GREENBELT, Md. -- Trustees of the $8.3 billion National Electrical Benefit Fund, Washington, are targets of a lawsuit filed this month by the Labor Department, charging improper dealings between the pension fund and President Clinton's chief fund-raiser in the 1996 campaign.
The lawsuit, filed May 5 in U.S. District Court in Greenbelt, charges NEBF trustee John Grau and former trustee Jack F. Moore with imprudently lending more than $6 million in pension assets in 1992 and with an imprudent purchase of shares in a limited partnership in 1991.
The fund had only two trustees at the time.
NEBF is operated jointly by the International Brotherhood of Electrical Workers, from which Mr. Moore retired as international secretary two years ago, and the National Electrical Contractors Association, of which Mr. Grau is executive vice president.
The deal involved a $6 million loan in 1992 to Columbia Land and Development Corp., Orlando, Fla., to buy Country Run, an Orlando subdivision, which was to be developed into approximately 545 single-family lots for sale to homebuilders. Columbia is owned by Terence R. McAuliffe, President Clinton's top fund-raiser in the 1996 campaign, and his wife, Dorothy S. McAuliffe.
The Labor Department contends the pension fund's trustees should have known the loan could not be repaid in full with interest. The loan had been in default from December 1992 to October 1997.
The lawsuit asks the trustees to reimburse the fund for any losses, including interest, resulting from the loan to Columbia.
The McAuliffes also own American Capitol Management, a partner with the pension fund in a separate investment known as American Capitol Group I Assets LP, which guaranteed payment of the Columbia loan.
In a separate investment with American Capitol LP in 1991, the NEBF paid $38.7 million to buy five apartment complexes and a shopping center near St. Petersburg, Fla. The partnership bought the properties from the Resolution Trust Corp., which had taken control of them from a bank in receivership that had been owned by Mr. McAuliffe's father-in-law.
The lawsuit also alleges the trustees imprudently purchased interests totaling $2.45 million in the limited partnership, a move that reduced the value of the ACM guarantee on the Columbia loan. Mr. McAuliffe's holdings in ACM had been collateral for the loan; the pension fund purchased his interests.
Moreover, the lawsuit alleges trustees made one of the purchases in the ACM partnership even though the Columbia loan was in default.
The pension fund subsequently sold its share of the partnership and the Columbia loan to ACM at a loss, according to the lawsuit.
In a statement, a spokesman for NEBF insists the fund made a profit on the deal. "The lawsuit is without merit. With the benefit of 20-20 hindsight, the DOL is questioning whether these two successful NEBF real estate projects . . . were prudent.
"The investments in question were approved by the trustees after a thorough review and recommendation by outside real estate experts. The 'losses' cited in the DOL press release exist only in the department's imagination based on their 'notion' of what the investments should have earned. While the DOL may second-guess trustees' decisions, the fact remains that these real estate investments outperformed the NCREIF real estate index, returning over $14 million to plan participants."
James Kefauver, a partner in Shulman, Rogers, Gandal, Pordy & Ecker, a Rockville, Md., law firm representing Messrs. Moore and Grau, said, "The department is second-guessing them." Moreover, "there are no allegations of any actions taken by them of self-dealing or self-interest, just that the investments were imprudent."
