Update on FCA UAW Embezzlement Scandal

Back in 2009, during the Global Financial Crisis, Chrysler filed for bankruptcy protection and quickly emerged from it with some new owners: the United Auto Workers Union (UAW) Pension Fund, FIAT (with 20%), the US Government and the Canadian Government. Gradually, over the next few years FIAT increased their stake by buying out all of the partners so that they owned the whole business and started to trade as FIAT Chrysler Automobiles. In recent years though several issues have plagued the company. One relates to diesel emissions and is similar to the issues surrounding the VW Group, Mitsubishi and other manufacturers. Another was around improper payments by the company to dealers in the US where a lawsuit for racketeering was launched in 2017. This issue was in regards to inflating sales figures. There was another, more widespread issue: the misappropriation of company (and Government) funds by members of the UAW who were employees of the company. This is an ongoing scandal that is taking down many managers – some of whom will be sentenced in the coming months. It is possible that the issues surrounding the false sales figures uncovered this misdemeanour because the finance department was involved in both problems. The underlying issue was a multi-million dollar conspiracy using funds from the UAW-Chrysler Training Centre at its heart. Between 2009 and 2014, FCA made annual payments of up to $31M to the training centre with the intention of training the factory workers. It appears that a sizeable chunk of the money ended up either in the pockets of several officials or as gifts ranging from clothes, jewellery and travel, right up to a Ferrari for the kingpin! The main executive involved (who got the Ferrari) was Alphons Iacobelli who was the company’s labour chief and on the governing board of the training centre. Alongside him was General Holiefield, who was Vice President of the Union and his fiance (later wife and widow) Monica Morgan. An FCA financial analyst, Jerome Durden, was also involved and was instrumental in directing the funds and then hiding the transaction. Another union executive, Keith Mickens who also sat on the board of the training centre was also indicted for embezzlement. The underlying reason for the embezzlement was to keep the union leaders “fat, dumb and happy” – apparently words used by Iacobelli. It meant that wage negotiations would be easier if the leaders were in the pockets of the financial guys in the company. It apparently worked. Alphons Iacobelli Iacobelli instructed Durden to get a load of corporate credit cards for the union officials and tie them to the training centre. The transactions on these cards were paid by the centre using funds FCA had given them for training purposes. He embezzled nearly $1M of the funds to improve his lifestyle by renovating his house (you need a nice house to go with the Ferrari!), buying Mont Blanc pens presumably to write better cheques, leasing private jets and general purchases. He is expected to get at least eight years when he is sentenced in May and he will have to pay restitution of $835,000. General Holiefield General (it is actually his first name) and Morgan used over $260,000 to pay off the mortgage of their house and they used other funds to travel first class, have a pool built and to buy nice clothes. He also defrauded the training centre’s preferred charity – funds were supposed to be given to the charity by the training centre, however he was directing them to Morgan’s bank account instead. He died in 2015. Monica Morgan Not only was Morgan receiving funds from the training centre directly, she was also given a preferred vendor status and subsequently issued a pile of fake invoices for work that was never carried out. She received over $70,000 that should have gone to the charity. Morgan pleaded guilty to a lesser crime of tax evasion and is expected to serve a little over two years in jail and pay restitution of $190,000. Jerome Durden Durden’s main job was to hide the transactions and to manage the flow of funds between FCA and the union. Keith Mickens As a board member of the training centre, Mickens was given a credit card. He used that to buy over $7,000 of items for his own pleasure and he even bought Holiefield and Morgan the pool that they had installed at their house! He is expected to receive at least a two year jail sentence for his part in the embezzlement. Michael Brown This FCA executive was in charge of employee relations and has been charged with lying to a federal grand jury by not sharing the details he knew about the scandal. Virdell King King was a rising star in the union and was breaking the glass ceiling for other women in the organisation. Unfortunately, she also received a credit card and was blowing it on luxury goods for herself and others in the union. She has pleaded guilty to embezzling over $50,000 and will be sentenced in August. Norwood Jewell Jewell was a former VP of the UAW and he has become embroiled although at the time of writing he has not been charged with any crimes. He was the recipient of a lavish $30,000 party in his favour in 2014 – just before the 2015 pay deal was formulated! Jewell suddenly retired late last year. Nancy Johnson Johnson was another union official who went on a spending spree with FCA money just before the 2015 negotiations started. Johnson is facing five years jail time and a possible fine of up to $250,000. The Aftermath Apart from many of the players above heading to jail, a class action suit has been launched by union members against the UAW for hundreds of millions of dollars because the agreements made with FCA have affected agreements with the other US manufacturers. This is going to play out for many months or years and will certainly affect the next round of pay negotiations. Strangely the Union released a statement that stated “there is no evidence that compromised individuals involved in this investigation corrupted the negotiations of the terms of the collective bargaining agreement”. I find that hard to believe – humans are easy to persuade when big carrots are offered! Update – 8th September In August, Iacobelli was sentenced to 66 months in federal prison, or 5½ years, slightly shorter than the expected eight years that was reported earlier. He still has a court date to decide on the amount of restitution and he is being sued by the union for $4.4M in damages.