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Case 1:90-cv-05722-VM Document 1722 Filed 11/15/16 Page 1 of 29 1



2 ------------------------------x
v. 90 Civ. 5722 (RMB)


8 AMERICA, et al.,
10 ------------------------------x
New York, N.Y.
11 November 2, 2016
2:00 p.m.
12 Before:


14 District Judge



Attorneys for NYC DCC Funds
18 -and-


Attorneys for Independent Monitor

ALSO PRESENT: David T. Meberg, Joseph Geiger, John DeLollis,
23 Michael Cavanaugh, Robert Lesniewski, Trustees




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1 (In the robing room)

2 THE COURT: Nice to see everybody. I have two issues

3 that I'd like to talk about, but if there is anything you would

4 like to talk about, just feel free. The principal one, as you

5 know, relates to the funds. Way back, I think in January of

6 this year, I don't know what prompted it. I think I saw a

7 report about the funds and not unlike other people had some

8 really dismal results, financial results. I asked around. I

9 think we've had the same funds manager, as it were, Gallagher,

10 for a long time. I don't know them one way or another, but I

11 do know that in other industries and in other fields, they're

12 continuously looking at their performance and results and if

13 they see a dip, they talk to three other people and see who

14 maybe could do better, or maybe not. And I thought here,

15 particularly since there's so much money involved, several

16 billion dollars, and since these are funds really of employees,

17 actually I thought I had a duty to raise the issue. I did

18 raise it. I got an immediate response, I think, from

19 Mr. McGuire was very positive, said we'll get on it right away.

20 And then I was a little disappointed not long after that to get

21 a letter which suggested that he wasn't getting on it so fast.

22 Anyway, there's been back and forth, and now it's November and

23 I'm a little surprised that we're at November and nobody is

24 eager as I am to do something. That's the origin. I'm happy

25 to you from you, Boyd, and also from you, Glen, but I'd be more


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1 happy to hear from the trustees, who have been pointed to as

2 why nothing has happened.

3 MR. JOHNSON: I don't want to take too much time, your

4 Honor. I do think it's important for you to hear from the

5 trustees, and I know that I speak for them and for Ms. O'Leary

6 when I say we're grateful for this opportunity to meet with

7 you, which we know is not typical.

8 As I said the last time, there is a commitment on the

9 part of the trustees not only to doing the best job they can

10 managing the money but also to have an openness to addressing

11 this concern and to getting sort of additional thoughts about

12 the way they invest the money and, frankly, about the returns

13 and the fees. I think Mr. McGorty explained in one of the

14 conferences I read in June there are some concerns that the

15 trustees have not about looking at this but I think just the

16 process of it, and you've heard from a lot of lawyers and I'm

17 not sure that's always been the most instructive. And I think

18 it would be great for you to hear from the trustees themselves

19 about not only the commitment to working hard on these issues

20 of investing the money, which is really the top priority that

21 they have, but to be more clear about the concerns about the

22 way in which we go about this. We actually have a proposal,

23 there have been some other proposals, and I think there is a

24 path forward here, but I know that the trustees would be glad

25 for the opportunity to give you their thoughts.


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1 THE COURT: I'd be delighted.

2 MR. MEBERG: Starting again, our fiduciary

3 responsibility we take very seriously, and that is to all the

4 beneficiaries and all the members of the fund. Protecting,

5 safeguarding and investing and growing their assets is the most

6 important thing we do. As this was originally broached to us

7 as somewhat of an examination of the job that Gallagher has

8 done for us, I think it's important to point out that

9 Gallagher, to us, is simply an advisor. They are not a manager

10 of our money. They advise us. We have a delinquency committee

11 that's set up that meets every other month, sits with

12 Gallagher, and assesses the multitude of managers that we've

13 employed to invest our money. We've spread the risk around to

14 a multitude of managers, a multitude of different asset

15 classes, and we very diligently monitor those investments. We

16 monitor their performance versus benchmarks, and it's something

17 again, as I say, we are extremely focused on as a board.

18 Gallagher per se does not make any decisions with respect to

19 how the assets are invested in any way whatsoever. They come

20 to our investment committee, our full board, make a full set of

21 recommendations. We will reject recommendations, we will

22 accept recommendations. Often when they'll make a proposal to

23 us to bring a new manager on, we'll interview a multitude of

24 managers and we will make a selection as to how to go forward.

