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The Honolulu Advertiser
Posted on: Saturday, October 22, 2005

Report warns Unity House

By Jim Dooley
Advertiser Staff Writer

Plagued by "speculative and unwise investing," the Unity House nonprofit labor organization lost nearly $20 million from 2001-04, may lose its federal tax exemption and may fail completely if returned to the control of its previous board of directors, according to a receiver's report filed in federal court late yesterday.

Federal agents seized control of Unity House in December following the indictment of two top officials, Anthony Rutledge Sr. and his son Aaron Rutledge, on federal fraud and conspiracy charges.

But under the terms of a controversial plea agreement now pending approval in federal court, the two Rutledges would plead guilty to greatly reduced criminal charges and Unity House would revert to the control of its previous board of directors.

The two Rutledges would be banned from holding executive positions at the non-profit while serving out the terms of probation but could be employed by Unity House as consultants, according to the agreement.

A court-appointed receiver operating Unity House while the criminal case is pending filed a report on the organization yesterday, noting that it controls $29 million in assets for the benefit of 20,000 present and past members of the Hawaii Teamsters and Hotel and Restaurant Employees Unions.

"When the receiver was appointed in December 2004, Unity House's net worth had dwindled to $29 million from $48.7 million just four years earlier," the report said.

"Unity House suffered these extraordinary losses despite clear warnings from investment advisors," said the receiver, EG&G Technical Services Inc.

"For reasons that remain unclear, Unity House management and the Board of Directors took little or no action to restrain spending and continued a pattern of speculative and unwise investing," the receiver said.

William McCorriston, attorney for Anthony Rutledge, and Eric Seitz, attorney for ousted Unity House board members, could not be reached for comment yesterday evening.

Brian DeLima, attorney for Aaron Rutledge, said, "I don't think the receiver is fully informed about everything that has happened at Unity House. He hasn't talked to me, he hasn't talked to Tony Rutledge's attorneys. For him to be making statements about what may or may not happen in the future is inappropriate."

The report said that rather than returning the nonprofit to the control of its former board, appointment of "an independent and competent board of directors" is "vital if Unity House's financial vitality is to be restored."

If the proposed plea agreement is accepted by the court, the report said, Unity House may have to pay an estimated $1 million in legal bills for Tony Rutledge as well as possible severance pay packages.

"In light of Unity House's precarious financial condition, the added obligation of paying Anthony Rutledge Sr.'s attorneys fees and separation costs could be ruinous," the receiver reported.

The IRS is now examining Unity House's tax status and the nonprofit has hired outside experts to "remedy" any possible tax compliance problems, the report said.

U.S. District Court Chief Judge David Ezra originally set next April as the hearing date for accepting or rejecting the proposed plea agreement with the Rutledges but he recently said he would move up that hearing date to later this year.

Ezra, who expressed reservations about the fairness of the deal, told prosecutors to submit paperwork justifying its terms. They did so last week, but the papers are sealed from public view.

The former prosecutor who obtained the most recent indictment of the Rutledges, Edward "Ted" Groves, called the agreement a "travesty of justice."

Reach Jim Dooley at jdooley@honoluluadvertiser.com.