Out-of-court settlements could be the only avenue for the county pension fund to recoup $4.3 million spent on legal fees associated with a 2003 federal lawsuit, said Luzerne County Controller Maryanne Petrilla and Commissioners Greg Skrepenak and Todd Vonderheid, the new board majority.

The trio inherited the case scheduled for trial in 2007 from the old retirement board majority of county Treasurer Mike Morreale, Commissioner Stephen Urban and former controller Steve Flood, who alleged the pension fund paid millions of dollars in excessive commissions over more than a decade. Former board members and commissioners Frank Crossin, Joseph "Red" Jones, Tom Makowski and Tom Pizano were accused in the suit of conspiring with money managers to pay the exorbitant commissions in return for thousands of dollars in campaign contributions.

Flood boasted the suit would recover between $25 million and $75 million in damages for the pension fund that pays county retirees’ pension and death benefits. But a recently completed damages report, recovered damages to date and preliminary settlement talks suggest the figures were grossly inflated.

If the case goes to trial and the retirement board loses in court, the pension fund would recover nothing. The board should not be gambling with pensioners’ and taxpayers’ dollars, Skrepenak said Friday.

"The evidence or lack thereof in this case concerns me. The pensioners and the taxpayers are my ultimate concern. In the end, we have to come back with something," Skrepenak said.

"Something greater than our cost to date is a reasonable settlement," Vonderheid said. "If we can do that, I’ll vote to settle today, but I’m not going to blindly walk away. I’ll only walk away from this when it is in the best interest of the pensioners and the taxpayers."

Flood is not shocked the new board majority plans to try to settle the suit. But as a pensioner, Flood threatened Friday to sue the retirement board if the settlements do not produce a financial windfall.

"They’re six months away from trial. Why would they settle now?" Flood asked. "Thousands of dollars from insurance companies when you could get millions (in court)?"

His $75 million settlement prediction was based on winning against all defendants in trial, Flood said. Some pre-trial settlements have taken the number down, he conceded.

"I think it is time for everybody to sit down and talk," said Petrilla, who replaced Flood in January. "I think it is time to get into some settlement offers. I don’t see the benefit of taking this on to the next step now that the dollar figures are there, especially considering what we’ve already spent on attorneys’ fees."

The dollar figures she was referring to come from a recently completed damages report by Stephen J. Lansing, a Florida-based Certified Investment Management Consultant. Lansing estimated the suit could recover a maximum of $18.8 million from the money managers. Potential damages from the commissioners is not outlined in the report.

"The damages report came in fine," Flood said. "(Settling) is stupidity. If they settle, they’re selling out the pensioners and taxpayers."

Vonderheid reiterated he would only agree to settlements that recover at least the $4.3 million paid so far to Schnader, Harrison, Segal and Lewis, LLP., the Philadelphia law firm representing the board in the suit.

"We need to go in executive session, discuss the issues and talk to the attorneys," Urban said. "I’m not in favor of dropping the suit. Settlements are always discussed along the way, but they have to be amicable and cover the damages."

Tony Seiwell, business manager for Local 1300, which represents about 250 county employees and potential pensioners, does not agree with the suit. He said representatives of Local 1300 teamed with officials from United Food and Commercial Workers Local 1776 and asked to have a say in the lawsuit. Their participation was rejected by the former board majority, he said.

"The bottom line is I keep seeing them spend money for lawyers and fees," Seiwell said Friday. "Just end this already. They are using our money to finance a suit that seems to be frivolous."

They spell out how Morreale, the only constant member of the retirement board over the time period the suit alleges wrongdoing, received at least $4,000 in campaign contributions since 1998 from banks and money managers, including ASCO Financial Group of Kingston, the plan’s long-time advisor.

"Did you ever send a letter to ASCO asking them for a list of people who did business with the retirement fund so that you could solicit them for campaign contributions?" Morreale was asked in depositions by attorney Aaron Krauss, who represents Crossin, Jones, Makowski and Pizano.

According to the depositions, the banks and money managers bought tickets for Morreale’s annual fundraiser - a traditionally well-attended pig roast.

Morreale, who has been county treasurer for the last 23 years, said in depositions the contributions did not influence his vote and he did nothing wrong by accepting them.

Morreale cited a confidentiality agreement and court order by federal Judge A. Richard Caputo when he declined to answer several questions for this story.

"Every decision which I ever made and every vote I did cast regarding the Luzerne County Employee Retirement System was made based upon what I thought was in the best interests of said retirement system," Morreale said in a brief prepared statement.

Morreale also said in depositions that former commissioners did nothing wrong by accepting campaign contributions from money managers, a direct contradiction from what the treasurer alleges in the suit.

Morreale, who in 2002 abandoned his Democratic colleagues Makowski and Pizano, to form a new board majority with Flood and Urban, said in depositions he could not remember filing the suit or who the defendants were.

Morreale also said in depositions he did not think any contracts, several of which he signed, were entered into illegally, opposite again from what he alleges in the suit.

Skrepenak would not comment on a specific person’s deposition, but believes the depositions as a whole foreshadow trouble for the board’s case should it advance to court.

"After reading depositions, I see no one is accusing anyone of the conspiracy alleged in the suit," Skrepenak said. "I was concerned with the lack of real evidence in anyone’s deposition."