25 We feel, and I'm speaking for the management trustees


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1 here, that our management processes and how we go about

2 managing these funds are absolutely and above and without fail

3 above reproach, and we have no, no objection whatsoever to have

4 those looked at, evaluated and audited in any way whatsoever.

5 I think what initially caught us off guard, perhaps,

6 was the desire to perhaps evaluate and then perhaps recommend

7 actually different investment vehicles. All right?

8 THE COURT: You could search high and low for the

9 transcript -- and we always have one, for all of our

10 proceedings -- and you won't find anything that could even be

11 construed as a reference to that fear.


13 THE COURT: There's no suggestion, certainly not by

14 me, and I'm the only one who's been talking on this subject. I

15 have no idea.

16 MR. MEBERG: No, I just think as a -- I guess we're

17 delineating that from a response to a document that I think

18 Mr. McGuire submitted and was sent back.

19 THE COURT: I don't know what he submitted. I'm being

20 honest, it's never come up. I don't even know really Gallagher

21 except by name because it was mentioned in the courtroom. I

22 think I did use an example. Since I have no money myself,

23 because I'm a public servant here, the closest I get to it is

24 my wife, who works at Wellesley College, and colleges, so I do

25 know what happens at the colleges. They are continuously


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1 putting out every year who came in first, who came in second,

2 and shuffling around, we're moving this, we're going to

3 somebody else, we've got to make more money for the school,

4 this is the school's fund, and frankly, I think it sounded to

5 me like a very healthy thing that happens. There's a lot of

6 competition. People say I could do it better. You shouldn't

7 be investing in private equity, or you should. I mean, you

8 know those debates.

9 MR. MEBERG: Perhaps right there is the crux of the

10 issue, Should you be invested here or should you be invested

11 somewhere else. That is to us as trustees purely a subjective

12 analysis, and that's one that puts us at risk.

13 THE COURT: I don't understand that.

14 MR. MEBERG: Well, if a report is generated that says,

15 You were here, you were in small-cap equities and that returned

16 6 percent, but if you were in high-cap value, you would have

17 returned 7-1/2, 8 percent, with the benefit of 20/20 hindsight,

18 that then as a trustee calls into question the judgment that we

19 had, whereas if we could have predicted the market before the

20 results came in, of course we would have been there. But it's

21 purely subjective and through the lens of hindsight.

22 THE COURT: Depends on who is doing the evaluation,

23 for one thing. And second, you gave that hypothetical, but

24 suppose somebody came in and said, "What business does

25 Wellesley College have investing in private equity? You can't


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1 get your money out when you need to get it out because it gets

2 tied up or stuck," and floats the idea that it's not a good

3 idea for colleges or universities to be -- I don't know. This

4 is a hypothetical, but let's say, take my hypothetical, let's

5 say they say that and let's say a fund lost a half a billion

6 dollars in private equity whereas if they had index funds or

7 some simplistic thing they'd be making 6 percent, well, you

8 know what, that's not a bad idea to float out there in my

9 opinion. It doesn't mean you accept it, but I think if there

10 is something like that and somebody has that suggestion, nobody

11 should be afraid to take the suggestion. I know we're not

12 hiring someone and ordering that the trustees do anything, but

13 the truss tees, I thought, should do something, should welcome

14 the idea of somebody coming along and saying, Hey, here's a

15 suggestion for you to make, the trustee being the fiduciary for

16 the workers, should say, Hey, that's a great idea, we never

17 thought of it, or we thought of it and rejected it because for

18 our organizations, this is the better way to deploy our funds.

19 I just can't imagine any fiduciary having that problem. I

20 guess it's a little pride of ego. I'm sure at Wellesley when

21 they say Harvard did this much better than you did last year,

22 it stings, or if you come out No. 10 on the list instead of No.

23 1 on the list, maybe it stings or then some other schools say,

24 Well, you know, we have this staff internally at Harvard, for

25 example, they have a whole bunch of people employed by Harvard


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1 who do the investing, along with outside investors, and other

2 schools say, Why do we need to have this staff at all, why

3 don't we just go to Morgan Stanley or somebody, whatever, so

4 there's a lot of good ideas about a return on investment and

5 probably a lot of not so good ideas. But that's frankly what

6 worried me, that people don't want to hear ideas.

