VII. CORRECTIVE ACTIONS AND RELATED EVENTS

REFORMS ARE IMPLEMENTED IN FUND

Early in 1973 the board of trustees of the Local 295 severance fund took steps to improve the fund's procedures and insurance benefit.

Fringe Programs, Inc., was dropped as administrator of the fund. January 16, 1973.94

The trustees voted to end the practice of buying individual life insurance policies for the union's members on February 20, 1973. A single group term insurance contract, effective March 1, 1973, was purchased with the Prudential Life Insurance Company.95

Accordingly, no agent or broker was involved in the purchase of the group term policy, thereby eliminating the high commissions paid under previous policies.

Under the new group plan, each member, regardless of age, was insured for $30,000.

The trustees also amended the rules and regulations of the severance fund so that payment of the death benefit would be made in lump sum and in full. 96

JAMES HOFFA'S BOOK

Before his disappearance July 30, 1975, James R. Hoffa, the International Brotherhood of Teamsters former president, wrote a book entitled, Hoffa: The Real Story. 97 The book was written in collaboration with Oscar Fraley, a former sportswriter who also wrote The Untouchables and other books.

In his book, Hoffa was critical of his successor, Frank Fitzsimmons, and charged that Fitzsimmons, as Teamsters president, allowed organized crime figures to bilk Teamsters of large amounts of money. Hoffa asserted that Fitzsimmons had been guilty of "selling out to mobsters and letting known racketeers into the Teamsters."

Citing the Local 295 severance fund, Hoffa called attention to Louis C. Ostrer's role in an insurance plan that resulted in a $1.1 million "rip-off" of Teamsters members in the local which was "dominated by labor racketeer Harry Davidoff."

READER'S DIGEST ARTICLE

In the August 1974 issue of Reader's Digest, longtime labor rackets investigative reporter Lester Velie reported on the severance fund-life insurance benefit scheme which Louis Ostrer devised.98

"Letter of January 16, 1973 from Michael Hunt to Fringe Programs, Inc. (See Appendix XXX.) Subcommittee memorandum of February 21, 1973 entitled, "Local 295 Severance Trust Fund, Selection of Insurance Carrier by Trustees of Fund," from Maurice Frame to John P. Constandy. (See Appendix XXXI.)

Amendment to Local 295 Severance Trust Fund, effective February 1, 1973. (See Appendix XXXII.) Hoffa: The Real Story, by James R. Hoffa, as told to Oscar Fraley.

"The Mafla Tighten Its Grip on the Teamsters" by Lester Velie, Readers Digest, August 1974, p. 99. (See Appendix XXXIII.)

(32)

Velie reported that the scheme first employed at Local 295 in New York was then put into practice in 60 or 70 Teamsters locals in Michigan, California, Nevada, New Jersey, Illinois and Florida.

Velie said Ostrer got the go-ahead to promote his severance fundinsurance plan from Frank Fitzsimmons. Velie said Ostrer hired Fitzsimmons' son, Don Fitzsimmons, as a "consultant and public relations man."

APRIL 18, 1974 CITATION

On April 18, 1974, the New York State Insurance Department issued a citation charging that the Local 295 Severance Trust Fund had been improperly structured and managed. Named in the action were 10 trustees of the fund and Louis C. Ostrer, Dina Gelman, Cy Reeves Snyder, Seymour Greenfield, Viscount Agency, Inc., Fringe Programs, Inc., Executive Life Insurance Company of New York and Trans World Life Insurance Company of New York." The state insurance department citation was authorized by Superintendent of Insurance Benjamin R. Schenck and signed by Sidney B. Glaser, Associate Counsel for Welfare Funds.

Ostrer and the others were charged with having "willfully and/or wrongfully and/or negligently failed to comply with" New York State insurance laws, the result of which was the depletion of the assets of the severance trust fund in the amount of $1,185,728.

