear at the hearing and present testimony, their views and other evidence regarding the conduct and the affairs of the Council.

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The hearing will be conducted by a hearing committee that has been appointed pursuant to 10-H of the UBC Constitution. The hearing committee consists of Michael Draper, UBC District Vice President, Western District (Chairman)i Bob Yeggy, UBC District Vice president, Midwestern Districti and Dan Maples, UBC District Vice president, Southern District.

As described in greater detail below, based on information that has been received

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by the UBC, it appears, among other things, that, I, financial irregularities exist within the Council with respect to the Council's pension, annuity and welfare funds, including, but not limited to, the method of allocation of Madoff losses, including allocation of $6.4 million Madoff


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investment made by. the Empire Welfare Fund in December of 2008 to Upstate area participants even though the Upstate Health Care Fund was dissolved effective January 1, 2007, and the lack of diversification for the Madoff investments; 2, the Council has failed to perform its responsibilities as a collective bargaining agent and under its bylaws with respect to the appointment of union trustees to the Council pension, annuity and welfare funds; 3, some Council appointed union trustees of the Council's pension, annuity and welfare funds have supported actions to exclude a union trustee of the Council's funds, who was from the Upstate area, from meetings of the Board of Trustees of the Council's pension, annuity and welfare funds when Madoff losses were being discussed; 4, the Council has discriminated against members in the Upstate area with respect to collective bargaining reallocations, and these reallocations threaten the financial security of the members in that area; 5, a union trustee of

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the Council's pension fund, annuity and welfare funds was improperly removed as a trustee; 6, actions taken by the Council, as collective bargaining representative, and by the Council's appointed union trustee of the Council's pension and annuity and welfare funds with respect to the Madoff losses may have a negative impact on the future union work opportunities in the Upstate area of the Council; 7, the Council has not kept members or contractors within the Council

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adequately informed of matters pertaining to the Madoff losses; 8, the EST of the Council failed to provide information that he agreed to provide to the UBC regarding the allocation of Madoff losses and other

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matters pertaining to the Council's funds; 9, the Council has not complied with its Bylaw provisions with respect to the termination of certain Council organizers and other staff; 10, certain action has been taken with respect to the staffing within the Council that may jeopardize organizing within the Council; and 11, the Council has

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failed to timely Gonduct elections to fill vacancies in Council officer positions.

Based on information received by the UBC/ it appears that financial irregularities exist within the Council with respect to the Council's pension/ annuity and welfare funds and that these financial irregularities threaten the welfare of members within the Council. The UBC has

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received numerous complaints from members of Local Unions affiliated with the Council regarding the manner in which the Madoff losses of the Empire State Carpenters Pension Fund/ which will be known as the Empire Pension Fund/ the Empire State Carpenters Annuity Fund (the Empire Annuity Fund) and the Empire State Carpenters Welfare Fund/ known as the Empire Welfare Fund (hereinafter collectively the Empire Funds) have been allocated. The total loss to the Empire Fund as a result of Madoff losses is estimated to be over $160 million/ with the Empire Pension Fund's loss estimated at approximately $97 million/ the


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Empire Annuity Fund's loss estimated at approximately $39.5 million and the Empire Welfare Fund's loss estimated at approximately $29.5 million. Based on information received by the UBC, it appears that the Madoff losses have been disproportionately allocated to members who were former participants of the Upstate New York Carpenters Annuity Fund, the Upstate Carpenters Pension Fund, and the Upstate Carpenters Health Care Fund.

For example, although the Upstate Annuity Fund merged with the Empire Annuity Fund as of July 1st, 2006, the Empire Annuity Fund had control of the former assets of the Upstate Annuity Fund for approximately two and a half years prior to the discovery of the Madoff fraud, action has been taken to allocate the Empire Annuity Fund's Madoff losses primarily to members who were former Upstate Annuity Fund participants based on Upstate Annuity Fund Madoff related investments prior to its merger with the Empire Annuity Fund. In

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this regard, based on a document entitled Upstate Madoff Loss Analysis dated

January 15, 2010, that was prepared f9r the Empire Annuity Fund by an accountant and the Fund employees, it appears that the Board of Trustees of the Empire Annuity Fund approved a loss ratio of 25/75 with respect to the Empire Annuity Fund's Madoff losses, the 75 percent of the losses being allocated to the former participants of the Upstate Annuity Fund and 25 percent of the losses being allocated to other Empire Annuity Fund participants.

Based on information provided to the UBC, it appears that participants of the Empire Annuity Fund who were former Upstate Annuity Fund participants received notification in January 2010 that their account balances in the Empire Annuity Fund were being reduced by approximately 51 percent of their account balances as of June 30th, 2008. It appears that other participants of the Empire Annuity Fund either did not have their accounts reduced

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have their accrual rate reduced the same extent as participants in the Upstate area.

Likewise, it appears that former Upstate Health Fund participants recently lost approximately 46 percent of their Health Reimbursement accounts in the Empire Welfare Fund based on the January 1, 2007 value of such accounts, as a result of the

for the Madoff losses or had their accounts

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reduced by a lesser amount.

Moreover, it appears that the future rate ,of accrual under the Empire Pension Fund for participants of the upstate area was dramatically cut from an actuarial base of 2 percent of contributions to an actuarial base of .4 percent of contributions effective January 1, 2010. Such action appears to have been taken due largely to the Madoff losses. Based on information that the UBC has received, it appears that other participants of the Empire Pension Fund either did not experience a reduction of their future rate of accrual for the Madoff losses or did not

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allocation of the Madoff losses. Based on information that the UBC has received, other participants in the Empire Welfare Fund either did not experience a reduction in such accounts or experienced a reduction of a lesser amount.

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The method used to allocate Madoff

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losses with respect to the Empire Welfare Fund appears to be the most egregious.

Based on a document prepared for the Empire Welfare Fund by its accountant and its Fund employees that is entitled "Upstate Madoff Loss Analysis", it appears that the investment of approximately $6.4 million in the Madoff related investment that was made in December 2008 by the Empire Welfare Fund was allocated exclusively to the former participants in the Upstate Health Care Fund for purposes of allocation of the Madoff losses, even though the Upstate Funds had been merged into the Empire Welfare Fund and was dissolved, effective January 1, 2007.

In addition to resulting in an inadequate allocation of losses, attributing such


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investment to the Upstate area appears to be fraudulent.

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Moreover, the manner in which the Madoff losses were allocated by the Empire Fund raises serious legal concerns. For example, the reduction in the Empire Annuity Fund accounts of the former Upstate Annuity Fund participants of the Madoff losses may be in conflict with the terms of the merger agreement. In this regard, the merger agree~ent for the upstate Annuity Fund and the Empire Annuity Fund merger provides, in part, that the Empire Fund shall provide and maintain, as a minimum, the benefits that the Upstate Fund participants, including retirees, that exist at the time of Closing Date of the merger. With the 51 percent reduction in accounts of the former Upstate Annuity participants of the Madoff losses, it appears that some of these participants' accounts may have been reduced below the amount that existed on the date of the

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merger.

Furthermore, based on information that

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the UBChas received, the method used by the Empire Annuity Fund to reallocate the Madoff loss does not appear to be consistent with the prior method of allocating losses and gains among participants and raises fiduciary concerns. For example, the UBC received a copy of a letter that was recently sent to the Trustees of the Empire Funds by two members who were former Union Trustees of the Upstate Pension Fund, along with a former employer Trustee of the Upstate Pension Fund, that complained about the method of allocating the Madoff losses. This letter provides, in part, as follows:

The Empire Fund's decision to modify its common fund approach to allocating investment gains and losses with respect to the Upstate evidences a failure on the part of the Trustees of the Empire Funds to act solely in the interest of the participants as a whole. Establishment of the

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discriminatory treatment of a class of participants is inconsistent with the fiduciary duty of the Trustees.


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Reimbursement Accounts and Annuity Accounts pose a serious threat to the financial security and welfare of these members. For example, the UBC received correspondence from one member in the Upstate area that indicated that his personal account value was changed from a surplus of $5,000 to a negative balance and that he was required to pay a monthly insurance premium of over

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Moreover, it is my understanding that the Empire Annuity Fund Trustees decided in early March 2010 to make Annuity Fund distributions to the Empire Annuity Fund participants that had previously been deferred in view of Madoff looses, recognizing that such distribution would make it more difficult for the Upstate participants to recover their losses from the improper allocation.

These financial irregularities with

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respect to the allocation of the Madoff losses have a devastating financial impact on the members in the Upstate area. The massive cut in these members' Health


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$1,060 to avoid having his health care terminated.

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The Empire Funds are funded by contributions made by signatory employers pursuant to the terms of the collective bargaining agreements. Members in the Upstate area, as well as members in other areas of the Council, participate in the Funds. The Council, as a collective bargaining representative, has the authority to appointment the Union Trustees to such Fund, which authority is exercised by the Executive Secretary-Treasurer of the Council. The same Trustees serve on the

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Empire Annuity Fund, the Empire Pension Fund and the Empire Welfare Fund. It is my understanding that the decision to allocate the Madoff losses primarily to participants of the Upstate area was supported by most, if not all, of the Council appointed Union Trustees of the Empire Funds.

Furthermore, the minutes from a December 18, 2008, board meeting of the Empire Fund that occurred soon after the

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Moreover, the minutes from this December 18, 2008, Board of Trustees meeting indicate that the investment consultant for the Empire Funds commented that Jeanerette, in his opinion, was not diversified enough in its investment products. This appears to suggest the Jeanneret investments may not have been adequately diversified and raises questions regarding whether the Empire Funds should have taken action to further diversify their assets to reduce the likelihood of large losses.

