A TWO-YEAR-OLD INTERNAL PROBE into the financial practices of a politically powerful Los Angeles labor union has uncovered evidence of widespread political-campaign violations and has now spurred a criminal investigation focusing on campaign spending for local elected officials, including former City Councilman Martin Ludlow.
Investigators are poring through records of political campaigns, including Ludlow’s hard-fought 2003 City Council race, to determine whether to charge several candidates, Service Employees International Union (SEIU) Local 99, and a corporation the union set up with failing to report phone-banking services — potentially valued at millions of dollars — as political contributions, according to sources close to the investigation.
Local 99 represents about 38,000 public school workers in the Los Angeles Unified School District and smaller, nearby districts.
Sources said the probe involves both the Los Angeles County District Attorney’s Office and the Los Angeles City Ethics Commission. Jane Robison of the D.A.’s office declined to provide details, explaining, “We cannot comment on ongoing investigations.” Ethics Commission Executive Director LeeAnn Pelham declined comment.
The investigation has sent ripples of concern through Los Angeles’ political and labor establishments. Before running for the City Council, Ludlow was the political director of the Los Angeles County Federation of Labor, the umbrella labor council for local unions affiliated with the AFL-CIO. Last year, he left the City Council to become the organization’s chief after the death of longtime County Fed leader Miguel Contreras. Ludlow has been widely credited with steering the County Fed not just through Contreras’ passing, but through the breakaway from the AFL-CIO of some of the nation’s most vibrant unions — including the SEIU. Under Ludlow’s leadership, the County Fed retains the “Change to Win” locals, such as the SEIU, as well as the unions that have stayed with the AFL-CIO.
Ludlow, who had not responded to numerous requests for an interview over the past two months, issued a written statement Tuesday in response to a series of e-mailed questions. “The Los Angeles County Federation of Labor as a policy will not comment on pending investigations of an affiliate,” Ludlow wrote. “Any investigation into any campaign, including my own, will receive my full cooperation.”
Ludlow is also the subject of an ongoing federal probe into his role in a development project involving the Metropolitan Transportation Authority. Ludlow, who was a member of the MTA board when he served on the City Council, asked his transit-board colleagues to hire a consultant to rally public support for a project that he couldn’t officially back, due to state conflict-of-interest laws.
A source close to the most recent probe said investigators want to know if a general sloppiness in Local 99’s finances and record-keeping simply spilled over into the phone-banking for Ludlow and other candidates — or if, instead, union officials orchestrated an illegal scheme to elect their candidates by hiding behind a shady corporation that sucked badly needed dues money from unwitting school workers.
That corporation — Telincs, Inc., also known as Telincs Communications — was at the heart of a financial and record-keeping fiasco that caught the attention of union officials in Washington. The trouble came to a head in May 2004, when SEIU’s international office took over Local 99 and ousted its leadership. The local remains under trusteeship as accountants and other consultants hired by the SEIU continue to sort out the financial tangle that is Telincs, formed by Local 99 officials in 1999 to conduct telemarketing, computer and communications services.
Under the leadership of Local 99’s chief executive officer, Thomas L. Newbery, the corporation was instrumental in creating an innovative mobile phone bank out of three refrigerator trucks once used to transport frozen foods. The trucks were repainted in the SEIU’s trademark purple, emblazoned with the union’s logo, parked in Local 99’s parking lot on Eighth Street just west of downtown Los Angeles, and converted to call centers, hosting dozens of paid and unpaid callers who telephoned prospective voters during Ludlow’s hard-fought 2003 council campaign and other recent elections.
A man who identified himself as Newbery hung up on a reporter who called his home seeking his comment. A detailed message was left for him on a second call, which he did not return.
PHONE BANKING HAS BECOME a crucial component of successful campaigns in the last few days before elections, and is perfectly legal — as long as the value of the work is reported as a campaign donation.
Prosecutors are examining whether the phone-banking trucks were part of a widespread pattern of keeping the value of phone-banking services hidden from public view, according to sources familiar with the investigation.
The trucks are officially known as “Mobile Action Centers,” but are most commonly referred to by union officials as the “Big Purple Trucks.” Being mobile, they are often sent to other spots around the state and even the nation for phone banking for labor-backed candidates.
Newbery had dual contracts, one with the union, for a $70,000 salary, to negotiate contracts, conduct budget planning and use his computer knowledge for the benefit of members, and a second contract with Telincs, for a $30,000 salary, to lead the corporation.
When Telincs was set up in 1999, its directors were to be the members of the union’s board. But, according to testimony from union bookkeeper Phillip Wernig at a July 10, 2004, hearing to determine whether to maintain the international’s trusteeship, no one told the union directors that they were also corporate directors and that they had any authority over the corporation’s affairs.
“[E]ven though [Telincs] has been a corporation since 1999,” Wernig testified, according to a transcript obtained by the Weekly, “the trustees were not informed that they were the directors of [Telincs] until November 2003, therefore they had no active participation.”
By that time, Wernig testified, Telincs owed Local 99 nearly $1 million that it had borrowed to initially capitalize the corporation, to buy telecommunications equipment and to pay a substantial part of Telincs’ expenses. The loan came in the form of a promissory note dated January 19, 2000, in the amount of $354,043.14, Wernig testified. It was later amended upward, but after the beginning of 2001 there was no further tracking of the outstanding debt owed by the corporation to the local, Wernig testified.
“The debt . . . changes almost on a daily basis due to the shared facilities and the shared employees between Local 99 and [Telincs],” Wernig testified. “Where does the debt stand today? It’s impossible to calculate.”
Wernig testified that at the end of 2003 the total debt the corporation owed the union was $741,661, while Telincs’ net worth was “minus $126,006.”
Janett Humphries, the Local 99 president who was ousted when the SEIU international office took over in 2004, found herself at the heart of allegations of financial mismanagement at a trusteeship hearing. Representatives of the international cited records showing trips taken by Humphries’ daughters at union expense.
But Humphries said any expenses were for union purposes, and that all personal travel costs were reimbursed.
As for political decisions, she said, they went through Newbery.
“If he asked me to sign anything, I trusted him and I would sign it,” Humphries said.
Humphries, now retired, first came to Local 99 when it was in an earlier trusteeship, and helped reform and expand the union.
As the international was preparing to step in, she said, president Andy Stern asked her to fire Newbery, but she did not have the authority to do so.
Attorney Ricardo Torres II said Humphries has hired him to defend her against allegations that she did anything improper as union president.
“She has done nothing wrong,” Torres said. “She has nothing to hide. She needs to be given her reputation back.”
Ben Boyd, a spokesman for the international, declined to comment on the criminal probe, but he said the trusteeship was a “serious matter” and that its purpose was to restore member control.
“I can tell you there were things woefully wrong at that local,” Boyd said.
Christine Pelisek contributed to this story.