Among the charges levelled by the insurance department were assertions that the whole life policies were "excessively costly," that no accredited actuarial consultant was brought in to evaluate the severance trust fund's life insurance benefit, that Louis C. Ostrer lost his license to sell insurance due to questionable practices in the 1960's, that the trustees should have checked into Ostrer's past and learned of his felonious background.

In addition, the insurance department's citation alleged that Cy Reeves Snyder, Dina Gelman, Louis Ostrer, Executive Life, and Trans World Life were involved in transactions they knew to be improper in connection with the purchase of the whole life policies; and that they, in fact, fronted for Ostrer in the solicitation and sale of the severance fund insurance program.

The state insurance department charged that Louis Ostrer and the others named in the citation had, by their actions in the Local 295 Severance Trust Fund, showed a "pattern of gross neglect, incompetence, mismanagement and imprudence" and were guilty of "willful violations of the insurance law.'

Louis C. Ostrer and the others were ordered to appear at proceedings of the New York State Insurance Department beginning May 21,

1974.

Nearly two years later-on March 4, 1976-the New York State Insurance Department announced it had recovered $200,000 to be returned to the Local 295 severance trust fund." 100

Superintendent of Insurance Thomas A. Hartnett said the recovery was made according to an agreement entered into by the department with 10 trustees of the fund and the two insurers, the Executive Life

State of New York Insurance Department Citation regarding Local 295 Severance Trust Fund, April 18, 1974. (See Appendix XXXIV.)

100 News release of the State of New York Insurance Department issued March 4, 1976. (See Appendix

Insurance Company of New York and the Trans World Life Insurance Company of New York.

The trustees and the insurance companies agreed, "without conceding liability," to pay the $200,000 to the insurance department, Superintendent Hartnett said. The department was then to transmit the money to the local's severance fund.

According to Insurance Superintendent Hartnett, the recovery was in response to the department's charges that, first, the trustees had imprudently bought excessively costly whole life insurance policies for severance fund members; second, the trustees had made these purchases upon the advice of Louis C. Ostrer but they had not bothered to check out his felonious past; third, the insurance companies had violated the insurance law by issuing individual policies without obtaining the individual member's written consent to having his life insured; and fourth, the commissions paid on the policies were "grossly in excess" of those permitted under the Code of Ethical Practices of the National Association of Insurance Commissioners. The March 4, 1976 action ended the insurance department's proceedings against the 10 severance fund trustees and the two life insurance companies, Executive and Trans World.

However, the department noted, its proceedings against Louis Ostrer, Dina Gelman, Cy Reeves Snyder, Seymour Greenfield, Viscount Agency, Inc., and Fringe Programs, Inc., would continue, resuming March 15, 1976 in the department's offices in the World Trade Center Building No. 2 in New York City. These hearings were still in progress at this writing. The department hoped to be awarded the remaining $900,000 of the original $1.1 million it charged had been depleted from the Local 295 severance fund.

VIII. FINDINGS AND CONCLUSIONS

Investigation by the Subcommittee staff into the severance trust fund of Teamsters Local 295 showed that the fund and its life insurance feature were established and operated more to benefit the creator of the system-Louis C. Ostrer-and his associates than the workers.

The workers could have had cheaper and more practical insurance coverage and their severance trust fund could have been built and operated on a much sounder footing.

The two major drains on the severance fund were the huge commissions on the individual policies and the exorbitant administrative fees. Both of these resulted in handsome profits for Ostrer and his associates such as Mrs. Dina Gelman, Cy Reeves Snyder and Seymour Greenfield. These profits were gained at the expense of workers.

One example of how workers ultimately suffered was the Ostrer system of paying insurance benefits to beneficiaries. A worker's widow was given the choice of receiving one lump sum payment with a significant discount; or she could take the entire endowment in 10 equal payments across 10 years. Either way, the widow lost and the severance fund gained. But the fund required profitable procedures like this to compensate for the depletions caused by the high insurance commissions and administrative fees.