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Madoff fraud was discovered indicate that the EST of the Council who serves as a Trustee of the Empire Funds stated, in part, that "The Trustees should be considering aborting the Upstate New York Carpenter's merger with the Empire Pens ion Fund." Thus, it appears that the EST of the Council, who was also a Union Trustee of the Empire Pension Fund, was encouraging the breach of the merger agreement between the Upstate Pension Fund and the Empire Pension Fund after the Madoff losses were discovered.

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Rather than taking action to further diversify the assets and reduce the amount of Madoff related investments, it appears that the Empire Welfare Fund invested additional amounts in such investments after

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the merger with the Upstate Funds and prior to the discovery of the Madoff fraud. In this regard, based on information that the UBC has received, the Trustees of the Empire Welfare Fund decided to invest approximately $6.4 million in available cash in the Empire Welfare Fund in the Limited volatility Fund in December of 2008 within days of the discovery of the Madoff fraud. Based on information received by the UBC, the Limited Volatility Fund was 100 percent invested in Madoff related investments.

It also appears that the Council failed to fulfill its responsibility as collective bargaining agent and under its Bylaws by failing to timely appoint a member to fill a vacant Union Trustee position on the Empire Funds under the Council's Bylaws as well as the Trust Agreements pertaining to the

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Empire Funds/ the EST of the Council has the authority to both remove and appoint union Trustees of the Empire Funds. It is my understanding that a Union Trustee position on the Empire Funds became vacant in approximately June of 2009 as a result of Charles Rinoldo's removal and was not filled until February 1st/ 2010/ after a

complaint had been made to the Empire Funds regarding failure to fill such vacancy.

As the merger agreements pertaining to the mergers between the Upstate Funds and the Empire Funds provide for appointment of a Union Trustee from the Upstate area and for such Trustee to play an important role with respect to the financial operations of the Funds/ the failure to timely fill the vacancy in the Union Trustee position from the Upstate area is even more problematic. In this regard, the merger agreement for the Upstate Pension Fund and Empire Fund merger provides/ in part/ that 1/ a Union Trustee on the Board of Trustees of the Empire Fund will be appointed who is both from the

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Upstate area Region 3 and a participant in the Upstate Fund, the employer trustee from Region 3 to meet with the Empire Fund's investment subcommittee on a regular basis and to make recommendations to the Empire Pension Fund Trustees regarding such matters as investment performance, asset allocation, level of accrual of former upstate participants and other matters which may affect former Upstate participants.

Based on information received by the UBC, Charles Rinoldo was the Council appointed Union Trustee from the upstate area on the Empire Funds. Thus, the failure to timely appointment a Union Trustee from the Upstate area to fill a vacancy in the Union Trustee position that existed after Mr. Rinoldo was removed as a Trustee appears to have resulted in no input being provided by the Union Trustee from the Upstate area when important financial decisions were being considered and decided, including the manner in which Madoff losses were

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allocated.


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Moreover, it appears that some Council appointed Union Trustees supported actions to deliberately exclude Mr. Rinoldo from the meeting of the Board of Trustees of the Empire Funds while he was serving as the Union Trustee of the Empire Funds when issues involving Madoff losses were discussed. For example, at a Board of Trustees meeting of the Empire Funds held February 24, 2009, it is my understanding that a motion was made and passed with the support of some of the Council-appointed Trustees not to permit Mr. Rinoldo, who was the Union Trustee from the Upstate area, or the Employer Trustee from the Upstate area, to remain in the room while issues were

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being discussed. Based on information that the UBC has received, these Trustees were also removed from other meetings of the Board of Trustees when Madoff losses were being discussed, with the support of some of the Council appointed Union Trustees.

It also appears that Mr. Rinoldo may have been improperly removed as a Union


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Trustee of the Empire Funds. The reason provided for Mr. Rinoldo no longer being able to serve as a Trustee was apparently that he had retired as an employee of the Union. However, there is nothing in the Bylaws of the Councilor the Trust Agreements of the' Empire Funds that would render a retired member ineligible to serve as a Trustee of the Fund. Furthermore, based on information received by the UBC, it appears that a retired member, Ronald Kent, may currently serve as a Trustee of the Albany Pension and Health Care Funds that are within the Council's jurisdiction.

Furthermore, it appears that the Council has utilized the collective

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bargaining process to discriminate against members of the Upstate area with respect to the ·Madoff losses. In this regard, it is my understanding that pursuant to the authority in the applicable collective bargaining agreements, the EST of the Council has reallocated some Empire Annuity Fund contributions to the Empire Pension Fund or


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the Empire Welfare' Fund for members in the Upstate areas while members of other areas of the Council had not had their annuity fund contributions allocated in that manner.

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For example, information that I have received reflects that, effective

February 1, 2010, the Empire Annuity Fund contribution rate for members in Onondaga County was decreased from $2.74 per hour to $.41 per hour, with the reduction reallocation to the Empire Welfare Fund and the Empire Pension Fund. Such reallocations appear to discriminate against members in the Upstate area and threaten the future financial well being of these members.

It also appears that the manner in which the Madoff losses have been allocated, along with the reallocation of contributions for members in the Upstate area, may have a negative impact on the Union work within the upstate area. For example, the UBC received a letter from a contractor in the Upstate area who complained about the approach being taken in regard to assessing the Madoff

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losses that indicate that many of his key men see no reason to go forward with the ridiculous accrual rate and also the fact

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that their annuity contribution has nearly been wiped out via reallocation to both the Health, Welfare and Pension Funds. This contractor further stated, in part, that without some assistance, Local 747 and the Union work within the geographical jurisdiction will surely die. A letter from another contractor in the upstate area indicated that union contractors are

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hesitant to participate in bidding due to the concern of a major reduction in the workforce.

Moreover, it appears that the Council has not adequately communicated with members or signatory employers in the Upstate area regarding the handling of Madoff losses. In a letter to the UBC, one member indicated that he received a letter over a year ago from Local 747, but that no other details or specifics were made known until

January 22nd, 2010, when it was announced


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that his annuity accounts would be backcharged 51 percent of their value.

Furthermore, in a memorandum dated January 7, 2010, from the Executive Director of the Mohawk Valley Construction Employers Association to contractors signatory to Carpenters Local 747 agreement, the Executive Director of the Association

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stated, in part, as follows: We have also been hearing, as you probably have, that members of 747 are not happy with what is going on within 747 and the Empire state Carpenters as a whole. The men reportedly are in an uproar over the proposed benefit cuts and the lack of any communication or answers from the leadership of the Empire state Council. Just as the men are in the

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dark, so are we. No one seems to be in a position to explain exactly what happened with the Funds and the benefit cuts, etc.

Furthermore, although the EST of the Council and counsel for the Empire Funds agreed to provide the UBC with certain requested information about the allocation


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pertaining to the Council's Funds, much of the requested information has not yet been provided to the UBC.

Moreover, it appears that the Council has not complied with its Bylaws provisions with respect to the termination of Organizers and other staff. Under section 8(A) of the Council's Bylaws, the EST of the Council has the authority to hire, appoint, suspend, promote and terminate Council representatives and organizers, including the Director of Organizing and Assistant Directors of Organizing, subject to the approval of the Executive Committee of the Council. Based on information that has been received, it appears Organizers and staff of the Council have been terminated by the EST of the Council without the approval of the Executive Committee of the Council in violation of Council Bylaws.

For example, it is my understanding that Michael Dye was terminated as an assistant organizing director and that Chris

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of Madoff losses and other matters

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Stone and Rosario Pellegrino were terminated as Organizers without Executive Committee approval. It is also my understanding that Mike Conroy was terminated from his position as Director of Organizing in December of 2009 without the Executive Committee's approval and appointed to the position of Political Director.

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Concerns have also been raised

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regarding the Council's organizing. In this regard, the UBC recently received correspondence from a member that indicated the Organizing Office of the Council was being shut down and that the position of Organizing Director had been eliminated. Such position has apparently not been refilled. Thus, it appears that there is currently no Director of Organizing in the Council. This could jeopardize the Council's organizing efforts and the fulfillment of its responsibility under the UBC Constitution to organize. Under Section 26-A of the UBC Constitution, it is the continuing obligation of every District and

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Regional Council to organize workers.

Finally, it appears the Council failed to timely conduct elections to fill vacancies in Council officer positions. In December of 2009, the UBC received a letter from two members of Local Unions affiliated with the Council complaining about the Council's failure to conduct nominations and elections to fill four vacant Council officer positions. Based on the letter, four of the eight Council Executive Committee members were appointed pro tem to fill vacancies. However, the positions have been filled on a pro tern basis for about two years without an election being held. The officer positions involved were the positions of Vice President, President and two Trustees.

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Section 32-B of the UBC Constitution permits the EST of the Council to appointment qualified members to fill vacancies in an elective office until such

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time an election can be held to fill a

vacancy. Such pro tern appointments are only


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on a temporary basis, and an election to fill the vacancy officer position should be held in a reasonable period of time, generally within six months of the date the vacancy had occurred. The Council was therefore directed to conduct nominations

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and elections for these officer positions.

A copy of this letter is to be mailed to the members of Local Unions affiliated with the Empire state Regional Council.

The final determination of this matter will be made by the UBC General Executive Board upon the hearing reports and recommendations."

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At this time, I would like to introduce the Hearing Committee. To my left is Bob Yeggy. Bob is the Midwestern District Vice President; Dan Maples to my right is the Southern District Vice President. My name is Michael Draper. I'm the Chairman of this hearing and I am the Vice President for the western District.

We have some other officials in the

room. We have, Vice President Frank Spencer


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is here. We have International

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Representative Jim Gleason, Jerry Alander, Tony Graziano, Tony Mroczkiewica.

Over here we have the Court Reporter to my left, Ann Koza. Welcome, Ann, thank you. Are all the other folks in this room Members of the united Brotherhood? If anyone here is not, please advise by raising your hand

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now.

