Trustee’s Hefty Fine Is Latest Twist In Phony-Health-Fund Case
All around the country -- in
Clearly the fund was in trouble. Financial records were missing, state insurance departments sent cease-and-desist letters, and insurance administrators were calling Holloway to tell her that the fund was not forwarding enough money to pay the claims.
As it turned out, the reason the claims were not being paid was that the fund was a fraud and the union itself was phony, a prop to further the scheme.
This tangled tale of deceit began to unfold a decade ago, but legal ramifications continue -- especially for Holloway, who was soundly criticized and heavily fined last month by a federal judge in
U.S. District Judge
Lawyers familiar with union health and welfare funds say they have never seen such a penalty levied against a fund trustee who was not complicit in the fraud.
The scheme's architects were business people operating on the fringes of the staffing industry, with some ties to organized crime, using the phony
On a checkbook level, its victims were employers or employees, mostly in small businesses around the country, who paid
Most of the funds were improperly diverted as "fees," "commissions," and "union dues," and some money paid the salary of the union's president,
Worse, employees and family members, thinking they were covered by insurance, went to hospitals or doctors and later found themselves dunned by collection agencies, on the hook for tens of thousands of dollars in medical bills, bills never paid by the fake fund.
There is no indication that Holloway, who supervised the fund from
After 18 months as trustee, from
But resigning did not let her off the hook, Rodriguez ruled
"She cannot ignore the kind of information that was being presented to her and walk away," Rodriguez wrote. "Her lack of prudence enabled others to commit a breach, of which she had knowledge, and she did not make reasonable efforts to remedy that breach."
Holloway, who runs
"I've never seen a fiduciary hit with that kind of penalty," said
Neither had
"The standards are very high for trustees," DiNome said. "Most of the times the funds are fine. This is an example of the polar opposite."
In the phony union-health-fund case, there is enough legal paperwork -- criminal and civil -- to fill several file cabinets.
The union "did not conduct any of the traditional activities [of a union] except collecting dues," the
Its main purpose was to establish a phony union health-and-welfare fund for selling insurance to employers, said
"The economic niche that these bad guys operated in was the difficulty of getting affordable health insurance, so these [employers] were susceptible to the pitch," he said.
One employer was
"After they weren't paying, I canceled it," said
The insurance was touted in 2001, 2002, and 2003 by
In this and similar phony union schemes, employers were told union funds could charge less, Machiz said.
All employers had to do was enroll workers in the do-nothing union and pay two checks -- one for union dues and one for health premiums and fees. The legal documents do not say whether the employers were aware they were signing up for a scam.
Before the scheme collapsed in
Rodriguez ordered Doyle, who disbursed
Whether Holloway, who was recruited to serve as a fund trustee, is to blame for not stopping the debacle is not clear-cut.
Initially, in the civil case, Rodriguez ruled that Holloway had not shirked her duties. His decision was overruled by an appeals court that sent it back for reconsideration.
Then, Rodriguez changed his opinion, writing on
DiNome, who has no connection to this case, said some fund trustees do not fully recognize the responsibility that comes with the job.
"You have to ask hard questions. You have responsibilities that go beyond sitting in a meeting," he said.
"That works 89 percent of the time," DiNome said. "You don't usually have a phony union."
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