7 MR. JOHNSON: I don't want to speak for the trustees

8 obviously, other than the last statement. The concern is not

9 to receive additional ideas; I really don't think that's our

10 concern, but frankly, just to be direct, the concern is that

11 the trustees will be sued by people looking for any opportunity

12 to question in hindsight how they've exercised their fiduciary

13 responsibilities. Obviously they run that risk because of the

14 jobs they have, but with respect to these investments, the CFO,

15 new CFO of the funds is here, but the returns, we think,

16 comparatively actually are good. We have a process that we

17 think works and is successful, but certainly one that we're

18 willing to hear about, so the concern here is that there would

19 be a report that would be generated that would be on the docket

20 that would say, You could have done better if you took this,

21 that, or the other assumption.

22 THE COURT: There might be such a report, yes. Who is

23 concerned about that?

24 MR. JOHNSON: The trustees are concerned that they

25 could be sued.


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1 THE COURT: Second-guessed.

2 MR. JOHNSON: In a frivolous lawsuit.

3 THE COURT: Second-guessed. OK, I get that. The

4 converse is that they want insurance that they're doing the

5 right thing and nobody should look at them. That's why we got

6 from January to November with no action, I guess.

7 Could we back up for just a minute. I should know

8 this, but could you just say who the trustees are, so to speak.

9 I know there are management trustees and union trustees. Do

10 they have other jobs in the union or elsewhere?

11 MR. JOHNSON: Dave Meberg and Joe Geiger are the

12 cochairs of the board.

13 THE COURT: A board of how many people?

14 MR. MEBERG: Twelve trustees, six from management and

15 six from labor. I'll just go over, the management trustees are

16 made up of executives within the different trade crafts that

17 the carpenters represent. I represent the floor-covering

18 industry. My paying job is I'm a CEO of a floor-covering

19 contracting company here in New York City.

20 THE COURT: I see.

21 MR. MEBERG: I'm one of the few who are actually still

22 employed as a contractor. My association's relatively small.

23 The trade is a small craft, so I represent my trade. And we

24 have one other trustee who represents the hod hoist

25 association.


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1 THE COURT: What's that?

2 MR. MEBERG: Hoisting, scaffolding.

3 THE COURT: I see. Does that mean that person has a

4 company?

5 MR. MEBERG: He has a company as well. And then we

6 have four other trustees who are employees, directors of trade

7 associations. John DeLollis, right here, represents wall and

8 ceiling association. We have another trustee, Mike Salgo, who

9 is actually an attorney but represents the cement league

10 concrete contractors. Paul O'Brien is the executive director

11 of the building contractors association, and Catherine -- I'm

12 sorry -- Catherine Condon who represents woodworkers.

13 THE COURT: Do they do this pro bono, or do you get

14 paid to be a trustee?

15 MR. MEBERG: We do not get paid to be on a trustee.

16 THE COURT: No compensation, no benefits.

17 MR. MEBERG: No. We get to come here.

18 THE COURT: If I had realized that, I would have made

19 it lunch.

20 MR. JOHNSON: Joe.

21 MR. GEIGER: Obviously we've met before. Joseph

22 Geiger from District Council. My position is the executive

23 secretary-treasurer. Also representing the union trustees is

24 the president of the District Council Steve McInnis; Vice

25 President Michael Cavanaugh; John Sheehy, who is a director for


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1 jurisdiction department; Paul Capurso, who is one of the league

2 regional managers; and Paul Tyznar, who got up at the last

3 court status conference and spoke on behalf of the grievance

4 department. Those are the six trustees for the union.

5 THE COURT: Six labor and six management.

6 MR. GEIGER: Correct.

7 THE COURT: And everybody does this pro bono; do I

8 understand that right?

9 MR. MEBERG: Yes.

10 MR. McGORTY: And so do the monitor and the lawyers

11 that they hire.

12 MR. JOHNSON: Mr. McGorty, I think, has seen this

13 Court in action, and there are a lot of extremely important

14 issues. Obviously there's not always agreement, but there's a

15 lot of common ground, and I think on this issue, again, your

16 Honor, my sense of it is there's not an aversion to someone

17 looking at the processes that are used to make the investment

18 or even looking at the results historically and how they

19 benchmark and the fees that are paid historically in

20 benchmarking, and to give those thoughts to us and to this

21 board in a way in which I think it would be appropriate. We

22 can think some more about this, but maybe under seal to your

23 Honor, some way to get the benefit of those insights. We can

24 talk some more about that, your Honor, but I do think that

25 there is legitimate concern here that unless the way in which


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1 we go about this is managed, there's a potential it could just

2 be fodder for more litigation. And not trying to suggest that

3 the trustees are looking to get insurance on doing their job

4 well, I think they understand how important their jobs are and

5 the responsibilities they have, but I think there is legitimate

6 concern this could be the bottom they're about come into now

7 representing the funds.