As the General President's letter

indicated, this is a hearing, not a trial or a prosecution. We are an investigating committee appointed by the General President to make findings and recommendations under Sections 6 D and 10 H of the constitution.

We will do our best to afford ample opportunity to everyone who wishes to testify or submit evidence to this Committee. We need your full corporation to make sure this hearing is conducted in an orderly manner. There will be a few simple rules and procedures that we need to follow.

All those who wish to testify in front of this Committee, please let us know by


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indicating that des Lre by signing your name on the attendance sheet. At present, it is our intention to take testimony only from members of this Council and the Locals affiliated with this Council. Other members

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of the united Brotherhood may attend, but not testify.

Testimony from witnesses will be under oath. All testimony will be recorded by the Court Reporter. Time limits may be imposed at the discretion of the Chair. Each

witness should state his or her name and

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affiliation with the Empire State Regional Council for the record. Please speak clearly and directly so that we can follow the testimony and the Court Reporter can get everything down.

I respectfully ask all those in attendance that we be permitted to conduct a fair and orderly hearing. There will be no cross fire from the floor. witnesses will state in their own manner their testimony for consideration of this Committee. Then the Committee, in its discretion, may have

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questions for the witness. We will keep order and move the hearing along as needed. I repeat, there will be no disruption of the hearing by members of the audience. Each of you will have your proper turn.

The official Court Reporter is capable of taking everything down. There will be one, and only one official record of this hearing. There will be no tape recorders or other recording devices allowed in this

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room.

Our daytime session will go until 11:30 when we will break for lunch. The afternoon session will be from 1:00 to 4:00. We will

be holding an evening session at 6:00 p.m. ending at 8:00. We will run these sessions until everyone who wishes has had an opportunity to testify. The hearing will reconvene tomorrow at 8:30 to 11:30, a

break, and then 1:00 to 4:00 and then 6:00 to 8:00. If no one else at the session wishes to testify or otherwise present their views or evidence, at my discretion I will adjourn the hearing until the next scheduled


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session.

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During the daytime session we will hear from those who are present during the day so that we can reserve the evening for those members who are employed on job sites. We will try to hear all witnesses who have anything to offer in the way of testimony or evidence concerning the matters we have outlined generally in the Hearing Notice that I previously read. This includes testimony that relates to the operations and affairs of this Council as a whole.

The Committee may consider relevant information in the form of documents and

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other exhibits as well.

If it should be necessary, as a result of the testimony, this Committee at its discretion may also ask for documents to be produced from the records of the Council.

If there is a need to, this Committee will go off the record, for example, if we have to confer about something that has come up or clarify a matter. But, as I stated earlier, no cross fire from the floor.


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Whoever the witness is up here speaking, let him or her testify to the Committee, and we will conduct the hearing in a fair and amicable manner, with the mutual respect that we owe one another as members of this

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Union.

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There will be no smoking in the hearing room. Come in, turn your cellphones off or put them on mute, and all other electronic devices.

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So with these simple rules, let's proceed.

Now, as I had indicated in my opening statement, that we will have from time to time questions of witnesses that will come up here. This is very complex and complicated issue. I have talked to the Executive Secretary of the Council this morning.

And, Pat, if you or a designated member has any question of any of these witnesses, you can come up here, as we have the opportunity to talk with them about testimony that they are to give.

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letter. We are not here to prosecute anybody. We are here to gather information so that we can write a report and

So, Pat, are you here in the room somewhere?

1 2 3

MR. MORIN: Yes.

THE CHAIRMAN: You understand what we

4

are saying here, Pat?

5 6

MR. MORIN: Yes.

THE CHAIRMAN: Okay. Thank you very much. Now, because we have such a large number of people, I will tell you right now there is no possible way, based on a lot of testimony that Mike Spencer is going to give, that we are going to hear from the whole list of folks. So I will welcome you back this afternoon and evening session. We will get to as many witnesses as we possibly can. And I want to make one thing explicitly clear, and I will probably have to do it throughout the course of this hearing. This is an investigating committee. We are here to take evidence

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)12

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based on the statements that I read in the


15 witness, being first duly sworn, testified as follows:

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recommendations to the General Executive Board to determine whether this Council should be put under supervision. The other thing that we are not here to do as a Committee is to allocate Pension Annuity or Health Care allocation of assets. So you do not have to try to convince us of where the money should go. You certainly have a right to tell us what you think, but this Committee is not the committee that will

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allocate those assets;

So with that, I will calIon Vice President Spencer for his testimony.

F RAN X

S PEN C E R, called as a

THE CHAIRMAN: Vice President Spencer, will you tell us for the record what your position is with the UBC and where you have responsibility?

THE WITNESS: Thank you, Mr. Chairman.

Members of the Committee, Brothers and Sisters, my name is Frank Spencer. I am employed by the united Brotherhood of Carpenters and Joiners of America as


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Pat, you are welcome to come up here

1

District Vice President for the Eastern District of UBC. The Eastern District includes the State of New York, as well as twelve other states in the District of

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3

4 5 6

Columbia. As a District Vice President, I serve on the General Executive Board of the UBC and I have served as a District Vice

7

President of the UBC and on the General

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Executive Board since January of 2007.

Mr. Chairman, if I may, before I begin my testimony, I would like to introduce into the record a copy of that testimony that I'm about to present along with a number of exhibits that I will reference in my testimony.

THE CHAIRMAN: Thank you. We will take this in. We won't mark it as an exhibit, but let the record show that the testimony that will be given by Vice President Spencer is being handed out.

Do you have an extra copy for this table in case Brother Morin would like to look through it?

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received by the UBC, it appears that the affairs of the Empire state Regional Council are being conducted in such a manner as to

1 2 3 4 5

and sit if you like. You don't have to say anything, but certainly if you want to go through this. Pat is the Executive Secretary of this Regional Council.

THE WITNESS: If you could follow along, Brother Yeggy.

THE CHAIRMAN: Go ahead and proceed. THE WITNESS: Okay. Thank you, Mr.

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Chairman. For the record, Mr. Chairman, the Empire State Regional Council is located in Hawthorne, New York, and is an affiliate of the UBC. The Empire State Regional Council was established in 2001 when the Western New York Regional Council, the Upstate New York Regional Council and the Suburban New York Regional Council were dissolved and merged into the newly formed Empire State Regional Council. There are presently twelve Local Unions affiliated with the Empire State Regional Council.

Based on information that has been


13 14

been considering retiring, but that with the devastating Madoff affair, he and his wife are confused about what to do, indicated

be detrimental to the welfare of the members and the best interests of the united

1 2 3

Brotherhood. For example, the General Office of the UBC has received numerous written complaints regarding the Council. And I have submitted those as copies of these letters as Exhibit 1. The bulk of

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those complaints involve the method of allocation of the Madoff losses with respect to the Council's pension, annuity and health funds. For example, one of these letters stated that due to the Madoff Ponzi scheme, the old Upstate Funds participants are being unfairly assessed and that our annuity and health fund accounts are being decimated. Another member requested that the UBC investigate the unfairness exhibited in the assessment of the Madoff scam by the Empire State Carpenters Funds against the Upstate Funds participants.

Another member indicated that he had

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1

that Local 747 is taking on the full diminishing loss and questioned why the loss cannot be spread out to some degree.

Another member who sought intervention from the UBC complained about the inequitable penalty that has been assessed against me and my fellow Syracuse brethren.

As you may know, the Empire State Carpenters Pension Fund, the Empire Carpenters Annuity Fund and the Empire State Carpenters Welfare Fund experienced significant losses due to the Madoff fraud. Based on information provided by the counsel

for the Empire Funds, the total loss to the Empire Fund as a result of the Madoff losses is estimated to be over $160 million. More specifically, the Empire Pension Fund's loss is estimated at approximately $97 million. The Empire Annuity Fund's loss is estimated at approximately $39.5 million, and the Empire Welfare Fund's loss is estimated at approximately $29.5 million. I am submitting information regarding such losses as Exhibit 2.

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exhibits supporting the testimony of Frank Spencer and it will have exhibits outlined in that 1 through 40. Go ahead and proceed.

Based on information received by the -THE CHAIRMAN: Excuse me.

1 2 3

THE WITNESS: Yes.

THE CHAIRMAN: Now, all of these exhibits that you are referring to are contained in this folder?

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10 11 112

13 14 15

THE WITNESS: They are in there and numbered as we identify them.

THE CHAIRMAN: Excuse me again. For the record, we will mark the exhibit portfolio of Frank Spencer as Exhibit No.1, which includes several exhibits which he is referring to.

THE WITNESS: 1 through 40, Mr.

Chairman.

16 17

THE CHAIRMAN: 1 through 40? THE WITNESS: Correct.

THE CHAIRMAN: And all are contained in

18

this document?

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THE WITNESS: Correct.

THE CHAIRMAN: So Exhibit 1 will be


41

1 2 3

I'm sorry.


Based on information received by the UBC, it appears that-financial irregularities exist in the Council with respect to the Council's pension, annuity and health funds. In this regard, it appears that the Madoff losses have been disproportionately allocated to members who were former participants of the Upstate New York Carpenters Annuity Fund, the Upstate New York Carpenters Pension Fund and the Upstate New York Carpenters Health Fund.

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The Upstate Annuity Fund merged with the Empire Annuity Fund effective July 1st, 2006. And I'm SUbmitting as Exhibit 3 a copy of the merger agreement between the Empire Annuity Fund and the Upstate Annuity Fund.

