WASHINGTON -- The president of a Chicago-based investment fund misspent nearly $11 million in investments by Detroit area pension funds on lavish travel and entertainment and diverted some money into a company that operates a Detroit strip club, according to federal regulators.
AA Capital Partners Inc. manages $194 million in assets for six pension funds -- including $92.7 million from the Detroit-area Carpenters Pension Trust Fund and $75 million from Livonia-based Operating Engineers Local 324.
The U.S. Securities and Exchange Commission has filed a civil complaint against the company and its president, John Orecchio, a former managing director of Bank of America Capital Corp., accusing him of misappropriating $10.7 million.
"We're concerned about the misappropriation of union pension funds," said John Sikora, the SEC's assistant regional director in Chicago on Tuesday.
Orecchio submitted more than $4.3 million in travel and entertainment expenses in the first nine months of 2006, including $1 million for political donations -- $650,000 to the Michigan Democratic Party. When he was removed by the company in September, Orecchio had five cases of wine and an oversized humidor filled with Cuban cigars in his Chicago office. On the wall was a Playboy golf flag signed by Miss July 1998, court records show.
He spent hundreds of thousands of dollars on private plane travel and $120,000 to entertain clients at the Super Bowl in Detroit in February. He bought event tickets through scalpers and spent hundreds of thousands of dollars on stays and entertainment at Las Vegas and Colorado resorts, according to government documents. U.S. District Judge Robert Gettleman in Chicago froze the assets of AA Capital and Orecchio and appointed a receiver, Scott Porterfield, who is seeking to recover misappropriated funds.
Porterfield has hired a forensic accounting firm to help his law firm conduct an investigation over the next few weeks. He said that the firm's investments were generally solid. "This is about lavish living and a lavish lifestyle," Porterfield said.
Numerous expensive items have turned up, Porterfield said, including a signed pinball machine by The Who, an autographed Coldplay lithograph and several autographed Tiger Woods items, according to government documents. It's not clear how much the pension funds stand to lose. Representatives for the pension fund either declined to comment or didn't return calls. AA Capital has insurance policies that Porterfield will pursue to recoup losses.
Orecchio, 40, of Arlington Heights, Ill., owns 50 percent of AA Capital and became the company's managing director and president in April 2002. "Since it's an open matter, we're not commenting," Orecchio said, when reached at his home.
The SEC alleges Orecchio diverted at least $5.7 million to various accounts, including more than $1 million to Lonyo LLC, which runs the Crazy Horse strip club in Detroit and $610,000 to a Michigan horse farm called M&J Animal Rescue LLC, the SEC said. M&J, based in Fair Haven in St. Clair County, is now empty, said Paula Martin, a former employee who spoke by telephone with The Detroit News.
M&J Rescue was run by Marley Powers, who also oversaw the strip club, said Martin, who lost her job last month. Orecchio helped Powers rescue dozens of horses destined for slaughter. "He didn't spare any expense to take care of those horses," Martin said Tuesday.
Martin said Orecchio gave Powers lavish gifts, she said, including a $400,000 diamond ring, two Bentleys and a Jaguar. In 2005, AA Capitol had revenues of $2 million and expenses of $7.2 million. The company borrowed money from union accounts to pay for its expenses, the SEC said. AA Capital chief financial officer, Mary Beth Stevens, told the SEC the company doesn't keep a general ledger, according to the filing. Among AA Capital's assets is a Detroit office of the company at 400 Monroe St. that's empty, except for some documents.
The asset search turned up a 20-seat suite to Chicago Bears games, along with Chicago Blackhawks and Detroit Red Wings hockey tickets. Both hockey teams have agreed to refund the balance of the season tickets to the court-appointed receiver. The Bears tickets will be sold.
On Sept. 21, the U.S. Department of Labor issued a subpoena to AA Capital in a separate investigation in connection with pension losses. Beginning in 2002, several Detroit-area pension funds began investing tens of millions with AA Capital through three of its funds: AA Capital Equity Fund I and II and Brush Monroe Partners LLP.
Warren-based Millwrights Local 1102 invested $6 million, while the Michigan Regional Council of Carpenters annuity fund invested $21 million. Two other units invested very small amounts: the Michigan Teamsters Joint Council No. 43 invested $100,000 and the Arkansas/Oklahoma Regional Council of Carpenters invested $500,000. Lawyers for the pension funds declined to comment or didn't return calls.
AA Capital said through the end of 2005 it had provided an 8.8 percent return since its inception, through investments like a $40 million stake in rebuilding the Hard Rock Hotel and Casino in Biloxi, Miss., ruined by Hurricane Katrina. It also was involved in financing the building of the Hilton Garden Inn in downtown Detroit, through $4.5 million invested in DHG Associates LP.
Cleveland-based Ferchill Group, which built the $27.5 million Garden Inn in 2004 and is restoring the Book-Cadillac hotel, said it had a minor relationship with AA Partners. Ferchill's CEO John Ferchill said Tuesday the AA investment "wasn't a big deal."
Ferchill said AA Capital has no role in the Book-Cadillac project. Porterfield has been aggressively cutting expenses at AA Capital. More than half of the employees have quit or been fired and the remaining highest paid employee accepted a 44 percent pay cut.
Source: http://www.detnews.com
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