But in Urban’s deposition, the minority commissioner since 2000 said minutes of retirement board meetings fail to show that a public vote was taken to ratify investment contracts. Urban also said in depositions, if the contracts were not approved at a public meeting, they are not legal agreements.

Urban said he was first alerted to the alleged problems with the contracts in 2002 when Glynis Koehler, a former certified public accountant in the controller’s office, began probing the fund and its investments.

"I am aware from seeing a document that Provident/Nationwide (money manager), I believe, was hired on June 6, 2000, by Tom Makowski and Tom Pizano without board approval," Urban said in depositions. "I was a member of the board at that time. When I saw these documents in 2002, I felt deceived, I felt betrayed, I felt I was lied to and I felt I was denied the opportunity to do my fiduciary duty, which was to act as a member of the (retirement) board of trustees and to vote on matters."

Makowski speaks about campaign contributions in his deposition. He vehemently denied his votes were influenced by donations he received from members of the Joyce family, who also are defendants in the lawsuit.

"No," Makowski said. "That’s outrageous. We raised money on a regular basis. Every day of the year for nine years I would send letters, golf tournaments we had, cocktail matters, raised money for the Democratic party. The only people I ever asked specifically for contributions were my friends. I’m offended by the fact that anyone would indicate that I would jeopardize my license and my integrity, my license as a lawyer or my integrity, to take a contribution to either help someone or punish someone as a result of that."

Yet Flood alleged wrongdoing in his deposition when asked about business relationships between the former commissioners and money managers. Like Urban, Flood contends contracts were not monitored for performance or publicly approved by a majority vote of the board.

"They - from the records we could see, again, there were no (meeting) minutes, there were large amounts money being moved between - on the signature of two commissioners or less," Flood said. "There were no approvals at the public meetings when the retirement board would meet, and the fact there were no review - quarterly reviews or semi-annual reviews every year. I didn’t see any performance brochures, I didn’t see the money managers being hired, nor supervised, by the board."

"It’s very frustrating to me that when this was initiated people were talking about a $75 million case and now, with the evidence, it is obvious it is nowhere near that," she said. "I feel the public was misinformed."

One of the former commissioners and the vice president of ASCO admit to accepting the contributions and being paid the commissions, respectively. Crossin and Maria Williamson, wife of Don Williamson and vice president of ASCO Financial group, deny, however, that they played any role in what investments the board made between 1988 and 2002.

"I believe that any accusation or allegation of a pay-to-play scheme has now been refuted by the deposition testimony taken over the last two years, many of which I attended personally," Maria Williamson said Friday in place of her husband Don, who was unavailable for comment. "Any contributions made by either myself or my husband throughout the years have been publicly disclosed and reflected on the campaign contribution reports along with numerous contributors who were involved with the pension plan, but never named in the lawsuit."

The significant growth justified more than $6.4 million in commissions paid to ASCO Financial Group and the Joyces over the years, Crossin said Friday.

"This fund was lauded by multiple managers across the state," Crossin said. "The fund made tens of millions and we paid good solid fees for that. You’re darn right we paid for those great returns."

The fund, however, lost almost $50 million between 2000 and the middle of 2002, a period of time when booming financial markets turned sour. Flood blames the fund’s investments for the loss. He said 70 percent of the funds’ assets were invested in high-risk stocks that sustained significant drops in value during the early part of the decade. The board members should have never invested so much of the pension fund’s assets in stocks with such unpredictable values, Flood said.

"Here’s the important point - $72 million was moved around by the signature of one commissioner - Tom Makowski," Flood said. "How could one person move money like that?"

When the retirement office was closed in 1999, Lois Kammerer, the office’s manager, was out of work. Depositions outline how Morreale tried to get Kammerer a job with the county and ASCO Financial Group.

"I told him at this point we did not have a position for Lois Kammerer and he pointed his finger at me, as I previously testified, and told me that I would regret not hiring Lois Kammerer," Maria Williamson said in depositions.

Morreale confirmed Makowski’s statement about him asking the former commissioner to hire Kammerer. Morreale said in depositions he asked Makowski "maybe once or twice" to find her a job.

Ironically, Morreale said in depositions he voted to close the retirement office. The treasurer said in depositions he did not consider his actions and only voted to close the office because of Crossin.

As for the lawsuit, Petrilla, Skrepenak and Vonderheid all believe it was filed for political or personal reasons, not because of the alleged damages to the fund.

Flood, the most outspoken advocate of the lawsuit, had himself removed as a plaintiff earlier this year, only weeks after he was out of office. The move increased Skrepenak’s doubts about the merit of the case.

"(Flood) was the guy leading the charge. He was the one who said I will continue this case even if I don’t get re-elected," Skrepenak said. "But as soon as he loses, he’s gone. If he thought it had merit, I think he would still be there."

Flood said the board’s attorneys recommended removing him from the case. He said it could have personally cost him thousands of dollars if he remained a plaintiff. His decision to walk away had nothing to do with the strength of the case, Flood said.

"You want to talk about vendettas - ASCO filed a personal defamation case against me after I filed this suit," Flood said. "You want to talk about politics - Petrilla says back in November and December she is not going to pay my legal bills (stemming from the defamation case)."

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