Mr. Hanley, you will submit that statement, then, to the committee? Mr. HANLEY. Yes, sir, I will, sir. The CHAIRMAN. All right. Thank you. Mr. BERUEFFY. It may be a little time. The CHAIRMAN. That is all right. (The information referred to will be available for reference when furnished.) We will take a 10-minute recess before the next witness. (Brief recess.) The CHAIRMAN. The hearing will please come to order. Mr. MCCABE. Mr. Mulherin. The CHAIRMAN. Do you solemnly swear to tell the truth, the whole truth, and nothing but the truth, so help you God? Mr. MULHERIN. I do. TESTIMONY OF THOMAS M. MULHERIN, CPA, LOS ANGELES, CALIF. Mr. MCCABE, State your full name, please. Mr. MULHERIN. Los Angeles. Mr. MCCABE. Give us your full address. Mr. MULHERIN. 1138 North Kenmore Avenue, Los Angeles, Calif. Mr. MCCABE. Your occupation? Mr. MULHERIN. I am a certified public accountant in California. Mr. MCCABE. Would you tell us how long you have been engaged in this type of work, sir? Mr. MULHERIN. Just since the first of April 1953. Mr. MCCABE. Prior to that time, what was your occupation? Mr. MULHERIN. I was a special agent of the FBI for approximately 24 years. Mr. MCCABE. Engaged in what type of work, sir? Mr. MULHERIN. Principally accountant. I was in charge of the New York office, insofar as the accountants were concerned, for several years. Mr. MCCABE. You have been engaged by this subcommittee to conduct some investigative work in the accounting field, is that correct, sir? Mr. MULHERIN. That is correct; sir, yes. Mr. MCCABE. Would you tell us what work you have done for the committee in this capacity? Mr. MULHERIN. The work I have done for the committee consisted of an examination of records made available by the administrator of the teamsters welfare fund. Mr. Charles O. Cross. That is the Southern California Council of Teamsters, No. 42 Welfare Fund. In addition to that, at your request, I made a trip to Seattle and made an examination of records of Mr. George C. Newell, the broker for the teamsters welfare funds made available to me, and also made interviews in connection with that activity. Mr. MCCABE. Would you tell the committee the number of funds, the number of employees, and the contributing employers, connected with these various funds you examined? Mr. MULHERIN. I have the figures as of the end of the last fiscal year which was May 31, 1954. At that time, the teamsters of southern California were operating 13 trusts, 60,302 employees were covered, and there were 3,287 contributing employers. That information was supplied by Mr. Cross' office. Mr. MCCABE. Who is Mr. Cross? Mr. MULHERIN. Mr. Cross is the administrator of the welfare fund for the teamsters in southern California. Mr. MCCABE. And in that capacity, can you tell us how much welfare fund money was represented by the trusts which Mr. Cross administered? Mr. MULHERIN. The funds have been gradually growing. As of the end of the last fiscal year, and this is a year's figure, the fiscal year ending May 31, 1954, there were received in all the trusts $6,325,587.72. Mr. MCCABE. And how much of that sum was used for insurance? Mr. MULHERIN. $6,107,468.23 was paid in premiums. Mr. MCCABE. And how much is represented in administrative costs? Mr. MULHERIN. There were received during that last fiscal year in the office of Administrator Cross, $264,652.13. The whole amount wasn't spent. There was spent $255,776.31, and the difference was added to a surplus already existing in a separate fund, an administrative fund which they maintain, and at the end of that fiscal year there was in that administrative fund in the form of cash deposits $13,762.17, in addition to an investment in furniture and fixtures, unamortized or undepreciated, of $28,471.08. Mr. MCCABE. What is the source of these funds? Mr. MULHERIN. The funds received by Mr. Cross? That is what you are addressing the question to? Mr. MCCABE. Yes. Mr. MULHERIN. They come principally from a 4 percent rebate given by the insurance company. In one instance, it is the Pacific Mutual and in the other it is the Occidental Life Insurance Co. Mr. MCCABE. You also say you had occasion to interview the broker who handled the insurance in these cases, and you say he is a Mr. Newell in Seattle. Will you tell the committee the circumstances under which you delivered the committee's subpena to Mr. Newell? Mr. MULHERIN. I delivered the subpena to a Mr. Newell immediately upon my arrival in his office in Seattle. He informed me that he was suffering from a heart condition which excitement might aggravate. I asked if he would obtain a doctor's certificate to that effect, and he did. I have it here. I have both the subpena and the doctor's certificate. Mr. MCCABE. Mr. Chairman, I suggest that the doctor's certificate be accepted to explain Mr. Newell's absence. (The certificate referred to was filed with the committee, and is available for reference.) Mr. LUCAS. Reserving the right to object, what are you trying to prove, Counsel, the reason