Section 1.7 of the merger agreement provides, in part, that the assets are to be transferred to the Empire Fund from the Upstate Fund by wire transfer on or before July I, 2006, and they shall be composed of


42

1--- .,

I ~iJtt:N( ~tt:k' - I I k'ttjl '.1 )

1

the investment assets reflected in appropriate reports. I am also submitting a copy of the Form 5500 that was filed for the Upstate Annuity Fund for the plan year ending June 30th, 2006, as Exhibit 4.

Part 1 of the Form 5500 indicates that this report is the final report filed by the Plan.

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Although the Upstate Annuity Fund was merged into the Empire Annuity Fund and dissolved effective July 1st, 2006, and the Empire Annuity Fund had control over the assets of the former upstate Annuity Fund for approximately two and a half years prior to the discovery of the Madoff fraud, it appears that the Madoff losses have primarily been allocated to members who were former Upstate Annuity Fund participants based on the Upstate Annuity Fund's Madoff related investments prior to the merger. In this regard, I am submitting as Exhibit 5 a copy of a document entitled Upstate Madoff Loss Analysis dated January 15th, 2010,

that was provided to the UBC by counsel for

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A.S.E. REPORTING SERVICE (SIB) 458-1091

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1 2 3 4 5 6

the Empire Fund. It is my understanding that this document was prepared for the Empire Funds by its accountant and Fund employees.

Based on this document, it appears that the Board of Trustees of the Empire Annuity Fund approved the loss allocation of 25 percent, 75 percent, with respect to the Empire Annuity Fund losses, with 75 percent of the losses being allocated to former participants of the upstate Annuity Fund and 25 percent of the losses being allocated to other Empire Annuity Fund participants. In this regard, page 8 of this document provides that the Board Approved Loss Allocation was 25/75 with losses in the amount of $29,625,000 being allocated to Upstate and losses in the amount of $9,875,000 being allocated to Other.

This Upstate Madoff Loss Analysis also reflects the traumatic impact the allocation of these losses has had on Upstate members. In this regard, the document indicates that the loss as a percentage of individual

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•


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1----- - .\

I ~JJ"':N( · ... :W - J J J W"';l -r I

1

Upstate Annuity account values as of June 30th, '08, was approximately 50.97 percent. Thus, it appears that former Upstate Annuity Fund participants have had their Annuity accounts reduced for Madoff losses by approximately 51 percent of the value of such accounts as of June 30th, '08.

To illustrate this severe reduction, I am sUbmitting as Exhibit 6 a copy of a letter to a participant in the Upstate area from the Empire Funds dated January 22nd, 2010. This letter discusses the Madoff

2

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losses and includes an annuity account summary that has a line for Madoff loss based on a June 30th, 2008 balance. This account summary reflects that this participant had a balance of $169,567.59 as of June 30th, '08, and that he experienced a reduction in the amount of $86,432.81 for Madoff losses. I am also submitting copies of some other Empire Annuity Fund statements from former Upstate participants that reflect the Madoff losses as Exhibit 7 in your package.

18 19 20 21 22 23

)

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45

1 2 3

Based on information that the UBC has received, it appears that other participants in the Empire Annuity Fund either had a much smaller reduction in the Annuity accounts for the Madoff losses or did not have their annuity accounts reduced for the Madoff losses at all. For example, the UBC received information that reflects that the reduction of Region 1, which would be Long Island, participants for the Madoff losses was only about 4 percent. In this regard, I am submitting as Exhibit 8 copies of e-mails that were sent to the UBC from a member who previously worked in Region 1., One of the e-mails included an e-mail that had been sent to the member from a representative of the Empire Funds that provided, in part, as follows: The Madoff losses allocated to

4

5 6

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10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

participants in Region 1 amounted to approximately 4.06 percent. The Madoff loss was calculated based on participants

June 30, '08 balance.

Similarly, based on information that the UBC has received, the Upstate Pension


46

1 2

Fund was merged into the Empire Pension Fund effective July 1, 2008. I am submitting a copy of the merger agreement for the merger of the Upstate Pension Fund and the Empire Pension Fund as Exhibit 9. A copy of the Form 5500 that was filed for the Upstate Pension Fund for the Plan year ending June 30th, 2008, is being submitted as Exhibit 10. This Form 5500 reflects that it is the final report filed for the Plan and reflects the merger of the Upstate Pension Fund to the Empire Pension Fund.

Despite the fact that the Upstate Pension Fund was merged into the Empire Pension Fund as of July 1, 2008, it appears that action has been taken to drastically reduce the future accrual rate of participants of the Empire Pension Fund from the Upstate area due largely to the Madoff losses, while it appears that other participants of the Empire Pension Fund either have not had their future accrual

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rate cut for the Madoff losses at all or have not had their future benefit accrual


cut in the same manner as the upstate area participants. I am sUbmitting as Exhibit 11 a copy of a document entitled Notice to the Participants and Beneficiaries of the Empire State Carpenters Pension Fund eligible For Benefits Under the Upstate New York Carpenters Plan of Benefits. This notice, which is dated December 1st, 2009, states, in part, as follows: Currently your pension benefits are accrued at 2.0 percent of the contributions your employer is required to make on your behalf, in accordance with your collective bargaining agreement and applicable Fund rules. Effective

January 1st, 2010, you will accrue pension benefits based on 0.4 percent of the contributions your employer is required to make on your behalf on and after January 1st, 2010.

It is my understanding that other participants in the Empire Pension Fund have not had their benefits cut for the Madoff

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losses in this manner.

It appears that participants in the


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Based on information that the UBC has received, it appears that former Upstate participants recently lost approximately

46 percent of their health reimbursement accounts in the Empire Welfare Fund based on the January 1st, 2007, value of such

1

upstate area have also been saddled with a disproportionate of share of the Madoff losses with respect to the Empire Welfare Fund. Based on information that the UBC has

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5

received, the Upstate Health Fund was merged with the Empire Welfare Fund and dissolved effective January 1, 2007. I am submitting a copy of the merger agreement involving the Upstate Health Fund and the Empire Welfare Fund as Exhibit No. 12. A copy of the Form 990 that was filed for the Upstate Health Fund for the calendar year ending

December 31st, 2006, is being submitted as Exhibit No. 13. This Form 990 indicates that it is the final return for the Upstate Health Fund and reflects the merger of the Upstate Health Fund into the Empire Welfare Fund.

6

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10 11

112 13 14 15 16

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accounts, as a result of the allocation Madoff losses. I am submitting as Exhibit 14 a copy of a letter dated January 27, 2010 that was sent to a member from the Upstate area regarding the allocation of Madoff losses.

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This letter states that the

participants' account balance has been adjusted to reflect the Madoff loss as of the effective date of the merger with the Empire State Carpenters Welfare Fund. The letter includes an HRA or WRA account

summary that has a line for Madoff loss based on the 1/1/07 balance, the date of the merger. The statement reflects that the participants' HRA was reduced by $12,286.61 for the Madoff losses and also reflects a reversal of unallocated reserves distributed

7/1/2006 of $4,652.69 that appears to relate to the Madoff losses. Thus, it appears that this participant's HRA was reduced from $39,152.10 to $21,212.80 as a result of the allocation of the Madoff losses.

I am also submitting copies of personal


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account statements, for the Empire Welfare Fund for several former Upstate Health Fund participants as Exhibit 15. These statements reflect similar reductions for

2

3

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the Madoff losses.

The manner in which the Madoff losses

7

for the Empire Welfare Fund have been allocated is perhaps the most disturbing. The document entitled Upstate Madoff Loss Analysis that I have submitted as Exhibit 5

8 9 10 11 )12

contains a section on the allocation of the

Madoff losses of the Empire Welfare Fund.

On page 13, there is a chart entitled Welfare Fund Historical Fund Investments in Madoff Products. In this chart, an investment of $6,461,000 that was made by the Empire Welfare Fund in December of 2008 is allocated solely to the Upstate participants, even though the Upstate Health Fund was merged with the Empire Welfare Fund on July 1st, 2007, and no longer existed at the time that this additional Madoff related

13 14

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investment was made. As a result, it appears that the losses associated with this


51

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$6.4 million investment were borne exclusively by participants in the upstate area, even though the investment was made by the Empire Welfare Fund approximately two years after the merger of the Upstate Health Fund into the Empire Welfare Fund. In addition to resulting in an inequitable allocation of losses, attributing this investment to the Upstate area appears to be fraudulent and, in my view, constitutes financial malpractice.

Based on information received by the UBC, it appears that other participants in the Empire Welfare Fund either did not have their HRA balances reduced for the Madoff

4

5 6

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10 11 12 13 14 15 16 17 18 19 20 21 22 23

losses or experienced a lesser reduction in such accounts. For example, I am submitting as Exhibit 16 a copy of a document entitled Rochester Madoff Loss Analysis dated

January 20th, 2010. It's my understanding that this document was prepared by the Empire Welfare Fund's accountant and the employees of the Empire Funds. This document appears to suggest that Rochester

24


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1

area participants did not experience such a large reduction in their HRA and WRA accounts for the Madoff losses.

2

3 4

The way in which the Madoff losses were allocated also raises legal concerns. For example, the merger agreement for the Upstate Annuity Fund and Empire Annuity Fund that I have entered as Exhibit 3 provides,

in part, that the Empire Fund shall provide and maintain, as a minimum, the benefits of the Upstate Fund participants, including retirees, that exist at the time of the closing date for the merger. In view of the' 51 percent reductions in the annuity accounts of former ,Upstate participants, it appears that some of these participants' annuity accounts may have been reduced below the amount that existed at the time of the

5

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merger.

For example, one of the Annuity Fund statements that I provided as part of Exhibit 7 indicates that a former Upstate participant's balance in the Empire Annuity Fund, as of the date of the merger,


1 2 3

July 1st, 2006, was $43,322.96. with a $29,698.04 reduction for Madoff losses, this participant's balance appears to have been reduced below the amount that existed at the time of the merger.

