NCJ Number
77249
Date Published
1981
Length
118 pages
Annotation
This report describes how two insurance brokers defrauded the New York City Teamsters Local 237's welfare fund of over $3 million between 1972 and 1980, the failure of the fund's officials to prevent the fraud, and the lack of State regulations over private welfare funds.
Abstract
Teamsters Local 237, the largest Teamster public employee union in the United States, represents over 14,000 persons working for New York City and maintains a fund to provide its members with a variety of life and health insurance benefits. From 1972 through 1978, the fund placed its insurance with Trans World at the suggestion of two insurance brokers, one of whom was a close friend and relative by marriage of the fund's chairman of the board of trustees. A lengthy investigation and public hearings by the New York State Insurance Department and the State Commission of Investigation (SCI) demonstrated that these brokers with the assistance of Trans World, had systematically defrauded the fund of almost $3 million. The brokers' claims to the fund that they had investigated other insurers were false; actually, they received concealed and illegal payments from Trans World to secure the business. Moreover, the charges for administration, commissions, and fees made by Trans World to the fund were more than twice as high as charges made by other carriers to comparable welfare funds. All fees and commissions received by the brokers were concealed from State regulatory agencies. The SCI also found that the chairman of the board concealed evidence of the brokers' fraud from the board and allowed them to perpetuate their activities until public hearings revealed the facts. The trustees failed to exercise their fiduciary obligations because they regularly approved payments of exorbitant premiums to Trans World, never investigated alternatives, and accepted the chairman's recommendations to retain the brokers even when they became aware of the fraud. New York City contributes more than $140 million annually to union welfare funds, but has no controls over the funds. All funds receiving public monies are subject to audit, but the city comptroller has no enforcement powers over abuses uncovered by the audit. As a result of the investigation, the insurance department was able to recover about one-half of the total amounts that 13 union welfare funds, including Local 237, were overcharged. After a detailed description of the fraud, the report discusses the role of the fund's legal counsel and the fund's refusal to sue Trans World and the brokers. The SCI's recommendations regarding the fund's management and State corrective actions are outlined. Footnotes accompany the text.