UAW senior official charged with embezzling in expanding investigation

DETROIT/WASHINGTON — A senior United Auto Workers (UAW) official was arrested on Thursday and charged with conspiring with other union leaders to embezzle hundreds of thousands of dollars in a mushrooming corruption scandal that comes at a decisive moment in contract talks with Detroit automakers.

The union’s current four-year contract with U.S. automakers expires on Saturday.

The contract talks were always expected to be contentious, with healthcare costs and profit sharing due to be major sticking points, but Saturday’s deadline could be overshadowed by revelations of vast sums being spent on lavish entertainment by labor leaders — including $440 bottles of champagne originally created to please a Russian czar.

The union has worked to put the federal probe behind it and in 2018 elected Gary Jones, a former regional director for the union, as its president. He was chosen because he seemed far removed from the scandal.

But Vance Pearson, 58 served as Jones’ second in command from 2016 to 2018 and replaced him last year as director of the UAW’s so-called “Region 5,” which covers 17 western and southwestern U.S. states.

Pearson’s arrest comes just two weeks after the FBI conducted searches including at Jones’ home, as part of an ongoing corruption probe into illegal payments to union officials.

Jones has not been charged with any wrongdoing.

J. Bruce Maffeo, a lawyer for Jones, did not immediately respond to a request for comment.

Adding to intrigue, the complaint makes frequent reference to someone identified only as “UAW Official A,” saying government agents had seized $30,000 in cash from the individual’s residence.

Steven Bernstein, a Tampa-based labor attorney at Fisher Phillips LLP, said the latest charges create a “difficult dynamic” for the union in talks with automakers.

“This does have the potential to compromise whatever leverage the union’s leaders think they have,” he said.

In a statement, the UAW said that while it found the allegations “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 complaint said between 2014 and 2018 Pearson and other leading UAW officials “submitted fraudulent expense forms seeking reimbursement from the UAW’s Detroit headquarters for expenditures supposedly incurred in connection with Region 5 leadership and training conferences.”

The officials “used the conferences to conceal the use of hundreds of thousands of dollars in UAW funds to pay for lavish entertainment and personal spending for the conspirators,” the complaint said.

Much of the complaint centers on conferences held by the UAW’s Region 5 in Palm Springs, California. The allegations include that, through a “master account” set up at a Palm Springs hotel, union officials embezzled more than $600,000 that was spent on lavish living for weeks or months at a time.

The complaint singles out a dinner at a local restaurant on New Year’s Eve 2016 that cost $6,600, including four bottles of Louis Roederer Cristal champagne for a total of $1,760.

The complaint then accurately quotes the Louis Roederer website as saying the Cristal was “created in 1876 to satisfy the demanding tastes of (Russian) Tsar Alexander II,” who was assassinated by a revolutionary in 1881.

Harley Shaiken, a labor expert at the University of California-Berkeley, said the charges against Pearson could be distraction for negotiators, but he said the union and its members are focused in getting the best deal possible.

“UAW members are focused on how a deal will affect them,” he said. “But even a small number of angry members could color a ratification vote on a contract.”

The ongoing scandal also affects a labor organization closely allied with Democrats a little over a year away from a U.S. presidential election. The UAW represents tens of thousands of workers in the battleground states of Ohio and Michigan.

To date, nine people have pleaded guilty in connection with the ongoing criminal investigation into illegal payoffs to UAW officials by Fiat Chrysler Automobiles NV executives and corruption within the UAW itself.

Last week, former UAW official Michael Grimes pleaded guilty to wire fraud and money laundering. Grimes was an official in the union’s General Motors Co department until his retirement in July 2018.

Highlights of the criminal complaint:

— As part of a probe into dealings between the UAW and Fiat Chrysler Automobiles, federal agents discovered a multiyear conspiracy involving “senior UAW officials stealing and unlawfully and willfully abstracting and converting UAW funds to purchase luxury items and accommodations for their own personal benefit” by submitting vouchers that misrepresented payments as official business.

— In addition to Pearson, who was charged, the complaint named “UAW Official A,” who was not identified but described as a union officer who has held several senior UAW positions. Three unidentified former UAW officials were also named.

— Federal agents said UAW conferences for Region 5 typically lasted three to five days, but Pearson and others would spend weeks or months living in the same city where they were held, “enjoying an extravagant lifestyle paid for with UAW funds.”

— More than $600,000 of UAW money paid to the Renaissance Palm Springs Hotel in Palm Springs, California, between 2016 and 2018 was used by the hotel to satisfy debts incurred by senior UAW officials at local businesses, including restaurants, golf resorts and more.

— Between 2016 and 2018, more than $60,000 of UAW funds were used for meals at the Palm Springs area restaurants LG Prime Steak House and Johnny Costa’s Ristorante.

— In one instance on New Year’s Eve in 2016, the tab at LG Prime Steak House totaled almost $6,600, including four bottles of Louis Roederer Cristal champagne costing $1,760. The complaint quotes the Louis Roederer website as saying Cristal was “created in 1876 to satisfy the demanding tastes of (Russian) Tsar Alexander II.” The bill also included $1,942 for liquor, $1,440 for wine and what appears to be a $1,100 tip.

— The UAW paid Indian Canyons Golf Resort more than $80,000 between 2015 and 2018 for food and beverages, green fees, club rentals and the purchase of such items as visors, sunglasses and “fashion shorts.”

— Agents determined the union paid over $60,000 for cigar and tobacco, humidors, cigar cutters and related expenses between 2014 and 2018 at stores in Palm Springs and Parker, Arizona.

— Agents found similar spending patterns around Region 5 UAW conferences between 2014 and 2018 at the Loews Coronado Resort in Coronado, California. UAW headquarters paid more than $200,000 to the resort and the union’s Southwest regional council paid more than $195,000. Large sums were spent on chauffeured transportation to private dining events and excursions to the San Diego Zoo’s Safari Park and horseback riding on the beach, as well as more than $70,000 between 2015 and 2018 for green fees at three different golf clubs.

— Agents also found similar spending patterns around Region 5 events in Lake of the Ozarks, Missouri, where between 2014 and 2018 UAW headquarters paid more than $300,000 to the Lodge of Four Seasons hotel and the union’s Midwest regional council paid more than $190,000. The payments included more than $45,000 for meals and liquor, over $75,000 for golf related expenses, more than $8,000 for spa treatments and over $1,000 spent at a local gun range.

— Agents described a “culture of alcohol” that existed in the top ranks of the UAW, crediting the term to a cooperating witness who was a senior UAW official. Vendors in Palm Springs told federal agents “there was ‘no limit’ on the amount of alcohol they would purchase for requesting union officials.”

— Vendor records and witness testimony detailed two parties costing over $50,000 thrown by Norwood Jewell, a former UAW vice president who headed labor relations with Fiat Chrysler. Jewell was sentenced in August to 15 months in prison. His parties featured ultra-premium liquor, a skilled so-called torcedor to roll choice cigars and scantily-clad “kandy girls” to light them.

— Agents also outlined the search warrants they executed on several homes and work locations of senior UAW officials in late August. Federal officials confirmed at the time that the home of Jones, the UAW president, was among those searched. Thursday’s complaint revealed that agents had seized over $30,000 in cash from the residence of UAW Offical A.