The method of allocating losses in the Empire Annuity Fund also does not appear to be consistent with the prior method of allocating losses and gains among participants and raises possible fiduciary concerns. For example, the UBC received a copy of a letter dated January 27th, 2010, that was recently sent to the Trustees of the Empire Funds by two members who were former Union Trustees of the Upstate Funds along with a former employer Trustee of the Upstate Funds that provides, in part, as follows: The Empire Funds' decision to modify its common fund approach to allocating investment gains and losses with respect to Upstate evidences a failure on the part of the Trustees of the Empire Funds to act solely in the interest of the participants as a whole. Establishment of

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10 11 12 13 14 15 16 17 18 19 20 21 22 23 24


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discriminatory treatment of a class of participants is inconsistent with the fiduciary duty of the Trustees. I am submitting a copy of this letter as Exhibit 17. I'm also sUbmitting a copy of a letter dated May 14th, 2009, to the Empire Funds from a subcommittee of the Empire Funds as Exhibit 18. And this letter provides, in part, as follows: The approach of treating investment as a whole is well established in the Funds, particularly the Annuity Fund since the 2006 merger of the Upstate Annuity Fund, the investment return for each of the component Funds of Empire has been calculated as a single investment return.

We feel this approach should be continued for the current year for all investment returns, including the Madoff losses. We are concerned that treating one group of participants, i.e. former Upstate participants, differently than other participants would raise serious questions.

with respect to the Annuity and Welfare Funds, the past practice adopted since the

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8 9 10 11

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13 14 15 16 17 18 19 20 21 22 23

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respective merger 'dates as well as prior to the merger of these respective funds, by the Board, of calculating investment gains and losses across the whole Fund should be

2

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continued.

7

It's also my understanding that the losses and gains for th~ Plan year ending June 30, 2008, for the Empire Annuity Fund had already been allocated to participants prior to the allocation of the Madoff losses that occurred in January of 2010. In this regard, the account statements for the Empire Annuity Fund that have been submitted as Exhibit 7 appear to reflect an investment yield that was allocated to participants for the fiscal year ending June 30th; 2008.

The allocation that was made to

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participants' annuity accounts in January of 2010 for the Madoff losses based on the

June 30th, 2008, value of participants' accounts appears to have been an additional allocation for the Plan year ending

June 30th, 2008, that is not provided for in the Empire Annuity Fund's Plan document.

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I am sUbmitting as Exhibit 19 a copy of the plan document for the Empire Annuity Fund. Section 4.1 of the plan document PFovides, in part, that on or about each Valuation Date, the participants' account shall be augmented or diminished by his fair share of the Fund investment results and his fair share of Plan and Fund operating expenses. Prior to January 1, 2010, as reflected in Section 1.21 of the Plan, it appears that the Valuation Date was

June 30th of each calendar year.

Furthermore, as noted above, the plan document for the Empire Annuity Fund provides for a participant's account to be augmented or diminished by his fair share of the Fund investment results and his fair share of Plan and Fund -operating expenses. The method of allocation utilized to

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allocate the Madoff losses does not appear to be in accordance with this provision, as the former Upstate participants appear to have had their annuity accounts reduced by more than their fair share of the Fund

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investment results.

Furthermore I in early March of this yearl it is my understanding that the Empire Annuity Fund Trustees decided to make an annuity fund distribution to Empire Fund participants that had previously been deferred in view of the Madoff lossesl recognizing that such distributions would make it more difficult for the Upstate participants to recover their losses from the improper allocation of the Madoff losses. In this regard I once the money was distributed from the Empire Annuity Fundi such money was no longer available to compensate Upstate participants for their losses.

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I would like to submit as Exhibit 20 a copy of a document entitled Empire State Carpenters Fringe Benefit Funds Preliminary Analysis of the Madoff Investment Losses. This was prepared by the Groom Law Firm that the Empire Funds had retained to address the Madoff losses. Page three of the analysis lists several possible options for dealing


58

with the Madoff losses in the Empire Pension Fund. One of the options that was being considered was to seek to unwind the Upstate Empire merger. The second option, which was obviously not selected by the Trustees, was to spread losses evenly across the merged Empire plan.

The last option, which appears to be the one closest to the method selected by the Trustees, was one that allocates losses disproportionately to upstate participants and employers within the merged Empire Plan. I would like to point out that page eight of the Analysis reflects that there is no clear precedent for this approach.

These financial irregularities with respect to the allocation of Madoff losses have had a devastating impact on members in the Upstate area. The combined effect of cuts in future benefits accruals in the Empire Pension Fund, the 51 percent reductions in the Empire Annuity Fund and the dramatic reductions in HRA accounts and Empire Welfare Fund for participants in the

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Upstate area threatens the welfare of these members.

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The correspondence and other information received by the UBC with respect to Upstate members, which is submitted in Exhibits I, 7 and 14, reflects that some Upstate members may be in danger of losing health insurance coverage as a result of these cuts, that members who were contemplating retirement in this area may no longer be in a position to do so and that Upstate members have been forced to bear a disproportionate share of the burden of the Madoff losses.

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For example, one member from the Upstate area who wrote to the UBC indicated that his Empire Welfare Fund personal account value changed from a surplus of $5,000 to a negative balance and that he had recently received a billing statement for his health insurance premium that indicated a monthly health insurance premium of over $1,060 must be paid or his health insurance will be terminated. This member also


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too, for your kind attention here so we can get through this.

Go ahead and proceed, Vice President Spencer.


Another member, who had recently retired, indicated that he had previously had enough in his HRA to make it to Medicare. However, after the allocation for the Madoff losses, he now has approximately $15,000 left, just enough to make two years of premium payments.

Another letter that the UBC received states, in part, as follows: The Madoff hit

1

indicated that his' annuity account had been backcharged $10,000 leaving a negative balance. Excuse me, Mr. Chairman.

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THE CHAIRMAN: Frank, why don't you hold it right there for just a second. I have to step out to the rest room. I will be back in just about two minutes. Off the record.

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(Recess. )

THE CHAIRMAN: I want to thank you all,

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to the former upst.at.e New York Carpenters and Millwrights has been devastating. These members have lost everything, their future, their hopes for a bright and peaceful retirement and security for an affordable health plan.

Correspondence that was sent to upstate participants from the Empire Funds in

January of 2010 notifying them of the Madoff __ ,'~ losses provide, in part, that while the

impact of the Madoff fraud ca~not be

minimized, please be assured that the Board

of Trustees is continuing to actively pursue legal action. I have submitted as Exhibit 6

a copy of one of the letters that was sent. Contrary to this statement, it would appear that the impact of the Madoff fraud could

have been minimized for Upstate area participants if the Empire Funds had spread

the losses on an equitable basis among all participants in the Funds, as such Funds had done in the past, rather than requiring that the Upstate participants bear the lion's

share of the burden.


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1
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7
B
9
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\12
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21
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.'.
24 Indeed, based on the information that was received by the UBC, it appears that the market losses of the Empire Annuity Fund for the fiscal year ending June 30th, 2009,

were allocated amongst all participants in the Empire Annuity Fund. More specifically, based on the information received, it appears that all participants in the Empire Annuity Fund had their accounts reduced by approximately 10.85 percent for market losses for the fiscal year ending June 30th, 2009. This reduction is reflected in information that was submitted as Exhibit 8. Thus, it appears that the allocation of the Madoff losses in the manner approved by the Empire Fund was unwarranted and inconsistent with past as well as the most recent method of allocation of gains and losses in the Empire Annuity Fund.

As most of you know, the Empire Funds are funded by contributions made by signatory employers pursuant to the terms of the collective bargaining 'agreements. Attached as Exhibit 21 are copies of two


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collective bargaining agreements within the Council's jurisdiction that provide for contributions to the Empire Funds. Members throughout the Council working under collective bargaining agreements that require contributions to the Empire Funds on their behalf participate in the Empire Funds.

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The council, as the collective bargaining representative, has authority to appoint the Union Trustees on the Empire Funds. This authority is exercised by the Executive Secretary-Treasurer of the Council. The same Trustees serve on the

Empire Annuity Fund, the Empire Pension Fund and the Empire Welfare Fund. I am submitting as Exhibit 22 an e-mail from legal counsel to the Empire Fund that lists the current Trustees of the Empire Funds. While the UBC has been unable to obtain a copy of the minutes from the meetings at which the decisions regarding the allocation of the Madoff losses were made, it is my understanding that the decision to allocate


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17

Moreover, the minutes from the December 18th, 2008, Board of Trustees meeting indicate that the investment

1 2

Madoff losses primarily to participants in the Upstate area may have been supported by most, if not all, of the Council appointed Union Trustees of the Empire Funds.

Furthermore, the minutes from a December 18th, 2008, Board of Trustees meeting of the Empire Funds that occurred shortly after the Madoff fraud was discovered indicate that the EST of the

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5

6

7

8 9 10 11 12 13 14 15 16

Council, who was also a Trustee of the Empire Funds, stated, in part, that the Trustees should be considering aborting the Upstate New York Carpenters merger with the Empire Pension Fund. This is disturbing, as it appears that the EST of the Council, who was also a Union Trustee, was advocating the breach of the merger agreement between the upstate Pension Fund and the Empire Pension Fund, a legally binding document. I am sUbmitting a copy of these minutes as Exhibit 23.

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consultant for the' Empire Funds commented that Jeannerette, in his opinion, was not diversified enough in its investment products. This would appear to suggest that the Empire Funds' Jeanneret investments may have not been adequately diversified, and raises issues regarding whether the Empire Funds should have taken action to further diversify their assets to reduce the likelihood of large losses. I note that letters sent to former Upstate participants by the Empire Funds in January of 2010, a sample of which I have submitted as Exhibit 6 and 14, indicate that the assets of the Empire Annuity Fund and the Empire Welfare Fund that were invested through J.P. Jeanneret had significant exposure to the Madoff scheme.

