By Stephanie Mencimer
Washington Post Staff Writer
The U.S. Department of Labor has subpoenaed
records from a union pension fund as part of a criminal investigation
into real estate deals between the fund and Terence R. McAuliffe,
who served as President Clinton's chief fund-raiser in the 1996
campaign.
Investigators from the Labor Department's
Office of the Inspector General last month ordered the National
Electrical Benefit Fund to turn over documents involving a series
of risky central Florida real estate ventures it entered into
with McAuliffe, sources close to the probe said.
The $6 billion pension fund, which is jointly
managed by the International Brotherhood of Electrical Workers
(IBEW) and a management group, the National Electrical Contractors
Association (NECA), invested close to $50 million in McAuliffe's
companies without requiring McAuliffe to put up any of his own
money.
The Labor Department investigation is the
latest in a series of federal probes that have dogged McAuliffe
in recent months. McAuliffe, who raised a record $43 million for
the Clinton-Gore '96 campaign and served as the Democratic National
Committee's finance chairman in 1994, is a key figure in the ongoing
federal investigation into illegal fund-raising by the Teamsters
union. He also has been questioned by congressional and Justice
Department investigators probing presidential campaign finance
abuses.
Joseph F. McGowan, director of policy for
the Labor Department's Office of the Inspector General, said the
agency can't comment on current investigations, but IBEW spokesman
C. James Spellane confirmed that the fund has been subpoenaed
and is in the process of turning over the relevant documents to
Labor Department investigators.
"We're cooperating fully with the investigation
because we feel the Labor Department will find that nothing improper
occurred," he said.
McAuliffe's benefactor at the pension fund
was Jack F. Moore, then the IBEW's international secretary and
trustee of the fund. Sources close to the probe by the IG's labor
racketeering division say the investigators are particularly interested
in whether Moore gave McAuliffe financial backing for his business
while receiving access to the Clinton White House.
But John Grau, NECA's executive vice president
and pension fund trustee, said, "The IBEW gives so much money
to the Democratic Party that they don't need Terry McAuliffe to
get into the White House."
Moore was the treasurer of the union's political
action committee, which donated close to $2.5 million to Democratic
candidates and party organizations in the 1996 campaign.
Grau said that McAuliffe was not accorded
special treatment by the fund and said that all the investments
were signed off on by an outside real estate consultant. "There's
nothing that could be favoritism. Our procedures don't allow that,"
Grau said.
Neither Moore nor McAuliffe returned calls
seeking comment.
The Labor Department investigation is mostly
a fact-finding expedition at this point, according to sources
close to the probe. So far, no witnesses have been subpoenaed,
although investigators have begun contacting current and former
pension fund and union employees, according to those employees.
The deals at the heart of the investigation
date to the early 1990s, when McAuliffe formed two companies to
purchase cut-rate real estate from the Resolution Trust Corp.
(RTC), the agency Congress created to liquidate the assets of
failed savings and loans.
McAuliffe's father-in-law, Richard Swann,
had been the chairman of American Pioneer Savings and Loan in
Orlando. In 1990, federal regulators seized the thrift, declared
it insolvent, and set to work selling off apartment buildings,
shopping centers, and other real estate holdings that were the
product of American Pioneer's bad loans. The S&L's failure
ultimately cost taxpayers almost $500 million.
That same year, Swann and McAuliffe formed
American Capitol Management Group to bid on some of the thrift's
real estate in the RTC auction. But with Swann in bankruptcy,
they needed capital. So they approached Moore, who had first met
McAuliffe when they both raised money for Rep. Richard A. Gephardt's
(D-Mo.) unsuccessful 1988 presidential campaign.
McAuliffe offered Moore a tempting deal,
according to sources familiar with the investments. If the pension
fund would put up the money, McAuliffe would use it to buy American
Pioneer real estate from the RTC for well below market rates,
aided by Swann's knowledge of the property.
Moore was unusual among union pension fund
trustees in that he was almost solely responsible for the $6 billion
fund's real estate investments. After a series of union pension
fund scandals in the 1970s, most funds today have expanded the
number of trustees required to sign off on any investments. The
National Electrical Benefit Fund had only Moore and Grau.
In 1991, the pension fund entered into a
limited partnership with McAuliffe's firm, called American Capitol
Group I Assets. According to the partnership agreement, McAuliffe
got a 50 percent equity interest in the partnership, even though
he didn't put up any of his own money.
American Capitol acquired five Orlando apartment
buildings from the RTC for $25 million and a downscale shopping
center near St. Petersburg for $13.7 million. The pension fund
put up the full amount of the purchase price in return for promises
that it would get a 9 percent preferred return on the investment,
according to the partnership agreement.
The 9 percent return never materialized,
according to internal pension fund records. Instead, the fund
made between 5 and 6 percent annually on its $38.7 million. The
IBEW's Spellane said that while the investment didn't bring in
what the union had hoped, it still made money at a time when the
real estate market was doing badly.
But James Parker, a real estate attorney
with the Washington law firm Arent Fox Kintner Plotkin & Kahn,
said, "They clearly lost money if they didn't make at least
the most conservative return available."
At one point near the end of 1991, when the
pension fund was getting a 4 percent return on its investments
with McAuliffe, two-year U.S. Treasury notes were paying almost
9 percent.
In mid-1992 and early 1993, McAuliffe sold
most of his free shares in American Capitol back to the pension
fund, taking in $2.4 million. Grau said the fund bought the shares
at a discount after getting approval from a third-party appraiser.
American Capitol's investments are only one
part of the Labor Department's probe. Investigators are also looking
at a land development in Orlando known as Country Run. In 1992,
Moore signed a mortgage loan agreement between the pension fund
and another McAuliffe company, Columbia Land and Development Corp.,
pledging to loan McAuliffe up to $10 million to buy and develop
the land. McAuliffe's company purchased the land from the RTC
for $2.8 million, and borrowed several million dollars more from
the fund for development costs. Columbia got the land for about
half its market value, but the lots didn't sell.
Within a year, Columbia was in default on
the pension fund loan. By the end of 1995, the fund reported to
the IRS that the unpaid balance of the loan was $7.8 million,
with more than $5.8 million overdue.
It wasn't until last spring that the fund
finally started to pull out of McAuliffe's investments. In late
March, Moore suddenly announced that he was retiring from the
union, despite having been reelected to another five-year term
in September 1996. Three days after he stepped down, sources said,
the fund fired its executive director and a real estate investment
specialist who had knowledge of the McAuliffe deals.
Not long after Moore retired, the pension
fund sold off the Florida apartments. Then, in October, another
McAuliffe company bought the shopping center and the bad loan
from Columbia Land and Development, effectively paying off the
pension fund. The move left the fund with about a 6 percent return
on the McAuliffe investments, which union officials say proves
that the fund did nothing improper when it invested in McAuliffe's
companies.
The IBEW's Spellane said, "We did our
due diligence on the investments. While they did not perform as
well as we had hoped, they did now make money and now it's over."
© Copyright 1998 The Washington
Post Company