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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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