Instead of taking steps to further diversify its assets and reduce the amount of Madoff related investments, it is my understanding that the Empire Welfare Fund actually made another investment in a Madoff related investment after the merger with the

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not filled until February 1st, 2010. In this regard I'm submitting as Exhibit 26 a copy of a letter from Patrick Morin that reflects that Andrew Miller was appointed as a Trustee to the Empire Funds effective February I, 2010.

The failure to appoint a union Trustee from the Upstate area is even more problematic, as the Merger Agreements involving the Upstate and Empire Funds

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provide for the appointment of a Union
Trustee from the upstate area and for the
Trustee to play an important role with
respect to the Empire Funds. For example,
Section 4.6 of the Merger Agreement for the
Upstate and Empire Funds, which I have 13 14 15 16 17 18 19 20 21 22 23 24

submitted as Exhibit 9, provides, in part, that one Union Trustee on the Board of Trustees of the Empire Fund will be appointed which is both from the areas of Region 3 and a participant in the Upstate Fund. Section 4.6 of the Merger Agreement also indicates that the Union Trustee from

the Upstate area and the Employer Trustee


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allocated.

Based on information that the UBC has

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from Region 3, which includes the Upstate area, shall be authorized to, among other things, meet with the investment subcommittee of the Empire Fund and their consultant to review and make recommendations to the Empire Trustees on such matters as investment performance, asset allocation and asset valuation with

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respect to assets transferred pursuant to the Merger Agreement, the level of accrual rate for both past service and future service of the former upstate participants and such other matters as may affect former Upstate participants. The failure to appoint a union Trustee from the Upstate area to fill the vacant Union Trustee

position for a period of roughly six months appears to have resulted in no input being provided by a Union Trustee from the Upstate area when important financial decisions were being considered and decided, including the manner in which the Madoff losses were to be

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receivedl it also appears that some Council appointed union Trustees supported efforts to exclude Union Trustees from the Upstate area on the Empire Funds from meetings of the Board of Trustees when the Madoff losses

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were being discussed. For example 1 at a Board of Trustees meeting of the Empire Fund held on February 24thl 20091 it's my understanding that a motion was made, seconded and passed with support of some of the Council appointed Union Trustees to not permit Charles Rinoldo, who was the Union Trustee from the Upstate area, to remain in the room while the Madoff losses were being discussed. I am submitting a copy of the minutes from the February 24th, 2009 Board of Trustees meeting as Exhibit 27. These minutes contain a blacked-out section that relates to the fund mergers and indicate that Trustees Rinoldo and Martin rejoined the meeting after such issues were discussed. It is also my understanding that these Trustees were removed from other

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meetings of the Board of Trustees when


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Madoff losses were being discussed.

It also appears that Mr. Rinoldo's removal from his position as union Trustee on the Empire Funds may have been improper. In this regard, it is my understanding that the stated reason for Mr. Rinoldo no longer being permitted to serve as a Union Trustee on the Empire Funds was that he was retired as an employee of the Union. However, there is nothing in the Council Bylaws on the Trust Agreements for the Funds that provides that a retired uniE:>n employee is not eligible to serve as a Trustee on the Empire Funds. I submit as Exhibit 28 copies of the Trust Agreements for the Empire Funds.

There is also nothing in the UBC constitution that would prohibit a retired member from serving as a Trustee of the Empire Funds.

It also appears that members of the Upstate area have been treated unfavorably with respect to the allocation of contributions under the collective bargaining agreements.

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Mr. Chairman, I submit Exhibit 29, a copy of Building Wage Sheets for Carpenters Local 747 that reflect allocations of Empire Annuity Fund contributions to the Empire Pension and Health Funds.

For example, the Building Wage Sheet for Local 747 that is effective February 1, 2010 through May 31st, 2010, indicates

that the Empire Annuity Fund contribution for members in Onondaga County was decreased from $2.74 per hour to $.41 per hour, with the amount of the reduction being reallocated to the Empire Welfare Fund and the Empire Pension Fund. It is my understanding that members in other areas have not had their annuity contributions reallocated in such a manner.

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The reduction in the Annuity Fund allocation for the Upstate members, when combined with the reduced rate of accrual in the Empire Pension Fund and the drastic cuts in the HRA accounts in the Empire Welfare Fund, threatens the welfare and future financial well being of these members.


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Indeed, based on information that the UBC has received, it appears that action has been taken both at the Council Fund level and through the collective bargaining process to ensure that the Madoff losses of the Empire Funds are not distributed evenly, but rather are hoisted upon the backs of working and retired members in the upstate area. This is a crushing blow to the members in the upstate area.

Mr. Chairman, it also appears that this crushing blow was deliberate and that the method of allocation was intended to make members in the Upstate area suffer so that other members within the Council would be

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largely unaffected by the Empire Funds' Madoff losses. I am submitting as Exhibit 30 a letter to Retirees Club No. 113 Members from the Executive Board of Retirees Club No. 113 dated March 18th, 2010, that the

UBC recently received a copy of. I believe that this letter sheds some light on what was intended with the allocation of the

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Madoff losses.


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Director, 28 of his Trustees, accountants, consultants and lawyers determined a course of action that would help the Upstate Locals, but not overburden the surrounding locals, spreading the problem statewide. A quarantine with the intent to build them back over time is the objective. We agree with this strategy.

Thus, while the mergers may not have been formally undone, it appears that

-. The letter indicates that the EST of

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the Council spoke with retiree club members on March 17th in Hauppauge -- just missed

the accent

regarding General President

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McCarron's letter that was sent to members

regarding this supervision hearing. This letter from the Executive Board of Retirees Club 113, when discussing the Madoff losses, states, in part, as follows: The Upstate Locals wounds up in the same position they would have been in if their funds had not been merged with the Regional Council a few years before. Pat Morin, with the assistance of Dave Stewart CEBS Funds

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efforts were taken to ensure the former

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Upstate participants did not reap the benefits of the merger. Indeed, it appears that such members were to be quarantined so that other members throughout the Council would not be strongly impacted by the Madoff losses. I find the approach of quarantining members in the Upstate area to be reprehensible and contrary to the object of the Brotherhood, as set forth in section 2 of the UBC Constitution in part to elevate the social conditions of all of our members.

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Based on correspondence that the UBC has received, it also appears that the actions taken with respect to the allocation of Madoff losses may have a negative impact on union work in the Upstate area and jeopardize future work opportunities in the Upstate area. In this regard, the UBC has received numerous letters from union

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contractors in the Upstate area expressing concern about the impact of the allocation of the Madoff losses on union work in the Upstate area. I submit Exhibit 31 as copies


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of letters that the UBC has received from contractors in the Upstate area regarding the allocation of Madoff losses and impact on union work in that area.

One such letter from a union contractor

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without some assistance, Local Union 747 and the Union work within the geographical jurisdiction will surely die. A letter from another contractor in the Upstate area indicated that union contractors are

hesitant to participate in bidding due to a concern of a major reduction in the workforce. Thus, it appears that the action taken with respect -- excuse me -- it appears that the action taken with respect


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to the Madoff losses by the Council, as well as by the Council's Funds with support of Union appointed Trustees, may have a negative impact on union work in the Upstate area and undermine efforts to expand union work opportunities and membership in this

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area.

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I am also troubled by what appears to be a lack of communication on the part of the Council with respect to the handling of the Madoff losses. For example, in a recent letter to the UBC, a member from the Upstate area complained that he received a letter over a year ago from Local 747, but that no other details or specifics were made known until January 22nd, 2010, when it was announced that his annuity accounts would be backcharged 51 percent of their value. I am submitting a copy of this member's letter as Exhibit 32.

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In addition to a lack of communication to members regarding the Madoff losses, it appears the Council has not kept union contractors in the area adequately informed

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about such matters'. For example/ the UBC received a copy of a memorandum dated January 7th/ 2010/ from the Director of

the Mohawk Valley Construction Employers' Association to contractors signatory to the Carpenters Local 747 agreement/ which I submitted as Exhibit 33/ and that provides/ in part, as follows: We have also been hearing/ as you probably have/ that members of Local 747 are not happy with what's going on within Local 747 and the Empire State Carpenters as a whole. The men reportedly are in an uproar over proposed benefit cuts and lack of any communication or answers from the leadership of the Empire State Council. Just as the men are in the dark/ so are we. No one seems to be in a position to explain exactly what is happening with the funds, benefit cuts/ etc.

Moreover, it is my understanding that the EST of the Council and attorney for the Empire Funds agreed to provide to the UBC certain requested information regarding the allocation of Madoff losses and other

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A.S.E. REPORTING SERVICE (5t8) 458-1091

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matters pertaining to the Council's Funds. While some of the information has been provided, I've been advised that much of the requested information has not yet been furnished. For example, among other things, it is my understanding that the EST and/or the attorney for the Council's Funds agreed to provide Council for the UBC with certain requested information pertaining to the due diligence with respect to the upstate and Empire Fund mergers, Madoff related investments of the Empire Funds, the past method of allocation of gains and losses among the Empire Annuity Fund participants and the allocation of Madoff losses among different areas within the Council, but that all of the requested information has not yet been provided.

I am submitting as Exhibit 34 a transcript of, a telephone conference involving the EST, another Union Trustee of the Empire Funds, counsel for the Empire Funds and counsel for the UBC that was recorded by the Council. This reflects some

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of the information that the EST of the Council and/or legal counsel for the Empire Funds indicated that they would provide, but to my knowledge have not yet done so.