he cannot appear as a witness? Mr. MCCABE. Yes. Mr. LUCAS. I think we can take that from Mr. Mulherin's testimony. I see no objection to receiving this in the record, but it ought not to be printed in the body of the record, but for reference purposes only, unless you have some other point which you will elaborate upon. Mr. MCCABE. No, sir; it is merely to explain Mr. Newell's absence. Mr. LUCAS. I will take your word for it or the witness' word for it. I have no objection. The CHAIRMAN. Without objection, it will be received. Mr. MCCABE. Mr. Mulherin, can you tell us about the business of Mr. Newell, who his partners are and the extent of their interest? Mr. MULHERIN. Yes, sir. Originally, Mr. Newell's partner, only partner, was an Arthur S. Morganstern, now deceased. Commencing on July 1 of 1952-well, I want to modify that first statement to the effect that Mr. Morganstern, Mr. Newell and their respective wives, were partners in this business. At the commencement of July 1, 1952, a new partnership agreement was formed after Mr. Newell and his wife had bought out the Morganstern estate and Mrs. Morganstern personally, so that following the formation of this new partnership, the partnership consisted of George C. Newell, trustee, Geraldine Newell, who own jointly 75 percent, Samuel Bassett, the union attorney at Seattle, as trustee, owned 121/2 percent, a Mr. Nugent La Poma, who is the secretary of one of the locals in Seattle, owned 1212 percent.. Mr. MCCABE. What local is that? Mr. MULHERIN. As trustee. Mr. MCCABE. Secretary of what local? You say one of the locals. What local are you referring to? Is that a teamster local you are referring to? Mr. MULHERIN. Yes, sir. Mr. A. C. Bondcutter owned 21/2 percent. He is the principal employee in Mr. Newell's office. I would like to add at this point an explanation of which Mr. Newell wanted to submit to the committee in connection with these union ownerships, if I may. Mr. Newell said that the reason that these individuals, this Mr. Bassett and Mr. La Poma, who are union representatives, were given this 1212 percent interest, which they were given-it was a contribution rather than a purchase-was this: He said Mr. Dave Beck, who is head of the teamsters union, had made a promise to raise funds, he didn't recall the exact amount but he thought it was about a million dollars a year, for the City of Hope, which is a hospital organization, as he described it, in the Los Angeles area, for the benefit of workingmen, generally; that Mr. Beck came to him and asked if he could make any suggestions as to raising funds, in accordance with Mr. Beck's promise which he found was a little larger than he was able to meet easily. Mr. Newell said that he suggested to Mr. Beck that he would give them a part in this business which was maintained for union welfare funds and union insurance funds. Mr. Beck said that would be fine, but that he would handle it through a trusteeship. Pursuant thereto, both Mr. Bassett and Mr. La Poma were named as the trustees. Mr. MCCABE. Can you tell us from your examination of the records what was the yearly income of the business of Mr. Newell in dealing with welfare funds? Mr. MULHERIN. For the year, the fiscal year, ending February 28, 1954, the income from this union business amounted to $459,269.61, and for the 6 months period ending August 31, 1954, it amounted to $268,047.44. As of August 31, there had been no distribution of the fund. However, as of the end of the fiscal year ending February 28, 1954, after all expenses had been paid, there remained $332,091.56. Mr. MCCABE. Now, can you tell us what disposition that was made of this? Mr. MULHERIN. It was distributed in the following manner: Mr. Newell received $129,735.10. His wife received a similar amount. There was credited to Mr. Bassett $34,510.34, and a similar amount to Mr. La Poma as trustees. Mr. Bondcutter received $3,600.70. With respect to the amounts that were credited to Mr. Bassett and Mr. La Poma as trustees, they were credited as payments on a note for $67,500, as I recall it, that was given originally for their interest in the business. It was credited to that note. Since that time, Mr. Newell tells me that because internal revenue tried to tax Mr. Bassett and Mr. La Poma on funds which they hadn't received but were merely credited, they are changing the situation, so that the moneys as they accrue will build up as capital equity and at the same time they are making an appeal to the Bureau of Internal Revenue to make the funds tax exempt. Mr. MCCABE. According to the report shown to you by Mr. Newell, were any payments made to union officers in connection with this union welfare fund business? Mr. MULHERIN. Yes, sir, there were. Mr. MCCABE. Would you tell us what they are, please? Mr. MULHERIN. Mr. Newell showed me a copy of his return, his income tax return, for the year 1953, which showed a payment of $5,170 to Mr. Frank Brewster, who he stated was Mr. Beck's man in charge of the western conference. I