Another example of how Ostrer designed the severance pay-life insurance plan to benefit himself was seen in his arranging whole life policies for each of the 1,400 workers, rather than negotiating a more conventional and much less expensive-group plan.

The General Accounting Office estimated that commission costs would have been approximately $10,000-not $800,000-if the coverage had been group rather than individual whole life. Thus, the use of individual policies rather than the less expensive group plan cost the fund approximately an additional $790,000 in commissions.

Ostrer's intention was clear. Individual policies also meant many individual commissions for the agents and the agents were Mrs. Gelman, Ostrer's sister, and his close associates, Snyder and Greenfield.

Similarly, Ostrer saw to it that the same Mrs. Gelman was also awarded the job of administering the severance fund. Again, the returns were lucrative. Ostrer benefited from administrative fee profits, just as he profited from the insurance commissions.

It is apparent, then, that instead of being primarily increased compensation for workers, the fund served as a means for improperly obtaining monies from the severance trust fund. The excessive agents' commissions and the administrative costs-and the very concept of whole life policies were the avenues through which Ostrer, with Davidoff's concurrence, was able to extract hundreds of thousands of dollars from management at the expense of the workers.

A severance pay-insurance plan provides a wide variety of probably legal but certainly questionable methods for mobsters to obtain huge amounts of funds. A mobster who can speak for organized labor in

pursuit of an apparent legitimate union demand-such as a severance fund-enjoys considerable protection against detection and prosecution. That is one reason why organized crime has been attracted to the union movement for many years.

Accordingly, the investigation by the Subcommittee staff into the severance trust fund and life insurance benefit of Local 295 showed that the local's leadership continued to be infiltrated by persons associated with organized crime.

In the late 1950's and in 1960, the Select Committee on Improper Activities in the Labor or Management Field cited Local 295 as being run by racketeers. The Select Committee was, in effect, an arm of the Senate Permanent Subcommittee on Investigations. Some 16 years have gone by since the Select Committee examined Local 295. There was more than enough time for the Teamsters International to demand that Local 295 be cleaned up.

The mere fact that Harry Davidoff was able to stay on for so long a time as secretary-treasurer and principal leader of the local is sufficient evidence on its face to demonstrate that the corruption that was rampant more than a decade ago was not eliminated.

The Teamsters Union has never lived down the bad reputation it received in the public mind as a result of the activities of Dave Beck, James Hoffa and their associates. The International should be determined that each of its local chapters is run for the benefit of its members and certainly not be led by persons who are associated with organized crime. Hundreds of thousands of men and women who are law abiding members of the Teamsters throughout the nation. deserve no less.

With specific reference to the severance pay-life insurance program of Local 295, the Subcommittee staff finds that:

(1) Louis C. Ostrer designed and managed the severance payinsurance program to make a lot of money for himself at the expense of workers and management.

(2) Ostrer should never have been allowed to participate in Local 295 affairs. Conscientious labor leaders would have noted his ties with organized crime and the fact that he had lost his agent's license in a criminal matter.

(3) The Executive Life Insurance Company of New York and the Trans World Life Insurance Company of New York, which provided coverage for Local 295 under the severance pay-life insurance program, should have refused to have any dealings with Ostrer because his license had been revoked in a criminal matter. A review of the charges levelled against Ostrer would have revealed his criminal past. By doing business with Ostrer, the two insurance companies showed that selling 1,400 insurance policies was more important to them than the ethical considerations of how the policies were being sold and who, in reality, was selling them.

(4) Abuses of the severance fund were of such consequence that the Permanent Subcommittee on Investigations is referring this staff study to the Senate Committee on Labor and Public Welfare. The potential for other abuses of severance funds may be seen in the Local 295 experience and this staff study may be helpful in citing the need for new legislation. Copies of this study are also being referred to the Internal Revenue Service, the Department of Labor, the Department of Justice and the headquarters of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America.