FBI agents finish loading materials into a truck from the house of United Auto Workers President Gary Jones on Wednesday, Aug. 28, 2019.
Michael Wayland / CNBC
DETROIT — The New Year’s Eve celebration ringing in 2017 was a particularly decadent one for at least one top leader of the United Auto Workers union.
The official was supposedly in Palm Springs, California early for the UAW’s five-day yearly convention in January along with the festivities that night started with a $6,599. 87 dinner at LG Prime Steak House that included $1,942 in liquor, $1,440 in wine and four bottles of Louis Roederer Cristal Champagne for $1,760. The wait staff was rewarded; the suggestion was $1,100.
A $2,000 purchase in the Indian Canyons golf pro shop earlier that day paid for an range of polo shirts, shoes, coats, hats and “Men’s Fashion Shorts.”
The shopping, wining and dining has been expensed to the UAW’s Region 5 Conference which was more than week off.
That New Year’s Eve was merely one of several self-indulgent outings allegedly enjoyed by UAW leaders on the union’s dime as laid out by federal prosecutors in court documents this week.
The arrest and charges against a UAW board member Thursday accuse union officials of dwelling luxurious lifestyles which included high-end spirits, personal California villas, lavish dinners and golf outings — all paid for with money intended for or collected largely in the blue-collar union employees at Ford, General Motors and Fiat Chrysler they were supposed to signify.
That is the film Andrew Donohue, special agent with the U.S. Department of Labor’s investigations division, painted as a member of a criminal complaint unsealed with the arrest of UAW Region 5 Director Vance Pearson, a member of the union’s highest governing board that also oversaw its operations in the Western and Southwestern U.S.
Donohue’s affidavit also implicates UAW President Gary Jones and former UAW President Dennis Williams, whose houses were raided along with Pearson’s by FBI, IRS and Department of Labor representatives two weeks ago. Pearson, who joined the UAW in 1981, triumphed Jones as director of UAW Region 5.
Neither Jones nor Williams have been charged with any wrongdoing.
The new charges and implication of Jones, as first reported Thursday night by The Detroit News, raise substantial questions about the union’s credibility as it functions to signal new labour contracts on behalf of 158,000 members prior to the current agreements expire just before midnight Saturday.
Pearson, 58, of St. Charles, Missouri, has been charged with embezzling union funds, money laundering, aiding and abetting, conspiracy, mail and wire fraud and filing and maintaining false marriage reports to the authorities.
Donohue, at the criticism, accuses Pearson of conspiring with other union officials to embezzle hundreds of thousands of dollars in union money “for their own personal benefit along with other crimes.”
The alleged misdeeds outlined against Pearson and his “co-conspirators” — identified in the complaint as three former and one current UAW official — are a significant change from the four-year probe into marriage corruption that began with a federal investigation into the misuse of coaching centre funds by many senior union officials and officials with Fiat Chrysler, including business executives bribing UAW officials.
Prosecutors would not comment beyond the complaint. Officials at Ford and Fiat Chrysler declined to comment. General Motors said it was “outraged and deeply concerned by the conduct of union officials as uncovered by the government’s investigation and the expanding charges.” Not one of the automakers are implicated in the most recent charges.
The UAW, in an emailed statement Thursday, said the “allegations are very concerning, we strongly believe that the government has misconstrued any number of facts and emphasize that these are merely allegations, not proof of wrongdoing.”
The new charges also indicate a more aggressive approach by federal prosecutors, which utilized indictments and grand jury testimony in prior arrests.
“They’re taking a pretty hard line here,” stated Peter Henning, a former federal prosecutor and Wayne State University law professor in Michigan that has been following the situation. “A criminal complaint like this … is a way to act more quickly.”
Cigars and money
dependent on the amount of unnamed union official co-conspirators, Henning said federal officials probably have “other people in their crosshairs.”
Pearson’s arrest come as the union negotiates new contracts with the Big Three Detroit automakers. It also falls two weeks after FBI, IRS and DOL agents raided marriage facilities in addition to the houses of Pearson, Williams and Jones. As president, Jones is actively involved in the contract talks.
During the raids, agents “seized hundreds of high-end liquor bottles, hundreds of golf shirts, multiple sets of golf clubs, a large quantity of cigars and related items, humidors and tens of thousands of dollars in cash,” Donohue stated in the complaint.
Pearson, who triumphed Jones as regional manager, is the first active UAW leader to be arrested and charged as a member of this four-year investigation, which has resulted in convictions of nine union officials or business executives related to Fiat Chrysler.
Donohue, in the filing, said Pearson and other unnamed union officials conspired to embezzle UAW cash by hiding private expenditures as prices for UAW Region 5 conventions held in California and Missouri.
Including renting expensive villas for weeks or months, rather than days, for marriage conferences in the Renaissance Palm Springs Hotel where union leaders commanded a “master account” that enabled them to “deposit UAW funds up-front and run a tab” for just about everything — clothes, golf gear, meals, liquor, expensive cigars and offsite villas with private pools and spa, according to the complaint.
All told, the union paid the hotel more than $1 million between 2014 and 2017, prosecutors said. More than $600,000 of the money was used to cover other companies in Palm Springs, including holiday home rental businesses, local restaurants and the Indian Canyons Golf Resort. Between 2014 and 2018, the hotel paid more than $60,000 on the UAW’s behalf to the Tinder Box cigar store.
“The investigation has established that the conspirators used the Master Account as a way to conceal the embezzling of union funds for their own personal use,” Donohue said, adding that more than $60,000 of UAW funds were used for meals at Palm Springs-area restaurants involving 2016 and 2018, such as on dates “far outside” the timing of their marriage conferences.
‘Culture of alcohol’
Cooperating witnesses, according to Donohue, said such expenditures were lumped together without precise descriptions at the request of union leaders.
Federal officials, according to Donohue, also identified a similar pattern as to additional UAW Region 5 occasions, including a Four Seasons resort in Lake Ozark, Mo., where officials supposedly using UAW funds for tens of thousands of dollars to buy golf clubs which were “concealed within larger bills for Region 5 UAW conferences.”
Donohue also said brokers developed “significant information concerning the ‘culture of alcohol’ that exists in the senior ranks of the UAW.”
The allegations include using union funds to purchase custom wine bottles, high-end bottles of spirits and allowing union leaders to buy unlimited quantities of alcohol in Palm Springs.
Pearson’s arrest and charges against him are expected to add to what were already expected to be contentious contract negotiations between the union and the Big Three Detroit automakers.
The marriage, on Thursday, said it won’t permit the most recent fees or Pearson’s arrest “distract” officials from the ongoing discussions.
The diversion is inevitable, said Art Wheaton, a labor professor at the Worker Institute at Cornell University. It undermines the credibility of union leaders and will heavily weigh members in ratifying any arrangement, when and if one is reached, he said.
“As more and more of the people in the leadership get in trouble, it hurts the contract in terms of ratification,” he explained. “It erodes trust.”