The UBC also recently received correspondence from a law firm that included correspondence from Construction Trades Employers, Inc. of South Central New York that raised a number of concerns pertaining to {the operation of the Empire Funds. One of the concerns raised in the correspondence is the failure of Funds legal counsel and officers to respond to legal and executive written requests for information vital to the Funds conforming to the law and statutes. I am sUbmitting as Exhibit 35 a copy of that correspondence.

The UBC has also been informed that the Council has not complied with the Bylaws provisions with respect to the termination of certain Organizers and staff. Section 8A of the Council Bylaws, which I have submitted as Exhibit 25, provides, in part, as follows: The Executive

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secretary-Treasurer shall have the authority to hire, suspend, promote or terminate Council representatives and organizers, including Director of Organizing and Assistant Directors of Organizing, subject to the approval of the Executive Committee of the Council.

The UBC has received information

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indicating that certain organizers and staff have been terminated by the EST of the Council without the approval of the Executive Committee of the Council as

required by the Council's Bylaws.

For example, the UBC has been advised that Michael Dye was terminated as an Assistant Organizing Director and that Chris Stone and Rosario pellegrino were terminated as Organizers without Executive Committee approval. It's also my understanding that Mike Conroy was terminated from his position of Organizing Director in 2009 without Executive Committee approval.

The UBC also received correspondence that raises concerns regarding the Council's

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The Organizing Director plays a key role in the Council's organizing efforts. It is my understanding that the position of Organizing Director for the Council has not yet been refilled. This could jeopardize

1 2 3

organizing. I am sUbmitting as Exhibit 36 a copy of a letter from the former Organizing Director of the Council to the EST of the Council that the UBC was copied on. This letter provides, in part, that "On

December 22nd, 2009, you informed me you were shutting down the Organizing Office eliminating the position of Organizing Director and slashing my salary. " Thus, based on this letter, it appears that the Organizing Office of the Council was being shut down and the position of Organizing Director eliminated.

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Under section 26-A of the UBC

Constitution, which states in part, "It is the continuing obligation of every District and Regional Council to organize workers." I am submitting as Exhibit 37 a copy of the current UBC constitution.


(SjJH:N( "H;W - ULW H:l _ _tl)

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the Council's organizing efforts and the fulfillment of its obligations under the UBC Constitution to organize workers.

The UBC also received a complaint in December of 2009 from two members of Local Unions affiliated with the Council regarding the Council's failure to conduct elections

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10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

with respect to certain vacant Council officer positions that had been filled by pro tern appointment. I am submitting as Exhibit 38 a copy of this letter. In this letter, these members indicated they were writing to appeal, and I quote, The unjustified and improper failure and refusal of the Regional Council to schedule and conduct elections to fill four Council

Executive Committee positions that were filled by pro tern appointments approximately two years ago, end quote. The positions involved President, Vice President and two Trustees to the Council.

Section 32-B of the UBC Constitution, a copy of which is submitted as Exhibit 37, provides, in part, as follows: When a


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order a supervision hearing into the affairs

1 2 3

vacancy occurs in any elected office of a Council, the Executive Secretary-Treasurer of the Council may appoint a qualified member to fill the vacancy pro tern until such time as an election is held to fill the vacancy. While Section 32-B of the UBC Constitution permits the EST of the Council to appoint a qualified member to fill a vacancy in an elective office of a Council, such pro tern appointment is on a temporary basis only and an election to fill the vacancy should be held within a reasonable period of time, generally within six months from the date the vacancy occurred. By letter dated January 28th, 2010, the

General President directed that the Council

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conduct an election for these officer

positions. I am submitting as Exhibit 39 a copy of the General President's letter to the EST of the Council directing that nominations and elections be held.

After reviewing this matter, the General President of the UBC decided to


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of the Council, and pursuant to his authority under the UBC Constitution, to determine if supervision should be imposed by the united Brotherhood over the Council. Enclosed as Exhibit 40 is a copy of the General President's letter dated

March 10th, 2010 regarding today's supervision hearing.

Members of the Committee, after reviewing the complaints from members and the information that has been received by the UBC regarding this matter, I believe that supervision is necessary to protect the rights and interests of members, to correct financial irregularities and to assure the responsibility of the Council as the bargaining agent and to restore the proper functioning of the Council.

Mr. Chairman, that concludes my testimony.

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21 BY THE CHAIRMAN

Q

Thank you, Brother Spencer. Obviously we

23 have a lot of exhibits that you have referred to, 1

24 through Exhibit 40, and at the appropriate time we are


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1 going to review all of these exhibits prior to making 2 a recommendation to the General Executive Board.

3 I have, for clarification -- I think I understand 4 everything that you have talked about here with regard 5 to dates, times and places, but just for putting

6 things, I guess, into perspective as it relates to the 7 Funds mergers, first I would ask you a question, is it 8 your understanding that the Pension Fund, the Annuity 9 Fund, and the Health Care Fund mergers were all

10 consummated well prior to the discovery of the Madoff 11 fraudulent losses; is that correct?

A

It's my understanding, Mr. Chairman. And as and I can identify them for you. But the

13 you

14 exhibits will show that the 5500s and 990s closing out 15 the Upstate Funds all list them as final report, Fund 16 closed.

Q

That was -- again, I have not had an

18 opportunity to review the documents which consummated 19 these mergers. But could you in general terms tell 20 me -- I'm very familiar with mergers, health care

21 funds, annuity funds, pension funds. I've been

22 working full time for this organization for 41 years. 23 I have always been a Trustee, Secretary, chairman of 24 many trusts throughout this Brotherhood, and I


89

1 understand mergers. But is it your understanding that 2 the documents that you have submitted with us

3 basically outline that once the trust is merged, the 4 assets and liabilities of that trust would be the

5 property of the combined trust, any gains or losses 6 would be shared equally, would that be your

7 understanding?

A

That was my understanding, Mr. Chairman,

8

9 yes. 10

Q

I see that there has been a tremendous

11 disproportionate Fund allocation made to the Upstate 12 old participants before the merged plan. I guess you 13 would call it the Upstate Funds. There has been a

14 disproportionate allocation of those losses attributed 15 to the Upstate participants; is that correct?

16 17

A

It is.

Q

Now, it is my understanding using, I think

18 it would be the Annuity Fund as an example, and I may 19 be wrong, but my recollection of this document

20 submitted was that the disproportionate allocation on 21 the Annuity Fund for the Upstate participants amounted 22 to approximately 51 percent; is that correct?

23

A

That is correct.

24

Q

Have you had a chance to make a


5

Q

Okay. Thank you for that thought. One of

1 determination in some formal· way of what the losses 2 would have been had it been spread over the entire 3 Fund as it should have been probably as a result of 4 the merger?

A

I have not, Mr. Chairman. We don't have all

6 the information to analyze that.

7

8 the other -- again, there may be a lot of things that 9 are problematic. I'm just trying to envision in my 10 mind some of these things.

11 Once the Funds had merged, and there are various

)12 dates, all prior to the Madoff losses, or the

13 involved -- you know, once they had become pUblic.

14 There were like three different effective dates of the 15 merger, the Pension Fund, Annuity Fund and Health Care 16 Fund. Once those mergers were consummated, it's my

17 understanding that the new Fund, the merged Fund,

18 which was all encompassing, that decisions for asset 19 allocation, asset investments, were made by a group of 20 Trustees representing the trust in its entirety; is

21 that correct?

22 23

A

It's my understanding, yes.

Now, again, what is troubling to me, and

Q

24 there may be an explanation, that in December of '08,


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1 which was just days before the exposure of the Madoff 2 fraud, Trustees of this combined trust, not the

3 Upstate Fund, made an investment of $6,461,000 to a

4 fund which was entirely invested in Madoff script; is 5 that correct?

6

A

Correct.

So that entire amount, then, after the

7

Q

8 Madoff fraud was discovered, the penalty for that

9 investment, which was made by the merged Trustees, was 10 allocated solely to the participants in the Upstate

11 area; is that correct?

A

That's the way it appears, Mr. Chairman. Now, you don't know how they come to that

12 13

Q

14 conclusion and why they come to that conclusion?

15 16

A Q

I find it very troubling as well.

Well, there might be some other questions

17 that I have later on. Hold on just one second. Now, 18 there was another, as I understand it, allocation of 19 losses. There is no question in anybody's mind, not 20 withstanding Madoff losses, that there had been a

21 downturn in the economy in a couple of years, 2008

22 part of 2007. Now, based on what I was reading here, 23 there was a June 2008 allocation made because of stock 24 market losses, which probably included some Madoff


92

1 losses, but the frauds were not detected then. It 2 was, I guess, paper losses. And it is my

3 understanding that the Trustees treated the trust as

4 one trust and made uniform allocations to every member 5 of the trust both Upstate and Downstate, and I can't

6 remember the number, but it was like 10 percent; is

7 that correct?

A

Ten and change, yes.

Okay. So at that period of time in June '08

8 9

Q

10 we were treating this as a merged trust as it should 11 have been?

)12

A

That's how it appears, Mr. Chairman. And then after the Madoff losses were

13

Q

14 discovered, they went back to that date and then

15 reallocated the disproportionate amount to the Upstate 16 folks; is that correct?

17 18

A

Precisely.

Well, Brother Frank, there may be some

Q

19 questions that I have, and you have given us a lot of 20 information, you know, we may have to call you back. 21 I'm going to ask my brethren here if they have any

22 questions. Bob?

23

MR. YEGGY: You know, not yet. I'm still digesting -- I'm concerned about some

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1 of the lack of Trustee replacements, stuff
2 like that.
3 BY MR. YEGGY
4 Q Mr. Rinoldo was removed as a Trustee . June
ln
5 of '09j correct? 6 A Yes. It's in the exhibits, . the minutes .
ln
7 Q And he was from the Upstate area?
8 A Correct.
9 Q And he was removed because he had retired as
10 an agent? 11 12

A

That's what the documents reflect, yes. And this Miller guy was appointed in

Q

13 February of 2010?

14 15 16 17

18 like

A

Right.

