Unions sue hedge funds over money lost by Madoff

By Brian Eckhouse (contact)

Friday, April 17, 2009 | 2 a.m.

Two Las Vegas unions claim to have lost almost $2 million in retirement funds to the Bernard Madoff Ponzi scheme, and have sued the hedge fund in which they had invested that money.

The unions — Laborers Union Local 872 and Plumbers and Pipefitters Local 525 — sued Austin Management Capital and sister companies Victory Capital Management and KeyCorp. The litigation, filed in U.S. District Court in the Southern District of New York on April 8, seeks class action status.

Austin Capital placed about 7.5 percent of its money in Madoff-managed investments, breaching its fiduciary duty to clients, according to the San Diego-based law firm representing the unions, Coughlin Stoia Geller Rudman & Robbins.

Neither union lost a large percentage of its retirement fund. Laborers lost less than $1 million of its $335 million fund, said Thomas White, chairman of the union’s joint trust fund. Plumbers and Pipefitters lost $630,000 of its $138 million fund, according to the money management Web site Pensions & Investments.

The Laborers’ 375 retirees who are collecting pensions won’t be affected by the loss, White said. About 6,000 workers participate in the fund.

“We’re pretty fortunate,” White said. “$1 million is still $1 million, but some (companies) lost over 50 percent of their money.”

Litigation to protect its investments is not new territory for the Laborers. About 10 years ago, White said, the local invested in a company that made deficient products, prompting a decline in stock price. The union sued and recovered some of its money.

“You usually don’t get back what you paid (in),” White said, but the amount returned is better than 10 cents on the dollar.

Considering the small hit to the retirement fund of the Plumbers and Pipefitters, it would seem likely that it too can sustain the loss. A representative of that union did not return a phone call seeking comment.

Austin Management Capital is one of several companies sued since Madoff was arrested in December for managing a vast Ponzi scheme since at least the early 1990s. Madoff’s fund stole billions, potentially $50 billion. He pleaded guilty in federal court to running the scheme last month and is awaiting sentencing.

In a February regulatory filing, KeyCorp stated that Austin Capital Management lost up to $186 million in the Ponzi scheme. That month a Philadelphia-area pension fund for hospital and health care employees sued Austin, also seeking class-action status. The fund alleges that Austin violated a federal law that sets minimum standards for retirement and health benefit plans, USA Today reported.

A representative of Austin Capital did not return a phone call seeking comment.