8 MR. McGORTY: I'd like to address that too. I think I

9 said that at the last conference, Judge. I think one of the

10 reasons you scratched your head about this, fairly, I think,

11 since the beginning of the year really is because it was never

12 articulated clearly to you until the last conference, I think,

13 what the real concern was. And the real concern, I think,

14 translating what you wanted to them and what they wanted to you

15 and what the concerns were to you was simply that the union and

16 the fund's live in an environment which you saw a little bit of

17 at the last conference where there's a small minority of very

18 vocal and very active members of the union and participants of

19 the funds, and I can honestly say that I think the leadership

20 of the union and also the funds, and to an extent because of

21 transparency reasons there's a necessity to this part of it,

22 but are constantly under scrutiny for everything they do, and

23 don't do. And I think there was a real concern that the

24 expectation was that by seeking new advice when they had some

25 level of comfort and security in what they were doing, they


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1 were just going to be creating an actionable burden on them to

2 actually take that advice and failing to do so would give rise

3 to exposure to potential litigation by members.

4 Again, everyone at this table knows that actually

5 whatever happens when these guys leave the room, they may get

6 sued for not hiring someone to evaluate Gallagher, or to

7 evaluate. We all know that, but just to be clear from my

8 perspective as an independent observer who's spent more time on

9 the ground with these guys, they take this fiduciary obligation

10 extremely seriously, and no part of the motivation in

11 questioning or having doubts about whether what you were

12 suggesting was the right way to proceed was driven by anything

13 other than thinking long term in the interests of the funds.

14 And I know you never questioned that, but I think it's worth

15 saying on the record.

16 THE COURT: But you know what? We're creating, all of

17 us, a bad impression. I start out in January saying I have an

18 idea and somebody says, Yeah, we'll get on it right away, and

19 then I get a lawyer letter two weeks later that says, Rah, rah,

20 you have no jurisdiction, blah, blah, blah. Then we come back

21 to the next meeting and I say, Hey, what about that, and they

22 say, Yep, trustees are all for it, and here's the questions you

23 want to ask. This I probably didn't articulate well enough. I

24 didn't think that was a good way to go, and I thought for the

25 reasons that you're saying, my opinion, not necessarily yours,


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1 but you don't want to limit the questions because then for the

2 reasons he's saying it looks like you're trying to control

3 someone taking a look, and it makes no sense to me. Then you

4 get the worst of both worlds. You get limitation and then you

5 could get criticized for the limitations you imposed, so not

6 taking a good look. Anyway, P.S., P.S., and now it's November

7 and nothing's happened.

8 MR. JOHNSON: Here's what we're prepared to do, your

9 Honor, in light of this conversation that we've been talking

10 about internally. We would have to issue a request for

11 proposal. We're prepared to do that in very short order.

12 THE COURT: Do you have to do that?

13 MR. JOHNSON: We have an obligation to do that.

14 MR. McGORTY: I think they do.

15 MR. JOHNSON: To be transparent, you have to be

16 competitive and you have to be, I think, consistent with how

17 vendors, I'm sure, are hired.

18 THE COURT: But isn't there a price limit? Do you

19 have to every time you order a Coke issue an RFP?

20 MS. O'LEARY: Your Honor, the compliance next program

21 that the funds adopted addressed that and they say you should

22 issue an RFP unless in the circumstances it's appropriate not

23 to.

24 THE COURT: They must say when it's appropriate.

25 MS. O'LEARY: Right. This might be very informal,


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1 just trying to get a couple of proposals.

2 THE COURT: OK, whatever.

3 MR. JOHNSON: I would say, too, I think it's important

4 that whoever is going to do this work, and I completely

5 understand what your Honor's saying about not trying to narrow

6 or, frankly, to broaden the mandate, they're going to want a

7 scope of work to price it, to do it.


9 MR. JOHNSON: I think what we're prepared to do is to

10 issue RFPs -- I think we can get them out by the end of next

11 week -- that would ask for someone to look.

12 THE COURT: You'd want to get three people to respond,

13 or anybody responds?