So is he from Upstate? I believe so.

So the allocations were being done in

I'm not sure when the allocations were done.

Q

A

Q

19 The reallocation was done through the Madoff losses? 20 A It appears like they used the closure date 21 of June 30th, but ...

22

Q

And that was done before there was an

23 Upstate trustee?

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A

It appears that some of it transpired pre


2

Q

Regardless, the Upstate Trustee was not part

1 and continued on.

3 of that discussion?
4 A Correct.
5 Q And there were a lot of Trusteesj right?
6 A It certainly appears. so by the minutes.
7 BY MR. MAPLES
8 Q My only question, Mr. Spencer is, I think
9 you indicated in your testimony that prior to the 10 merger, due diligence was conducted in a proper manner 11 primarily as --

12 13

AUDIENCE: Can't hear back here.

I think you indicated that prior to the

Q

14 mergers of the Funds, that the Empire Fund took the 15 lead in conducting due diligence regarding the

16 investments of each of the Funds and nothing indicated 17 that there was any reason not to go forward with the 18 merger?

19

That's what was indicated in the documents

A

20 and by counsel for the Empire Fund.

21 BY THE CHAIRMAN

22

One more question and then we will go on

Q

23 with regard --to the alleged impropriety regarding the 24 Executive Committee approving termination, layoffs and


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1 discharges of certain individuals primarily in 2 Organizing, maybe Organizing Director, am I to

3 understand that the Council Bylaws, which were made as 4 part of this exhibit, that at no time did 'the

5 Executive Secretary, which is the Executive Officer of 6 this Council, go to the Executive Board and vote on

7 whether or not to sustain or to approve those layoffs 8 or terminations?

9

A

That's my understanding, Mr. Chairman. We

10 couldn't find any minutes or anyone to suggest that it 11 was otherwise.

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THE CHAIRMAN: Pat, did you have any questions at this time?

MR. MORIN: Mr. Chairman, I have one clarification.

16 BY MR. MORIN

17 Q On page 28 of your testimony?
18 A Of my testimony?
19 Q Yes. Speaking to the point that Trustees
20 were asked to leave the room. Was the UBC ever
21 provided with a complete list of Trustees that were
22 asked to leave the room? And if so, who were they? A

I don't know that we were. And through the

24 Chair I would say that there are several things that A.S.E. REPORTING SERVICE

(518) 458-1091

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1 we asked for that we were not supplied with. So that 2 may be among the missing documents.

3 BY THE CHAIRMAN

Q

So your testimony is you don't know? At this point.

You know that these two alleged that they

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A

Q

7 were asked to leave the room?

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A

Correct.

Q

There may have been more Trustees that were

10 asked to leave the room and left the room; is that

11 correct?

12

A

Correct .-.

13 BY MR. MORIN

Q

I believe in the transcript of the

15 conference call that you referred to it was asked and 16 answered in that transcript?

THE CHAIRMAN: I don't know.

MR. MORIN: I understand. I just want to point out the fact that there were more than two Trustees that were asked to leave that room.

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THE CHAIRMAN: Could we turn our cellphones off, please?

Frank, at this time I'm going to

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14 witness I being first duly sworn I testified as follows:

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dismiss you. We may have to call you back. You're going to be here during the course of the hearings?

THE WITNESS: Absolutely.

THE CHAIRMAN: I mean there's a lot of

4 5

stuff here that we have to go through. I thank you very much for your testimony.

THE WITNESS: Thank you I gentlemen. (Witness excused.)

THE CHAIRMAN: The Chairman calls Jack

Simmons. Jackl do you want to come up and get sworn inl please.

J A C K

S I M M 0 N S, called as a

THE CHAIRMAN: I'm in receipt of testimony of Jack Simmons. I'll mark this as Exhibit No. 2. Jackl for the recordl could you state your position with the Brotherhood?

THE WITNESS: Yesl I willI

Mr. Chairman. First of alII I want to say good morning and thank you for the opportunity to provide testimony.

My name is Jack Simmons and I have been


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a member of the Brotherhood for over 40

years. I was initiated into membership in Local Union 747 on September 16th, 1968, and I have remained a member of Local Union

2 3 4 5 6

747 since that time.

Over the years I have held numerous positions within the Union. For example, with respect to the Empire State Regional Council, I served as a Trustee of the Council until December 31st, 2007. I also served as a Trustee of the Empire Funds from July 1st, 2006 until early January of 2008. During the period from January of 2004 to December 31st of 2007, I held the position of Fund Director for the Empire Funds.

I want to go on record stating that I vehemently disagree with the methodology that was used to assess the Madoff losses in all three of the Empire Funds, namely the Welfare, the Pension and the Annuity Funds. It was totally biassed and unfair.

But today I have three specific matters that I would like to address. First, I want to testify regarding information that I have

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received pertaining to a $6.4 million investment that was made by the Empire Welfare Fund in December of 2008 and later

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24 assessed against the former Upstate participants. Second, I want to discuss the Empire Annuity Fund's past method of allocating investment gains and losses. And third, I want to briefly comment on some concerns that contractors in the Upstate area bave shared with me regarding the impact of allocation of the Madoff losses on union work in the Upstate area.

As you may know, the Upstate Health Fund was merged into the Empire Welfare Fund as of January 1st, 2007. It is my understanding that the Empire Welfare Fund made an investment of approximately

$6.4 million in a Madoff related investment in December of 2008 before the discovery of the Madoff fraud. This investment was made almost two years after the Upstate Health Fund's merger with the Empire Welfare Fund.

I first became aware of this $6.4 million investment in December of 2008. In


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particular, in December of 2008 after the Madoff Ponzi scheme was discovered, I recall Chuck Rinoldo, who was a Trustee on the Empire Funds at that time, informing me that the Empire Welfare Fund had just invested approximately $6.4 million in a Madoff investment.

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On or about January 28th, 2010, I had a conversation with Dave Haines, who is the

President of the Empire State council.and a union Trustee on the Empire Funds regarding the Madoft losses. During this conversation, Dave indicated that he did not agree with the $6.4 million being assessed against the former Upstate Health Fund participants.

Based on my conversations with Dave Haines, it is my understanding that the $6.4 million investment that was made by the Empire Welfare Fund in December of 2008 was going to be used as a negotiation tactic. More specifically, Dave indicated that Patrick Morin, EST of the Empire Council, a Union Trustee on the Empire Funds, the


101

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Assistant Fund Dir~ctor and the Union

Trustee that holds both the offices of

4

secretary and Treasurer on the Board of Trustees of the Empire Funds, expected that the $6.4 million would be questioned

during a meeting that he and representatives of the Empire Funds held with former Upstate Fund participants on January 15th, 2010,

in Syracuse, New York. According to Dave, in an effort to show good faith on the part of the Empire Funds, EST Morin would agree not to include that $6.4 million in the calculations when he allocated the losses

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10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

and decreased the Welfare Personal accounts

of the former Upstate Participants.

I was unable to attend that meeting held on January 15, 2010. I have been informed, however, that the meeting was attended by EST Morin, representatives from the Empire Funds, participants of the former Upstate Funds and Council representatives from the Upstate area. Based on my telephone conversation with Dave Haines, it is my understanding that the $6.4 million


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got the same response. At a later date Tom

1 2 3

investment of the Empire Welfare Fund was never brought up during that meeting.

Furthermore, during our telephone conversation that occurred on or about January 28th, 2010, Dave Haines told me that he discussed the $6.4 million investment issue with EST Morin after the January 15th, 2010 meeting. As I recall, Dave indicated that he advised EST Morin

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after that meeting that he felt that the $6.4 million should not be assessed against the former Upstate participants. Dave told me that EST Morin responded by saying that they, meaning the former Upstate participants, had their chance and did not raise the issue, so he planned to assess that amount in addition to the Madoff assets that existed on the date of the merger against all of the former Upstate participants. During this conversation, Dave Haines also informed me that Tom Burke, who is a Union Trustee on the Empire Funds, raised the same issues with EST Morin and

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103

( 'sT'MM1NS - u, ~ M_:( _,I)

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Burke advised me of the same.

I find the EST's deceitful conduct with respect to the allocation of the $6.4 million investment to be very disturbing. This was not an innocent mistake. Instead, it appears that the EST of the Council supported the fraudulent allocation of the $6.4 million investment to former Upstate participants and took advantage of the participants' lack of knowledge when they failed to object to this allocation. Such conduct shows a complete disregard for the welfare of members in the Upstate New York

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area.

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Now, with respect to the Empire Annuity Fund allocations, the method of allocation of the Madoff losses deviates from the

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manner in which gains and losses had been allocated previously among participants in the Empire Annuity Fund. At the time I was Director of Empire Funds, and previous to that time, the gains and losses were shared equally among all the participants of the Empire Annuity Fund who were not self


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annually.

This was also true after the merger of the Upstate Annuity Fund with the Empire Annuity Fund. The effective date of the merger of these two annuity funds was July 1st, 2006. For the first plan year following this merger ending June 30th, 2007, the gains and losses from all of the Empire Annuity Fund investments were shared equally among all participants in the Empire Annuity Fund who were not self directed.

The gains and losses were allocated in the same manner to the next Plan year ending June 30th, 2008, when I was no longer the Fund director, nor a Union Trustee on the Empire Funds.

I am aware that there may be members from Long Island, Westchester, Hudson Valley and other areas that may testify today that they do not want the Madoff losses of the Empire Annuity Fund allocated equally among participants, as this would result in their

directed. In this regard, each participant was credited with the same interest income

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