Union Probe Finds Close Biden Ally Misappropriated Millions

$6 million unaccounted for at firefighters union

March 30, 2020

One of Joe Biden's closest labor allies inappropriately siphoned nearly $1 million from a union pension fund as the labor group suffered from a "systemic misrepresentation in financial reporting," according to an internal probe obtained by the Washington Free Beacon.

Harold Schaitberger, the president of the International Association of Fire Fighters (IAFF), which represents more than 300,000 firefighters, is facing accusations of corruption and gross financial malpractice from his closest deputies. Edward Kelly, the general secretary-treasurer and the number two of the union, detailed the findings of his team's audit in a March 20 internal memorandum. According to the 105-page document, the audit has thus far found that Schaitberger and Thomas Miller—Kelly's predecessor as the general secretary-treasurer—illegally earned millions of dollars from the union pension fund over the last two decades.

"The record keeping performed prior to my assuming office in September 2016 was so poor, one could argue it was designed that way," Kelly wrote in the memorandum.

Kelly's audit also found that the union misreported millions of dollars in union funds while diverting millions of dollars for a purpose unrelated to their original designation. As a result of this rampant financial malpractice, roughly $6 million in union funds remain unaccounted for, according to the memorandum.

Neither the union nor Schaitberger responded to requests for comment.

New Haven Fire Department battalion chief Frank Ricci, who serves as president of IAFF Local 825, told the Free Beacon that the accusations warrant deeper investigation.

"If these allegations are proven true through the appropriate due process, Harold A. Schaitberger, General President, should be removed from office. Kelly talks about 'turning over couches' to find money, I think it's time to turn over the couches and chase the rats out," he said.

Schaitberger, who is one of Joe Biden's closest and oldest allies in the labor movement, directed the IAFF to endorse the former vice president during his first campaign rally back in April 2019, making his group the first national union to endorse Biden. The IAFF has donated $5,000 to Biden's campaign in 2019 and spent nearly $75,000 in outside spending to support his candidacy, according to Labor Department records.

After the endorsement, Schaitberger has continued to appear at campaign rallies to support the Democratic frontrunner, but not all card-carrying members have agreed with the union's decision. More than 18,000 rank-and-file union members objected to the early endorsement and urged IAFF to retract its endorsement. Biden's campaign did not respond to requests for comment.

The probe threatens to sow further division in the union.

As part of his probe into the union's finances, Kelly contracted BDO USA, an international auditing agency, to examine IAFF records and asked three separate legal firms to evaluate whether the union pension system is compliant with IRS requirements. The March 20 memorandum detailed many of Kelly's findings, along with corroborating documents.

The union already pays Schaitberger roughly $388,000 every year, according to Labor Department records, but Kelly's team found that Schaitberger has collected an additional $5,105 every month from the union's pension system ever since he became the general-president in September 2000. Miller, the previous secretary-treasurer, also collected payments from the pension fund while he served in that position from 2010 to 2016.

Three separate law firms, all contracted by Kelly's team, found that those pension payouts violated IRS regulations that require employees to actually leave their employer's service before collecting pensions, according to documents included in the memorandum. The law firms noted that while IRS regulations allow pension systems to include bylaws explicitly authorizing "in-service pensions" to current employees, no such clauses existed in the union pension plan until January 2016. One of the law firms also added that the pension payouts seem to violate ERISA, a federal law governing pension funds.

"This memorandum concludes that there were payments made from the Plan that should not have been made ('overpayments') and, therefore, at this time, the fiduciaries must suspend benefit payments to both individuals pending investigation and correction," wrote Kathryn B. Solley, a partner at Nelson Mullins Riley & Scarborough LLP, in a March 9, 2020 report.

Given his monthly rates, Schaitberger is estimated to have illicitly collected roughly $878,060 from the beginning of his tenure until 2016. None of the three law firms—Nelson Mullins, Duane Morris LLP, and Gordon Feinblatt LLP—responded to requests for comments.

The probe did not stop there, however. In the memorandum, Kelly also accused Schaitberger of accruing additional millions of dollars of benefits through the retirement program without notifying the IRS and revealed that the IRS is separately auditing the union's retirement program because of "excess deferrals" by Schaitberger and others. The agency did not respond to a request for comment.

Kelly also wrote that his team identified chronic mismanagement of the union's finances, which led to $6 million unaccounted for in interfund balances. While he didn't explain all of his findings, he noted that a 2006 amendment to the union's pension plan was adopted without the approval of the executive board. The amendment, he said, could have added millions in the funding obligation of the pension plan.

The memorandum also details Schaitberger's many attempts to obstruct Kelly's probe. Schaitberger, for instance, accused the general secretary-treasurer of lacking the authority to hire an outside counsel to audit the books and demanded that Kelly turn over several documents pertaining to the probe. Kelly hit back against the charge in the memorandum, arguing that Schaitberger's "sudden and subjective interpretations of the Constitutions and By-Laws … is not supported by the long-standing practice in this organization."

"You are asserting that, as General Secretary-Treasurer, I do not have the 'authority to execute contracts and agreements on behalf of the IAFF,' nor 'the authority to retain outside counsel,'" Kelly wrote to Schaitberger in the memorandum. "I respectfully disagree."

Kelly has won Ricci's support in his fact-finding efforts, though his local union has yet to take a position on its findings.

"While my Executive Board is digesting the documents and waiting to meet before determining a course of action, I stand in full support of Edward A. Kelly, General Secretary-Treasurer of the IAFF," Ricci said. "He has provided official documents and a cogent argument that support his accusations."

Published under: Joe Biden , Unions