Chicago Money Manager Sentenced; Liable for Union Pension Scams

DollarsJohn Orecchio saw in the nearly $200 million in union pension benefits under his management a ticket to a high roller's life. It proved to be a ticket to prison. On June 17, the one-time Chicago investment banker and equity fund manager was sentenced in U.S. District Court for the Northern District of Illinois to nine years and four months in federal prison to be followed by three years probation for embezzling more than $24 million from various Michigan-based labor pension plans. He had pleaded guilty in February. Orecchio also will have to pay more than $26 million in restitution – on top of the $50 million he'll have to fork over in the wake of a civil judgment against him last August obtained by the U.S. Department of Labor and another $7.8 million toward a DOL-engineered global settlement announced this past June 22 against his company, AA Capital Partners, and other parties.  

Union Corruption Update examined this case in detail last July. Orecchio, now 44, a resident of Arlington Heights, Illinois, in 2002 co-founded AA Capital Partners, an equity fund located at 10 South LaSalle Street in downtown Chicago. He served as CEO and chief rainmaker. Among investors putting their money in AA accounts were pension fund managers representing Michigan unions, mainly in the Detroit area. They included International Union of Operating Engineers Local 324, Michigan Teamsters Joint Council 43 and Millwrights Local 1102. Between 2002 and September 2006 these and other labor organizations gave Orecchio $169 million, a figure that prosecutors later estimated at $194 million. But rather than hold the money in trust (as promised), he converted it to his own use via fraudulent capital calls, triggering an eventual loss of $24.2 million. Actually, that might have been on the low side, as he admitted causing up to $60 million in losses.

Orecchio lived as he stole – on a grand scale. Pleadings filed by his attorney, William Ziegelmueller, cite his "wining and dining" of union officials that had "spiraled out of control." During his four-year scam, Orecchio diverted $2.5 million in pension funds toward tickets for sporting events, including luxury box seats at Chicago Bears, Chicago Blackhawks and Detroit Red Wings games, plus another $1.5 million for first-class plane tickets, luxury hotels stays, and "client events." The most colorful of these "events" centered on his relationship with a female dancer at Crazy Horse Detroit, a topless strip joint where he frequently took clients. Though he never owned a stake in the club, court records show that Orecchio used $180,000 in union pension money to renovate the premises in return for the owner making her a manager. He was a sugar daddy in other ways, buying the woman a horse farm in Michigan and about $1 million in jewelry. He eventually proposed marriage to her all the while supporting his wife and three kids back home in the Chicago area.

At the same time, Orecchio was becoming a political player. Reports filed by court receiver Scott Porterfield indicate Orecchio used about $1 million in pension funds to make political donations, including contributions to politically-connected charities, in an effort to attract new investors. Orecchio also admitted he had tried to bribe then-Detroit Mayor Kwame Kilpatrick in return for an opportunity to convince managers of the Detroit Police and Fire Pension Funds to invest assets with his firm. Kilpatrick received a four-month jail sentence in 2008 for obstruction of justice in a separate case involving about 14,000 extramarital text messages between him and his female chief of staff (Kilpatrick was corrupt in other and more serious ways, as National Legal and Policy Center documented last month).

The house of cards began to collapse in 2006 when investigators from the Securities and Exchange Commission took a close look at the books of AA Capital Partners. Examiners discovered that the company had $7 million in expenses and only $2 million in revenues. They concluded that the $5 million shortfall resulted from misappropriation. The SEC filed suit in federal court to remove the company's managers and appoint a court receiver to recover what appeared to be a far larger sum in missing assets. The Labor Department conducted its own investigation, eventually filing a complaint alleging violations of the Employee Retirement Income Security Act (ERISA). On August 3, 2009, the department won a consent decree requiring Orecchio to replenish union funds by $50 million. His business partners, AA Capital Partners co-owner Paul Oliver and CFO Mary Elizabeth Stevens, weren't prosecuted, but were sued by the government; the pair eventually were barred from serving in a management capacity for pension funds or publicly-traded companies.

Facing up to 25 years in prison, Orecchio decided to cooperate with an ongoing federal probe into union corruption in the Detroit area in exchange for a lighter sentence. Court documents show that Orecchio made more than 150 phone calls to union officials taped by the feds and wore a wire during 20 in-person meetings with union representatives. His help paid off. A federal grand jury indicted Julian "Roxy" Jewett, a Las Vegas resident who pleaded this past January to providing kickbacks to Walter Mabry, a former trustee of the Michigan Regional Council of Carpenters, in exchange for Orecchio hiring Mabry's firm as a consultant for developing a Hard Rock casino in Biloxi, Mississippi. Jewett received a year of probation. Though Mabry was not charged with any offense, he did receive a two-year sentence in an unrelated case concerning his use of about $120,000 in unauthorized discounts from Detroit-area contractors to build his Grosse Pointe Park, Mich. residence.

John Orecchio hasn't been doing well lately. His marriage is over and his possessions are gone. At one point, he attempted suicide and was hospitalized. It's hard to imagine how he'll be able to comply with the restitution order, to say nothing of the combined $57.8 million he owes from the DOL civil settlements. Not many union officials are sympathetic to his plight. "Anyone who would steal money from hardworking people deserves the full ramifications of the law," said Rich Davis, newly-elected president of the Michigan Regional Council of Carpenters, sponsor of a benefit plan that Orecchio ripped off. "This has had an impact on people's retirement." The stolen funds will be restored by the company's insurers, Indian Harbor Insurance Co. and Federal Insurance Co. It will take somewhat longer to restore the trust Detroit-area union members had in their pension managers.

Related:

Chicago Equity Fund CEO Indicted in Union Pension Scam.