Feds Allege Pension Fund Kickback Scheme Involving Casino Holding

July 17, 2008 (PLANSPONSOR.com) - Federal authorities disclosed in a document filed in federal court in Detroit that they have evidence of a kickback scheme involving a Michigan pension fund's investment in a Mississippi casino.

The Associated Press said, according to court documents, in 2002 or 2003 the Carpenters Pension Trust Fund-Detroit gave money to financial manager AA Capital Partners of Chicago which placed some into construction of the Hard Rock Hotel and Casino in Biloxi, Mississippi. An “executive” with the pension fund, unidentified in the court document, “directed AA Capital to hire Joseph R. Jewett as a casino consultant” who, according to Assistant U.S. Attorney Philip Ross’ complaint, entered into an unlawful agreement to give a portion of his income to the executive.

Ross alleged that Jewett, whose only casino experience was as a customer-service host, received $750,000 from AA Capital in October 2003, and spent $353,966 for a house in Las Vegas and $15,400 for a swimming pool, according to the news report. Ross said the house should be forfeited to the government because it was acquired with the fruits of a kickback scheme. No criminal charges have been filed.

The AP said it is unclear exactly how much money from the fund went into the Biloxi casino, but documents filed in federal court in Chicago show AA Capital managed more than $75 million for the pension fund. In a lawsuit filed in Chicago, the Department of Labor accused the investment management firm, its co-owner and president John Orecchio, chief financial officer Mary Elizabeth Stevens, and affiliate AA Capital Liquidity Management LLC of violating the Employee Retirement Income Security Act (ERISA) by imprudently misusing plan assets and charging the plans excessive fees on investments (See DoL Sues Investment Firm on Behalf of MI Union Plans).

A Securities and Exchange Commission (SEC) investigation revealed questionable spending by Orecchio and the diversion of assets to a Detroit strip club manager, among other things (See SEC Accuses Investment Manager of Misusing Pension Funds).