14 MS. O'LEARY: We've identified about five firms that

15 we think are good candidates for us, and since normally if you

16 knew the people were going to bid for it, you would definitely,

17 maybe send it to three to keep it simple, but in this case,

18 there's some concern that there might not be a lot of bidders

19 for it, because usually when you do it private like this, you

20 get prohibited for a certain amount of years from actually

21 trying to become a consultant, to disincentivize anyone from

22 just trying to be critical of the consultant.

23 THE COURT: Right. Who is on your list, for example?

24 MS. O'LEARY: Mercer, Meketa, a company called Alan

25 Biller, and we had two other companies.


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1 THE COURT: And how did you pick them?

2 MS. O'LEARY: Meketa is a well-known multiemployer

3 investment consultant, so they know this world. Alan Biller

4 had been recommended by another investment consultant. Mercer

5 is just one of the players in this world. We reached out to

6 some others who had declined.

7 MR. JOHNSON: I think the mandate would be, the scope

8 would be to assess the process that the funds use to arrive at

9 their investment decisions, the processes that are gone

10 through, the way they do it, the returns; two, to benchmark

11 those returns and see where they fall against the measurements

12 that would be appropriate; and third, to look at the fees,

13 which I think is another item, as you noted, in the same way.

14 The fees are paid to the investment managers and also to

15 Gallagher, and I think that sounds like what your Honor is

16 looking for too.

17 MR. MEBERG: May I, as well? Another way to skin the

18 cat, per se, as we had discussed, and I'm just going to float

19 it out there, is that we do have a mandate as trustees to

20 regularly assess all of our service providers. OK? And over

21 the past number of years, over the past couple years, even

22 though we've just had an interim director, we have gone through

23 an RFP process in whole for our healthcare service provider,

24 Blue Cross Blue Shield, a $7 million vendor to the funds.

25 We've gone through it with our employer payroll auditors, who


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1 charge us quite a bit. There are two accounting firms.

2 Gallagher is a relatively small vendor to the funds. Their

3 annual billings, I believe, are only approximately 400 to

4 $500,000 for their services, but they are due for an RFP

5 themselves, and we could perhaps accomplish a lot of this, as

6 we've discussed internally, through just an RFP for their

7 services.

8 THE COURT: Meaning people to bid?

9 MS. O'LEARY: Replace Gallagher.

10 THE COURT: Replace Gallagher.

11 MS. O'LEARY: As investment consultant.

12 MR. MEBERG: Ultimately.

13 THE COURT: They've been there for a long time,

14 haven't they?

15 MS. O'LEARY: 2008.

16 THE COURT: '8?

17 MR. MEBERG: Since 2008, yes. And you know, I take no

18 pride in authorship because I don't sit on the investment

19 committee, but having dealt with them through the years, we do

20 have a tremendous amount of confidence. We actually hired them

21 because their lead on the account, Frank Lily, is very well

22 respected in our world. He was, if you could help me --

23 MS. O'LEARY: Labor under President Carter.

24 MR. MEBERG: OK. Solicitor general, was it, with the

25 department of labor?


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2 MR. MEBERG: His credentials during a time when there

3 was great concern about what was going on with the funds and

4 the unions, and perhaps rightly so, we felt we were seeking

5 solace from the fact that we were hiring Gallagher at that

6 point. At that point they were under a different name.

7 THE COURT: By the way, I'm not suggesting they're bad

8 or they don't do a good job or anything like that. I don't

9 even know them except as it's come up in the course of our

10 meetings. I'm not trying to cast any negative aspersions on

11 Gallagher. I'm just saying that you've got a lot of money out

12 there invested, and a lot of people are really dependent on how

13 those investments work out. And in this era particularly,

14 people are reevaluating their investments all the time. I have

15 three bonds and the guy called me the other day and said, Maybe

16 we should shorten the curve on the bonds, you know what I mean,

17 because inflation is creeping up.

18 MR. MEBERG: Sure.

19 THE COURT: This is just something that I think, one

20 of the things I would have added, you have three topics, and I

21 would have added a fourth and say "suggestions, if you have

22 any, about what we're doing or not doing," or whatever.

