Equitable Alchemy

Few organizations in American society are endowed with such a complement of criminals, confidence men, rogues and ruffians as the International Brotherhood of Teamsters. And nowhere within that fraternity was rapacity more apparent than in the management--most people would call it mismanagement--of the union's $1.4 billion Central States, Southeast and Southwest pension fund. Under the guidance of both icy Jimmy Hoffa and shuffling Frank Fitzsimmons, trustees treated the fund as a pot of honey to be ladled liberally to friends and acquaintances. Now, after a two-year investigation by the Department of Labor and a threat by the Internal Revenue Service to revoke the fund's tax-exempt status, Fitzsimmons and his pals have been forced to resign from the fund's board of trustees, and management of the assets has been entrusted to the Equitable Life Assurance Society. "Our only requirement was that they settle on a recognized, independent financial manager," says Labor Department Spokesman John Leslie, "and Equitable is as recognized and independent as you can get." Concurs Teamsters Lawyer John Nellis: "The days of the juicy scandals and relationships are over."

Tough Job. That should be good news for the 384,000 Teamsters who stand to collect pensions from the fund and who have watched their leaders fritter away a substantial amount of its assets. An examination of the fund's latest annual report, filed with the Government in December 1976, reveals a lopsided investment portfolio with $108 million in cash, $193 million-worth of common stocks and debt securities and a huge $833 million in real estate and mortgages. Equitable's tough job will be to change those investments so that real estate and mortgages represent no more than half the assets. The big insurance company, which has overall fiduciary responsibility for the fund, will be aided by four co-managers: Crocker National Bank, Mercantile National Bank at Dallas, Lazard Freres, the New York City investment banking company, and Victor Palmieri & Co., a Los Angeles and Washington asset management firm.

One look at the fund's real estate mess frightened away Lomas & Nettleton, a Dallas real estate financing company that had been invited in as a comanager. Among the hundreds of obligations are loans to owners of race tracks, jai-alai frontons, boat slips, tennis courts and a $5 million mortgage on Ohio's Cathedral of Tomorrow, whose minister, Sawdust Evangelist Rex Humbard, likes to exhort: "You'd better straighten out and fly right with God." Last year $52 million was on loan to parties-in-interest," meaning institutions or individuals who have business or fiduciary relations with the fund; 55 loans were classified as "uncollectible" and 26 were in outright default. A generous proportion of the loans was granted on especially favorable terms, with minimal payments for years and a big 'balloon" upon termination. On one $4.8 million loan to a fund asset manager, Alexander Butcher, repayment of $4.2 million is deferred until 1986.

Chic Oasis. To compound the problem, the fund's old trustees placed a lot of trust--and money--in a few individuals. At one point, Allen Click, a boyish businessman who controls the Stardust and Fremont casino-hotels in Nevada through Argent Corp., owed $146 million. He has since turned back some California and Texas properties and reduced his obligations to about $90 million. His casinos are being investigated by the Clark County (Las Vegas) district attorney and the Nevada Gaming Control Board following charges that substantial sums were skimmed from the slot machines. La Costa Land Co., which owns the La Costa, the chic California oasis where Fitzsimmons has golfed with former President Richard Nixon, owes the fund $66.6 million. According to the latest annual report almost half of these loans were classified as "uncollectible."

Equitable and the new managers must also face the unpleasant fact that the fund, which pays out about $21 million every month to 74,000 retirees, may be actuarially unsound. According to Daniel Shannon, who supervised asset management for a short period, long-term commitments to the union's 384,000 fund participant members may exceed assets by as much as $5 billion. To close the gap, says Shannon, employers must increase their contributions by 20%, to $37 a month, while the rank and filers will have to work 30 years instead of 20 to gain their maximum pensions.

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