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WELCOME TO OUR WEBSITE San Francisco Independent
News Article
By Matt Isaacs

Financier Richard Blum, husband of Senator Dianne Feinstein, has made a questionable investment in one of the state's most politically connected and controversial construction contractors, the Independent has learned. Federal officials say Blum's investment in business partner Ronald Tutor's sinking company, Perini Corp., is grounds for an investigation, based on the stock's poor performance and Blum's potential conflicts of interest. Blum manages large stock portfolios for clients, including the $1.7 billion Carpenters Pension Trust for Southern California, a retirement plan serving approximately 31,000 union members. He also has strong ties to Tutor, president of Tutor-Saliba-Perini, one of the largest transportation contractors in the state and a big contributor to Feinstein.

Three years ago Blum invested $27 million of the pension fund's money into Perini Corp., a subsidiary of Tutor-Saliba, hoping to save the foundering company. Since then the stock has plummeted, dropping in price from $8.875 to $5.125 per share in 1998, a loss of 42 percent of its value.

As a result, union members, concerned about their retirement savings, are calling for an investigation, claiming Blum made an imprudent investment to help his business partner.

"This is a blatant abuse of power," said union watchdog Horacio Grana, a member of the fund. "Blum and Tutor are using the membership retirement money to benefit themselves."

Grounds for investigation

In 1996, Perini's stock price was already falling when Blum invested the union workers' retirement funds in the Framington, Massachusetts-based company, drawing upon the Carpenters Trust as well as Union Labor Life Insurance Company. Tutor added $3 million of his own money in an effort to save the company from insolvency.
But despite the cash infusion, Perini's stock value has continued to fall, burdened with $80 million in debt from the company's financing of the Rincon Center in the 1980s. Tutor was the general contractor on that job, and his cost overruns, combined with a change in federal tax laws, made the whole project an investment belly flop.
When presented with Blum's investments, investigators with the federal Pension and Welfare Benefits Administration, speaking hypothetically, said they would open an investigation based on Blum's connection with Tutor and the significant drop in Perini's stock price.
They would not talk on the record concerning a potential case, but they said, given the available facts, they would open a case in this situation. They said the stock's poor performance, before and after the investment, would be cause to question the financial manager's prudence. Though only 15 percent of their cases result in a finding of violation, they said, Blum could be held personally liable for his actions.
"A financial manager has the whole world to invest in," one Department of Labor inspector said. "Why this stock? There is any number of blue chips out there. In this bull market, why choose this loser?"

Much to gain

According to Department of Labor rules, financial managers must exercise due diligence to make the best investments possible on behalf of their clients and to make sure personal or business relationships do not color their judgment.
Tutor had much to gain from Blum's investment in 1996: He already owned 7 percent of Perini. He also is one of 12 trustees on the board of the Carpenters Pension Trust as well as an investor with Blum in PB Capital Partners, a securities-investment group.
In addition to having a business relationship with Blum, Tutor, along with the executives in his company, has given big donations to Feinstein, exceeding $40,000 since 1990. And many union members say Blum's salary for managing the pension fund, $7.78 million in 1997, is another form of contributing to the senator.
"I would like to know if, in the last election year in California, the inordinate amount of money that was paid to Richard C. Blum for his work investing [pension] money was a way of steering union funds to his wife's campaign," William Lebo, a union member from New York, said in testimony before the U.S. House Education and Workforce Committee in June 1998. Moreover, Blum has his own personal stake in Perini. He has money in the company through his investment office of Richard C. Blum & Associates and through PB Capital Partners. Feinstein's economic-disclosure records show Blum owns between $15,000 and $50,000 worth of stock in the company.

Conflict-of-interest issues

Blum's personal investments in Perini, along with Blum's relationship with Tutor, raise a number of questions regarding possible conflicts of interest. But Blum won't answer them. He has refused to return phone calls and failed to respond to a list of questions faxed to his office more than a week ago. The administration for the Carpenters Pension Fund also declined to comment, as did Tutor.
An explanation could be particularly helpful because the Department of Labor's rules for pension funds have many exemptions, including exceptions for individual cases. One official described the rules as a "brick wall with many windows."
For instance, the Department of Labor allows financial consultants to invest pension funds in stocks they own. There are also many factors considered when looking at whether a financial manager has acted unwisely, such as the quantity of the pension fund the consultant controls and the riskiness of the investment.
"The key issue is relationships," a Department of Labor inspector said. "What does the manager and business associates serve to gain from his investments? And at what cost?"

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Horacio Grana is a retired member of the Carpenters Local Union 1506 in Los Angeles. If you wish to write to him, please address all letters to:
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Union Plain Facts
PO Box 1780
Thousand Oaks, CA 91358
or E-Mail him at:
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