23 MR. MEBERG: I think first and foremost, just so that

24 you are aware, I mean, Gallagher does provide us that advice

25 regularly. We meet with them every other month, I believe it


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1 is. The investment committee meets with them regularly and

2 does get that advice from them, and as we discuss this, an RFP

3 for their services could encompass all that from the

4 prospective bidders. One of the concerns we had that I think

5 Elizabeth started to voice is who would we get to perhaps bid

6 this knowing that this would disqualify them from perhaps

7 offering these services if we do go to bid within the next year

8 or two, so perhaps an RFP overall for these services where we

9 lay out to the various advisors, asking them to provide us with

10 an analysis for their fees, provide us with some editorial

11 comments on the results versus the benchmarks and such like

12 that, would get us to where we need to be. I'm just throwing

13 that out.

14 MR. JOHNSON: That might also serve to broaden the set

15 of people who would be interested in the engagement, as opposed

16 to Ms. O'Leary saying one where you give us this advice and

17 then you can't work with us basically for a period of years,

18 which is something that you need to do in order to make sure

19 you're getting that independent opinion. Then we could build

20 out in a way that would accomplish, I think, these same issues.

21 THE COURT: I would do it separate. Maybe they'll

22 come back and say Gallagher's great, you're doing just the

23 great thing. Once you put out an RFP, then Gallagher could say

24 what did I do wrong. I would do it and I would do it fast to

25 give comfort to people that people are thinking about whether


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1 there is inflation or there isn't inflation, should there be a

2 change. Everybody is reevaluating all their investments right

3 now and have been for a long time, but I would just get some

4 people who would do it. How much could it cost, by the way? I

5 don't think it costs a whole lot of money.

6 MS. O'LEARY: We thought approaching 75,000 to.

7 THE COURT: I was going to say something like that,

8 maybe even less than that, but who knows. It's a drop in the

9 bucket if somebody comes up with a million-dollar idea, so to

10 speak, or whatever. You know what I mean.

11 MS. O'LEARY: Your Honor, would you be amenable to the

12 audit only including the pension fund at first?

13 THE COURT: Why? I mean if that's the biggest, you're

14 saying that's the biggest, how much is the pension fund?

15 MS. O'LEARY: Almost 3 billion, right under 3 billion.

16 THE COURT: Right. And the others are, what, really

17 tiny?

18 MS. O'LEARY: The apprenticeship fund, for example,

19 has like three mutual funds since they only recently got into

20 investments.

21 THE COURT: How much is that?

22 MS. O'LEARY: About 40 million altogether. The

23 welfare fund is 490 million.

24 THE COURT: Whether I would or wouldn't, I'm looking

25 at the 3 billion. That's the one I'm really most concerned


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1 about.

2 MS. O'LEARY: On the annuity fund, which is 2 billion,

3 the trustees, the investment committee, and the board of

4 trustees had just gotten an RFP and were able to negotiate.

5 They kept their current vendor but were able to negotiate a

6 better price.

7 THE COURT: That's another fund? Which? That's a

8 different fund?

9 MS. O'LEARY: It's an annuity fund.

10 THE COURT: It's the 2 billion?

11 MS. O'LEARY: Yes.

12 THE COURT: 2 billion, I'd look at that too.

13 MR. GEIGER: It's self-invested.

14 THE COURT: What does that mean?

15 MR. MEBERG: That's managed by the members.

16 MR. GEIGER: The members themselves.

17 MS. O'LEARY: They have 16 investment options.

18 THE COURT: Oh, Vanguard 500, or blah, blah, blah?

19 MR. JOHNSON: Like a 401(k) where you can choose where

20 you want your money to go.

21 MR. MEBERG: We have no control over those investment

22 decisions.

23 THE COURT: Yes.

24 MR. MEBERG: Those are made by the members

25 individually.


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1 THE COURT: But who picks the funds?

2 MS. O'LEARY: Prudential.

3 THE COURT: You pay them, right?

4 MS. O'LEARY: With Gallagher.

5 THE COURT: I don't mean to sound like I'm beating a

6 dead horse, but I just got a notification because my wife

7 doesn't read her own mail, so I read the mail, and it says

8 they're changing the funds that you can now select from.

9 MS. O'LEARY: We do that on a periodic basis.

10 THE COURT: I know, but how do you know which ones to

11 drop and which ones to add? That's the whole point. I mean,

12 it's a lot of money there, and for a while you could only

13 invest in whatever, and all of a sudden, Vanguard shows up or

14 an index fund shows up and it turns out that the index fund is

15 doing better than all the other funds.

