Autos

Bottles of Cristal and steak dinners mark UAW corruption probe as prosecutors detail lavish use of union funds

Key Points
  • Federal prosecutors laid out a series of alleged misdeeds by three former and two current UAW leaders in new charges against one of the officials Thursday.
  • The arrest and charges against a UAW board member accuse union officials of using union funds to live lives of luxury. 
  • That included bottles of Cristal champagne, California villas, expensive cigars, lavish steak dinners and golf outings.
FBI agents finish loading materials into a truck out of the home 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 allegedly in Palm Springs, California early for the UAW's five-day annual conference in January and 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 generously rewarded; the tip was $1,100.

A $2,000 purchase at the Indian Canyons golf pro shop earlier that day paid for an assortment of polo shirts, shoes, jackets, hats and "Men's Fashion Shorts."

The shopping, wining and dining was expensed to the UAW's Region 5 Conference that was more than week away.

Luxurious lifestyles

That New Year's Eve was just one of many 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 living luxurious lifestyles that included high-end liquor, private California villas, lavish dinners and golf outings — all paid for with money meant for or collected largely from the blue-collar union workers at Ford, General Motors and Fiat Chrysler they were supposed to represent.

That's the picture Andrew Donohue, special agent with the U.S. Department of Labor's investigations office, painted as part of a criminal complaint unsealed with the arrest of UAW Region 5 Director Vance Pearson, a member of the union's highest governing board who 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 homes were raided along with Pearson's by FBI, IRS and Department of Labor agents two weeks ago. Pearson, who joined the UAW in 1981, succeeded Jones as director of UAW Region 5.

Neither Jones nor Williams have been charged with any wrongdoing.

New charges

The new charges and implication of Jones, as first reported Thursday night by The Detroit News, raise significant questions about the union's credibility as it works to sign new labor contracts on behalf of 158,000 members before 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 union reports to the government.

Donohue, in the complaint, 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 major shift in the four-year probe into union corruption that started with a federal investigation into the misuse of training center funds by many former union officials and executives with Fiat Chrysler, including company executives bribing UAW officials.

Prosecution strategy

Prosecutors wouldn't 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." None of the automakers are implicated in the latest 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 mark a more aggressive approach by federal prosecutors, which used indictments and grand jury testimony in previous arrests.

"They're taking a pretty hard line here," said Peter Henning, a former federal prosecutor and Wayne State University law professor in Michigan who has been following the case. "A criminal complaint like this … is a way to act more quickly."

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Cigars and cash

Based on the number of unnamed union official co-conspirators, Henning said federal officials likely have "other people in their crosshairs."

Pearson's arrest came as the union negotiates new contracts with the Big Three Detroit automakers. It also falls two weeks after FBI, IRS and DOL agents raided union facilities as well as the homes 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 said in the complaint.

Pearson, who succeeded Jones as regional director, is the first active UAW leader to be arrested and charged as part of the four-year investigation, which has led to convictions of nine union officials or company executives affiliated with Fiat Chrysler.

Expensive villas

Donohue, in the filing, said Pearson and other unnamed union officials conspired to embezzle UAW money by concealing personal expenditures as costs for UAW Region 5 conferences held in California and Missouri.

That includes renting expensive villas for weeks or months, instead of days, for union conferences at the Renaissance Palm Springs Hotel where union leaders controlled a "master account" that allowed them to "deposit UAW funds up-front and run a tab" for just about everything — clothing, golf equipment, meals, liquor, expensive cigars and offsite villas with private pools and hot tubs, according to the complaint.

All told, the union paid the resort more than $1 million between 2014 and 2017, prosecutors said. More than $600,000 of that money was used to pay other businesses in Palm Springs, including vacation home rental companies, local restaurants and the Indian Canyons Golf Resort. Between 2014 and 2018, the resort paid more than $60,000 on the UAW's behalf to the Tinder Box cigar shop.

"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 also used for meals at Palm Springs-area restaurants between 2016 and 2018, including on dates "far outside" the timing of the union conferences.

'Culture of alcohol'

Cooperating witnesses, according to Donohue, said such expenses were lumped together without exact descriptions at the request of union leaders.

Federal officials, according to Donohue, also identified a similar pattern regarding other UAW Region 5 events, including a Four Seasons hotel in Lake Ozark, Mo., where officials allegedly using UAW funds for thousands of dollars to purchase golf clubs that were "concealed within larger bills for Region 5 UAW conferences."

Donohue also said agents developed "significant information concerning the 'culture of alcohol' that exists in the senior ranks of the UAW."

The allegations include using union funds to buy custom wine bottles, high-end bottles of liquor and allowing union leaders to purchase unlimited amounts of alcohol in Palm Springs.

Contract negotiations

Pearson's arrest and charges against him are anticipated to add to what were already expected to be contentious contract negotiations between the union and the Big Three Detroit automakers.

The union, on Thursday, said it will not let the newest charges or Pearson's arrest "distract" officials from the ongoing talks.

The distraction is unavoidable, said Art Wheaton, a labor professor at the Worker Institute at Cornell University. It undermines the credibility of union leaders and will heavily weigh on members in ratifying any deal, if and when 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 said. "It erodes trust."