March 13, 2012

Labor leaders call for new law to recoup pension losses caused by fraud

Source: NYSUT Communications
Caption: "In this era of increased accountability and scrutiny, why are Wall Street banks getting a free pass?" asked NYSUT Executive Vice President Andy Pallotta. Photo by El-Wise Noisette.

With a proposed Tier 6 pension plan that would reduce future public retirement benefits - and a state pension system already decimated by Wall Street's meltdown - labor leaders converged on the Capitol Monday to demand new legislation that would allow the state's Attorney General to recoup pension losses caused by fraud.

"Reckless behavior and clear abuses erased billions of dollars in retirement funds that middle-class New Yorkers were counting on," said NYSUT Executive Vice President Andrew Pallotta. "Now, those same workers are being asked to bear the burden of a new Draconian pension tier."

"In this era of increased accountability and scrutiny, why are Wall Street banks getting a free pass?" Pallotta asked.

Rampant greed fueled by lax financial oversight laws played a prominent role in the Wall Street crash, labor leaders said. The collapse led to the loss of $100 billion to the state pension system - not a dollar of which has been returned.

Though the state Attorney General has broad power to prosecute securities fraud under the Martin Act, he has no standing to recover losses and damages on behalf of public pension funds. The proposed legislation pushed by labor leaders Monday would amend the Martin Act so that public-pension money can be recouped, ensuring as well that Wall Street firms that commit fraud are held accountable.

"This is not about business risk. We're talking about fraud, negligence or theft," said United Federation of Teachers President Michael Mulgrew. "When the golden goose lays the golden egg, Wall Street comes and grabs it, but everything else that comes out of the goose, well, they leave that for rest of us."

Mulgrew said Wall Street "gambled with other people's money and lost."

"If I were a Wall Street billionaire, I'd love the idea of having somebody else pay for my mistakes," he said, incredulously. "We need Martin Act reform to help make sure that firms that engaged in reckless behavior pay for their mistakes, rather than dumping that burden on the workers."

Brooklyn Democratic Assemblyman Peter Abbate, lead sponsor of the bill in the Legislature's lower house, said, "It simply doesn't make sense that the pension funds have no practical way to recover investment losses caused by greed."

With the loss of billions in pension-system dollars, pension costs for local governments statewide have soared. As a result, budgets have been constrained, services and jobs have been cut, and costs have been passed on to taxpayers.

Pallotta said expanding the Martin Act would help local governments cope with those added financial constraints, and lessen the burden on taxpayers.