16 MR. JOHNSON: It seems like the issues would be the

17 broadest with the pension fund, so that's where I would expect

18 the consultant to put the majority of the effort and then these

19 other vehicles the issues to look at are not as many.

20 THE COURT: I agree.

21 MR. JOHNSON: We'll propose out the RFP to look at it

22 all, your Honor.

23 THE COURT: Great.

24 MR. JOHNSON: And we'll work on this as quickly as

25 possible and we'll get it out there and get this ball moving


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1 forward.

2 THE COURT: I think that's great. I think it's

3 helpful to the trustees. I'm not trying to argue with anybody.

4 It's what all the trustees are doing these days, evaluating and

5 reevaluating how they can get the most money for their class

6 members, so to speak. That's what it's intended to do,

7 actually. I think that's great. Good meeting.

8 MR. JOHNSON: I think the other issue, your Honor,

9 that may or may not have been on your list was the issue of the

10 Lemire report, and we were grateful for the additional amount

11 of time and the openness. I think you wanted to have a

12 conversation maybe with the trustees, who you have now met,

13 about what you intend to do, and so in speaking about this

14 issue more with the monitor, Mr. McGorty, we actually have a

15 proposal, I think, which is consistent with your Honor's

16 commitment and the fund's commitment to transparency, but also

17 helps to manage what we think are legitimate concerns, I think,

18 on the part of the monitor, Mr. McGorty, and also on the part

19 of the trustees. The issue is really that there are more facts

20 that are out there in the public record now because of the

21 hearing.

22 THE COURT: Yes.

23 MR. JOHNSON: And your Honor described a lot of the

24 facts.

25 THE COURT: Correct. Most everything.


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1 MR. JOHNSON: We have figured out the number. It's

2 2.4 million, sort of the approximate number, but a lot of work

3 has gone into that.

4 THE COURT: That was paid out.

5 MR. JOHNSON: Claims that were paid.

6 THE COURT: Unfunded, as it were?

7 MR. JOHNSON: Claims that were paid. And the amount

8 of the premiums that were not paid is 900,000, approximately,

9 so those are the numbers that we've come to. We think that

10 what might make sense, just to clarify things and I think would

11 be helpful to the members, would be for us to work with the

12 monitor to submit a letter to your Honor really just to update

13 the facts.


15 MR. JOHNSON: And I think that most of it is out there

16 now, but I think it would be valuable to everyone, certainly to

17 the members, for it to be framed in a sort of clear and direct

18 way what we know, and obviously there are efforts ongoing

19 through the trustees to try to recoup the moneys that have been

20 lost and otherwise address the issues that have been raised.

21 MR. McGORTY: There are two things to that. One,

22 Judge, it was never my intention, while I wanted to have a

23 slightly more fulsome statement about what happened and what we

24 determined to be the case, as well as the trustees' assistance

25 in getting to that conclusion, it was never my intention to


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1 actually release the report publicly, and the only reason for

2 that is even in the abridged version of the report where we

3 tried to anonymize some of the sources, we encouraged people to

4 come talk to us with the idea that what they're saying is going

5 to remain anonymous. I think the idea of the funds taking this

6 issue and being the ones to actually advise publicly the

7 conclusions they've drawn is the 100 percent right way to do

8 this, because I'm working for them.

9 THE COURT: I agree.

10 MR. McGORTY: I think it's a great idea.

11 THE COURT: I totally agree. I think it's a great

12 idea. Just as a rule of thumb, not only in this case, but in

13 the case I was doing this morning, as soon as I get the letter

14 that says "filed under seal," nobody can see this thing, and

15 blah, blah, blah, then everybody in the world wants to see it,

16 because somebody knows, Oh, they've sent a sealed letter, who

17 knows what's in there, and the letter that has "sealed" on it

18 is 50 times more powerful than the same letter that doesn't say

19 "sealed" on it. It's a mistake, in my opinion, unless you

20 don't want to name some person and accuse them of something

21 unless they've had due process and blah, blah, blah. But

22 things like economics, especially that show that the funds

23 jumped all over it and are fixing the problem, everybody has

24 problems, I would do the opposite of seal. I would tell

25 everybody, when you're ready, We looked at this thing, it has


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1 problems, we fixed it or we're fixing it, or whatever, we're on

2 it. Does that mean that some guy's not going to come along and

3 file a lawsuit or say somebody should be fired or blah, blah,

4 blah? They say that anyway, right? No matter what you do or

5 what you say, somebody stands up, including in our meetings,

6 and says, It's not enough. But that comes with the territory,

7 I think. It's a little annoying sometimes, a little

8 uncomfortable. I think that's a perfect solution.