asked Mr. Newell the reason for this payment, and the extent of it. He said that for the past 3 or 4 years he had given a 1,000 share block of stock of Affiliated Fund, Inc., to Mr. Brewster, and the reason he had given it to him was in connection with their horseracing business, although the income tax return indicated that it was as a result of this union business. Mr. MCCABE. Do you mean by that the welfare fund business? Mr. MULHERIN. Well, combined in Mr. Newell's setup, in this 1 organization, there are 2 sources of funds. One is the welfare business and the other is the insurance business done with the teamsters union. In other words, each man holds a thousand dollar policy, as he explained it to me. Mr. MCCABE. Can you tell us what is the Breel Co., Inc.? Mr. MULHERIN. The Breel Co., Inc., is a corporation consisting or, rather, of which the stockholders, to the extent of 50 percent, are Mr. Frank Brewster and Mr. Newell. The B-r-e are the first three initials of Mr. Brewster's name, and the e-l is Mr. Newell's last initials. They have been operating a horseracing business, maintaining stables. Mr. MCCABE. Can you tell us the interest of each of these gentlemen in this corporation? Mr. MULHERIN. Fifty percent. Mr. MCCABE. Can you tell us how much that represents in terms of money? Mr. MULHERIN. Mr. Newell pointed out that he was in better financial position than Mr. Brewster, and accordingly he has made more contributions than Mr. Brewster, and in addition to the $50,000 in stock divided equally among them, he had advanced in the form of an account payable, that is, Mr. Newell, $45,413.46 while Mr. Brewster had advanced $15,388.38, which amounts he got from the books. He permitted me to examine them at the time. Mr. MCCABE. Did you have occasion to audit the books of this corporation while you were in Seattle? Mr. MULHERIN. Time did not permit. I made what would be called a survey. I looked through the cash disbursements and cash receipts, expenses generally. That is all. Mr. MCCABE. Among the payments made to Mr. Brewster, you: mentioned, I believe, a thousand shares of Affiliated Fund stock. Can you tell us whether you found any others in connection with the welfare fund business in which Mr. Newell is engaged? Mr. MULHERIN. In addition to this yearly contribution of a thousand shares, there were payments to Mr. Brewster, however, you couldn't characterize them as being payments on his own behalf. For example, in the year of 1954, there are two checks, one for $20,000 and one for $12,500 drawn out of this welfare fund business and turned over to Mr. Brewster, payable to him, and shown on the welfare fund books as loans to Mr. Brewster. I asked Mr. Newell about that and he said that will clear out through the Breel books, which he brought to me and I examined. It shows that Mr. Brewster did buy race horses with this $20,000 and with this $12,500 and it was credited and became a part of this forty-five-thousand-odd dollars which was shown as payable to Mr. Newell on his books. Mr. MCCABE. Were there any other payments made from Mr. Newell's welfare fund business to any union officer or employees? Mr. MULHERIN. Direct payments? I was unable to find anything in the books to show direct payments, except entertainment. Mr. MCCABE. Did you have occasion to learn from Mr. Newell the nature of the entertainment in connection with welfare fund business? Mr. MULHERIN. I asked Mr. Newell about the reason for entertainment in the welfare-fund business, and he said that he considered the officers of the teamsters union, particularly the secretaries, like Mr. Cross, occupy a position of statistician, his customers, and he endeavors to keep them happy by having them entertained insofar as possible. Mr. MCCABE. Did you have occasion to examine any of these expense accounts? Mr. MULHERIN. Yes, sir, I did. Mr. MCCABE. Would you tell us what you found in that examination? Mr. MULHERIN. There is an account on the books called travel and entertainment, to which a casual observation indicated that at least half of it was entertainment. For the year 1953, for the fiscal year 1953, that account totaled $20,246.18, of which $15,808.29 was shown as being chargeable to the State of California, which would include both southern California and northern California. And for the 6-monthperiod ending August 31, 1954, there was a total of $13,657.17 charged' to this account. Mr. MCCABE. I have no further questions. The CHAIRMAN. Getting back to this buying of race horses, did I understand that was from welfare money? Mr. MULHERIN. No, sir. As I indicated in the early part, the funds received as commissions in this welfare fund business to the extent of about $460,000 during the last fiscal year is profit to the extent of about three-hundred-thirty-thousand-some-odd dollars. The CHAIRMAN. In other words, it is gross commission of 16 less: certain expenses which bring a net of $330,000 income to Mr. Newell a year from his insurance business as a whole? |