U.S. Attorney Barbara L. McQuade's office has led the charge against much of the pension corruption in Detroit.
No issue in the Detroit bankruptcy is more contentious: How deep is the hole in the workers' pension funds?
The city says the funds suffer a $3.5 billion shortfall, making benefit cuts inevitable. The trustees who control the funds say the city is overstating its case and that the funding situation is far less dire.
But one thing is not in question: The two funds, one for police and firefighters and another for general city employees, are haunted by bad investments and City Hall corruption in the past.
In fact, the funds lost hundreds of millions of dollars from real estate deals, business loans and other risky "alternative" investments, according to pension fund financial reports.
"Pension funds are supposed to be your grandmother's life savings; you handle this money better than you would handle your own," Kevyn Orr, the state-appointed manager running Detroit, said last month. "That just wasn't done for a long, long time."
As of June 2011, the two pension funds had combined assets of about $5.8 billion, down roughly 30% over a four-year period, according to the funds' most recent financial reports.
Significant investment losses can be chalked up to the recession that ravaged the portfolios of most investors.
But some losses are the result of questionable and risky investment decisions, such as the funds' $30 million loan to a cargo airline that filed for bankruptcy months later, according to court records.
And in some cases, outright fraud was at play. FBI investigations led to the conviction this year of former Mayor Kwame Kilpatrick on a variety of charges, including some related to the pensions. In addition, $84 million of the funds' losses have been tied to a corruption scheme.
According to FBI and court documents, city and pension fund officials allegedly accepted bribes and kickbacks -- ranging from cash payments to lavish trips, entertainment and private plane flights -- in exchange for steering more than $200 million in pension fund investments.
For example, one former trustee of the police and fire fund allegedly accepted thousands of dollars in cash, a $5,000 casino chip, and trips to Florida and the Bahamas for he and his "mistress," according to the criminal indictment.
Source: CNNMoney
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