Retired Carpenters Drop Lawsuit

Three retired carpenters union members have dropped a civil lawsuit alleging the misuse of a $2-billion union pension fund by its trustees, including union President Douglas J. McCarron and contractor Ron Tutor, as well as prominent financial advisor Richard Blum.

A spokesman for the plaintiffs said they “accomplished many of their goals” in filing the federal suit nearly two years ago and simply were unable to afford to continue through the legal process.

But a spokesman for Blum, a billionaire San Francisco investor married to Sen. Dianne Feinstein (D-Calif.), said the decision to drop the suit amounts to an exoneration of the advisor, who was accused of charging exorbitant commissions and funneling money into investments that personally benefited McCarron, Tutor and himself.

“After two years of litigation, Blum Capital partners has been completely vindicated,” said Osen Blicksilver, a spokesman for Blum. “We’re pleased to put this behind us, and we’re committed to trying to get the strongest possible returns for the carpenters.”

The lawsuit alleged a series of tangled and murky schemes involving union pension money and firms in which Tutor had an interest, including a construction company and a concrete company. But the suit drew a countersuit against the plaintiffs by Blum, which was later dropped, and then was hampered by an extended search for documents. It never advanced to trial.

According to both sides, each party has agreed to pay its own legal costs, and no money was exchanged as part of the decision to drop the suit.

Jerry Schneiderman, a Hollywood real estate developer who helped the retirees prepare the lawsuit, said the legal action forced Blum to turn over documents they were unable to obtain otherwise. Those documents showed the Southern California Pension Fund paid more than $50 million in fees and commissions over a five-year period for Blum’s services in investing a small part of the pension fund.

He also noted the pension fund has not invested more money with Blum since the suit was filed.

The original investment handled by Blum in 1994 was $146 million, much of which was used to buy shares of companies in which Tutor took active management roles, Blicksilver said.

He said the investment earned a $333-million profit through mid-1999, the period of contention in the suit.

Blicksilver, who confirmed the fund has not invested more money with Blum, said the investments have earned an additional $118 million since then.

Tax records turned over to the plaintiffs showed Blum and his entities earned annual administrative fees of $2.9 million to $7.8 million from 1994 to 1999, plus a $28.3-million performance fee for cumulative above-average returns, totaling $52.8 million. The lawsuit claimed those fees were excessive.

In arguing that the suit should be dismissed, attorneys for Blum and the union’s pension trust submitted statements from an investment manager and a former Labor Department attorney who specialized in pension fund investigations. Both said Blum’s fees were reasonable given the active role he played in the investments and their performance. Sherwin Kaplan, the former Labor Department attorney, also said that the pension fund trustees acted prudently in making the investments and that there was no evidence of self-dealing.

But Schneiderman maintained that the large performance fee was paid at the peak of the market, and that some of the investments have lost money since then.

The lawsuit’s most ardent backer was Horacio Grana, a retired drywaller who belongs to the same Los Angeles Carpenters local in which McCarron started his union career.

The other two plaintiffs were Phillip R. Helsius and Walter J. Sprenger.

Schneiderman said he agreed to help Grana because several attorneys had turned down the case. Schneiderman, who earlier had battled Tutor on aspects of Los Angeles Red Line subway construction, said he found the arguments intriguing.

Grana complained that his $550 monthly pension had not increased in 10 years, even as the trust paid large sums to investment advisors.

McCarron backers were pleased by the decision to drop the suit, which was often cited by dissidents within the United Brotherhood of Carpenters and Joiners as evidence of wrongdoing by the union president.