FCA-UAW scandal: More to come

Indictment leaves door open for more charges against employees, union officials

July 31, 2017 01:00 AM

Former UAW President Bob King, left, shakes hands with Alphons Iacobelli, then-Chrysler labor relations chief, in 2011. Behind them are former UAW Vice President General Holiefield and then-Chrysler Senior Vice President Manufacturing Scott Garberding. Iacobelli and Holiefield's widow are indicted in an embezzlement scandal.

DETROIT — If indictments are levied against more people for conspiracy, Fiat Chrysler Automobiles and the UAW will find themselves embroiled in a scandal that could eclipse most others in recent automotive history.

Last week, a federal indictment alleged FCA executives partnered with UAW leaders to siphon funds earmarked for employee training to line their own pockets. The indictment lays out a scenario in which many more charges could be levied against FCA employees and other high-ranking UAW officials who may have been involved.

For now, just two FCA executives face charges. Eight more executives and UAW leaders, in total, have been mentioned but not named.

The 42-page document outlines a multimillion-dollar conspiracy, alleging UAW and FCA officials used embezzled funds to support lavish lifestyles involving first-class trips, $37,500 solid-gold pens and a $350,000 Ferrari 458 Spider.

The indictment, unsealed last week, describes the alleged illegal dealings of former FCA labor relations chief Alphons Iacobelli, deceased UAW Vice President General Holiefield and his widow, Monica Morgan, a prominent Detroit photographer. Morgan will be arraigned in a Detroit federal court today, July 31. Iacobelli will be arraigned Tuesday, Aug. 1.

Federal investigators claim the three were at the center of a conspiracy from 2009 through 2014 that included Iacobelli personally pocketing $1 million and helping funnel $1.2 million from the UAW- Chrysler National Training Center to Holiefield, Morgan and other high-ranking members of the union.

The indictment specifically mentions at least eight unnamed people while vaguely mentioning "other" groups of people. Separately, federal officials announced fraud charges against former FCA financial analyst Jerome Durden, who is accused of creating false tax returns to hide payments to Holiefield, Iacobelli and other beneficiaries who were not identified.

"More could be charged," said Peter Henning, a former federal prosecutor in Washington, D.C., and professor at Wayne State University Law School. Henning said it's typical in investigations such as these for additional witnesses, informants and co-conspirators to be named after the initial round of arraignments.

FCA CEO Sergio Marchionne told employees in an email last week that the actions "were of course neither known nor sanctioned by FCA."

GOOGLE MAPS PHOTOS

TOP; A Google Street View image dated September 2012 shows a dirt path for construction vehicles leading to the back of Al Iacobelli's Rochester Hills, Mich., home. ABOVE: The backyard of Iacobelli's home. A federal indictment alleges Iacobelli used embezzled funds to build a pool, spa and outdoor kitchen in 2012.

It is unclear what impact the alleged collusion may have had on union negotiations, but according to the indictment, Durden, Iacobelli and two other FCA executives gave UAW leaders credit cards with liberal spending policies to keep them "fat, dumb and happy."

The charges come at an inopportune time for the union and FCA, adding to a wave of legal trouble for a company beset by federal investigations into possible environmental, safety and securities violations. For the UAW, it comes as thousands of Nissan workers in Canton, Miss., are scheduled to vote this week on UAW representation.

"This is most unfortunate timing," said Kristin Dziczek, director of the Industry, Labor & Economics Group at the Center for Automotive Research. "It's never good to have this kind of information come out about your company or organization. This can be damning."

Officials allege Iacobelli and Holiefield, who led contract negotiations between the company and union in 2011, and others used a charity, businesses set up by Morgan, credit cards and other means to siphon money provided by FCA to the National Training Center for personal gain and expenditures — from paying off a $262,000 mortgage to two solid-gold Mont Blanc pens costing $37,500 each.

FCA, according to the indictment, made annual transfers to the training center of between $13 million and $31 million from 2009 to 2014. The training center is a tax-exempt corporation established in 1985 to provide education and training to workers.

The UAW and FCA separately released statements condemning the actions, saying they have taken steps to correct the problem. Marchionne's email to employees, obtained by Automotive News, distanced the company from the alleged actions.

"I join Dennis Williams, the UAW President, in expressing my disgust at the conduct alleged in the indictment which constitutes the most egregious breach of trust by the individuals involved," Marchionne wrote. He also said the "conduct had nothing whatsoever to do with the collective bargaining process, but rather involved two bad actors."

Where the money went

The federal indictment released last week against former FCA executive Alphons Iacobelli, deceased UAW Vice President General Holiefield and his widow, Monica Morgan, a prominent Detroit photographer, details some of what the trio bought with funds allegedly embezzled from the UAW-Chrysler National Training Center.

Iacobelli

A $350,000 Ferrari 458 Spider

Lease on a private jet

2 limited-edition Mont Blanc pens costing $37,500 each

A $96,000 swimming pool, outdoor kitchen and outdoor spa at his home in Rochester Hills, Mich.

$73,000 in landscaping

More than $300,000 in personal credit card expenses

Paid off a relative’s student loan for $44,491

Morgan and Holiefield

Paid off the $262,219.71 mortgage on their Harrison Township, Mich., home. Less than a year later, Morgan took out a new mortgage for $130,000.

Credit card charges of $200,000 for jewelry, designer clothes and furniture

$30,000 in airfare for San Diego, Miami, Las Vegas and Los Angeles

4 nights at the Beverly Hills Hotel for $3,100 per night

Source: U.S. Department of Justice

Others involved

But federal investigators appear to think the situation involved more than two people. In addition to the eight unnamed FCA executives or UAW leaders in the indictment, "other" groups of people are referenced.

The document says Bob King, who was UAW president from June 2010 to June 2014, told Iacobelli and Holiefield in 2011 that they could "go to jail" for giving union and charity business to Morgan, Holiefield's girlfriend at the time. They married in 2012.

King, according to the indictment, instructed them to stop giving business to Morgan. The three allegedly reacted to King's warning by setting up a new company in early 2012, the indictment said.

Other unnamed people, according to the indictment, were responsible for approving the illegal spending.

"It's quite possible some of the unnamed people in the indictment are going to cooperate and provide information and testimony," Henning said.

FCA said it learned about the alleged actions in June 2015 and after an internal investigation fired Durden and Iacobelli. FCA originally said Iacobelli, who was hired by General Motors in January 2016 as executive director of labor relations, retired from the company.

GM spokesman Tom Wickham said the company became aware of the indictment on Wednesday, July 26, and "are reviewing the case." He declined to say whether Iacobelli remains an employee.

A spokeswoman for the U.S. Attorney's Office Eastern District of Michigan declined to comment on whether other individuals would be charged, citing the ongoing investigation. David DuMouchel, Iacobelli's lawyer, declined to comment. Steve Fishman, Morgan's attorney, didn't immediately respond to an email seeking comment.

Eric Schiffer, CEO of Reputation Management Consultants, said he believes the crisis is contained at the moment. With just three people named and charged, the scandal doesn't appear to be large enough to do significant damage to FCA's brands. But dealing with the internal crisis stemming from the charges could slow the company significantly or keep it ill for months.

To stay in the public's goodwill, FCA needs to do what it can to be transparent, work with authorities and show that this scandal does not rise all the way to the top, he said.

"This is comparable to spraining your ankle" for FCA, he said. "But if we saw this having gone all the way up to the C-suite, it could be a cancer of the ankle."

Jackie Charniga contributed to this report.