9 MR. GEIGER: Understood. We have no problem being

10 transparent, especially with the members, but upon the Lemire

11 report from the independent monitor, we were just concerned.

12 We didn't have the actual, factual numbers on what the total

13 amount was. Myself, Mike, and others at the District Council

14 have to sit there and explain certain things at the delegate

15 meetings and you've seen the charades of the some of the

16 individuals that were there, they have a way of putting a twist

17 on things.

18 THE COURT: I know.

19 MR. GEIGER: We would have liked to have the actual

20 numbers prior to it going public, so that was the reason for it

21 being sealed.

22 THE COURT: I see. That's fair.

23 Are you comfortable that those are the numbers?

24 MR. JOHNSON: We are. We are comfortable with that.

25 I think we could, frankly, work more and more and more to get


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1 it down to the penny.

2 THE COURT: But that's pretty close, you think, right?

3 MR. JOHNSON: We looked at it three ways, and I think

4 that's where we've come to.

5 MR. McGORTY: And I think the letter that the funds

6 draft, I'll take a look at it and I will also deal with the

7 members that have acquired a need since the conference, and

8 there's been several, that that will satisfy them. They're not

9 going to need to drill down on the Lemire report and beyond.

10 THE COURT: I'm sure it will. I think that's great.

11 MR. JOHNSON: I think that's all the issues that we

12 had. I think we were thinking of actually requesting to seal

13 this transcript. The idea there is really because we're

14 talking about, obviously, the Lemire report, and I think there

15 are good reasons for that to not be public. That obviously

16 wouldn't mean at some point it couldn't be unsealed, but I

17 think our preference, given the success of this meeting, would

18 be a request to seal this transcript.

19 THE COURT: I think it was such a good meeting that

20 you would want to tell everybody and send the transcript to

21 everybody.

22 MR. McGORTY: Judge, I'll take it upon myself to

23 telegraph the success of this meeting. It is a tricky issue.

24 I know. I understand the point from the fund's perspective.

25 When you're talking about whether or not to seal things


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1 inherently, again, that's your Honor's point, it creates more

2 of an issue sometimes, but at the same time I concur in the

3 sense that I think this was productive. I don't know. It's up

4 to your Honor, obviously.

5 THE COURT: Let's think it over. First of all, I've

6 been doing this now for a while, and I don't remember anybody

7 calling me and asking me for a copy of the transcript of any

8 meeting I've ever had, except for my law clerks when they're

9 supposed to do something.

10 MS. O'LEARY: There's a blog site they get posted to.

11 MR. GEIGER: Some of the individuals, this is why we

12 talk about being sealed. Some of the union individuals post a

13 lot of the information on blog spot where there's a majority of

14 the dissidents, and it's a rumor mill and they put a twist on

15 things and you have members that go and read that. And every

16 day -- I mean I don't even read it no more, that's how bad it

17 is -- there's comments about myself and the rest of the

18 leadership at the District Council, which Glen can attest to.

19 MR. McGORTY: True.

20 MR. GEIGER: And it does more damage than help because

21 then word on the street, it's always those six individuals that

22 speak the loudest get heard the most. And that's what happens,

23 the rumor mill starts, goes on a blog spot and we start getting

24 calls, We're not being transparent, we're corrupt, we're no

25 good, and I believe we've come a long way over the past four or


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1 five years under the monitorship not only by Glen but by Dennis

2 Walsh as well, and for five or six people to go and ruin all

3 the hard work and effort that has been put in in the last five

4 years is totally ridiculous. A lot of those individuals are on

5 the mind-set if I can't have it, nobody can. They actually

6 align themselves with individuals that are no longer employed

7 by the council that were removed by Dennis Walsh. So it

8 becomes a problem. It becomes very problematic with some of

9 the members.

10 THE COURT: All right. Let me think about it. All

11 right?

12 MR. JOHNSON: Thank you.

13 THE COURT: Fair enough. I get the point.

14 MR. JOHNSON: Thank you again, your Honor.

15 THE COURT: My pleasure.

16 MR. GEIGER: Thank you, your Honor.

17 THE COURT: Nice to see you. My pleasure.

18 (Adjourned)









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