Senior UAW official charged in widening U.S. corruption probe

By Nick Carey and David Shepardson

DETROIT/WASHINGTON (Reuters) - A senior United Auto Workers (UAW) official was arrested on Thursday and charged with conspiring with other union leaders to embezzle hundreds of thousands of dollars in a mushrooming corruption scandal that comes at a decisive moment in contract talks with Detroit automakers.

The union's current four-year contract with U.S. automakers expires on Saturday.

The contract talks were always expected to be contentious, with healthcare costs and profit sharing due to be major sticking points, but Saturday's deadline could be overshadowed by revelations of vast sums being spent on lavish entertainment by labor leaders - including $440 bottles of champagne originally created to please a Russian czar.

The union has worked to put the federal probe behind it and in 2018 elected Gary Jones, a former regional director for the union, as its president. He was chosen as he seemed far removed from the scandal.

But Vance Pearson, 58 served as Jones' second in command from 2016 to 2018 and replaced him last year as director of the UAW's so-called "Region 5," which covers 17 western and southwestern U.S. states.

Pearson's arrest comes just two weeks after the FBI conducted searches including at Jones' home, as part of an ongoing corruption probe into illegal payments to union officials.

Jones has not been charged with any wrongdoing.

J. Bruce Maffeo, a lawyer for Jones, did not immediately respond to a request for comment.

Adding to intrigue, the complaint makes frequent reference to someone identified only as "UAW Official A," saying government agents had seized $30,000 in cash from the individual's residence.

Steven Bernstein, a Tampa-based labor attorney at Fisher Phillips LLP, said the latest charges create a "difficult dynamic" for the union in talks with automakers.

"This does have the potential to compromise whatever leverage the union's leaders think they have," he said.

In a statement, the UAW said that while it found the allegations "very concerning, we strongly believe that the government has misconstrued any number of facts and emphasize that these are merely allegations, not proof of wrongdoing."

The complaint said between 2014 and 2018 Pearson and other leading UAW officials "submitted fraudulent expense forms seeking reimbursement from the UAW's Detroit headquarters for expenditures supposedly incurred in connection with Region 5 leadership and training conferences."

The officials "used the conferences to conceal the use of hundreds of thousands of dollars in UAW funds to pay for lavish entertainment and personal spending for the conspirators," the complaint said.

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Much of the complaint centers on conferences held by the UAW's Region 5 in Palm Springs, California. The allegations include that, through a "master account" set up at a Palm Springs hotel, union officials embezzled more than $600,000 that was spent on lavish living for weeks or months at a time.

The complaint singles out a dinner at a local restaurant on New Year's Eve 2016 that cost $6,600, including four bottles of Louis Roederer Cristal champagne for a total of $1,760.

The complaint then accurately quotes the Louis Roederer website as saying the Cristal was "created in 1876 to satisfy the demanding tastes of (Russian) Tsar Alexander II," who was assassinated by a revolutionary in 1881.

Harley Shaiken, a labor expert at the University of California-Berkeley, said the charges against Pearson could be distraction for negotiators, but he said the union and its members are focused in getting the best deal possible.

"UAW members are focused on how a deal will affect them," he said. "But even a small number of angry members could color a ratification vote on a contract."

The ongoing scandal also affects a labor organization closely allied with Democrats a little over a year away from a U.S. presidential election. The UAW represents tens of thousands of workers in the battleground states of Ohio and Michigan.

To date, nine people have pleaded guilty in connection with the ongoing criminal investigation into illegal payoffs to UAW officials by Fiat Chrysler Automobiles NV (MI:FCHA) executives and corruption within the UAW itself.

Last week, former UAW official Michael Grimes pleaded guilty to wire fraud and money laundering. Grimes was an official in the union's General Motors Co (N:GM) department until his retirement in July 2018.