Published: August 31, 2009 08:07 am      

Indiana teachers union insurance fund files lawsuit

The Indiana state teachers union's insurance fund has filed a lawsuit alleging former officials, financial advisers and consultants mismanaged a long-term disability insurance trust.

The lawsuit was filed Thursday in Marion Superior Court by Ed Sullivan, The Indianapolis Star reported Friday. Sullivan was appointed sole trustee over the Indiana State Teachers Association and its insurance fund in May as part of a takeover by its parent, the National Education Association.

Teachers already had filed a lawsuit seeking to recover damages from ISTA and many of the same defendants.

ISTA's suit names Warren L. Williams, ISTA's former executive director, who resigned in May, and Robert Frankel, the fund's former director, among several defendants.

The fund's value plunged to near bankruptcy during the last two years, leaving disability benefits for 650 school employees in jeopardy with a projected $45 million to $65 million shortfall in the next 15 to 20 years.

Both NEA and ISTA officials have said since the NEA takeover that the organizations would cover all future claims. ISTA has sold its downtown Indianapolis building to the NEA to raise money and also has issued layoff notices to at least 40 employees.

ISTA chose not to sue the trust's former board members, its attorneys said.

The lawsuit claims Williams and investment adviser David Karandos placed an unusually high percentage of investments in hedge funds and high-risk equities that are not publicly traded, without the board's consent and in violation of a 2004 investment policy.

ISTA's lawsuit also names: Karandos and the companies where he worked, UBS Financial Services and most recently Morgan Stanley; Wisconsin-based Huttleston Associates, which served as a consultant and program administrator; Kansas-based McInnes Maggart Consulting Group, which was a consultant on ISTA's medical insurance programs; and Illinois-based Crowe Horwath, which served as the trust's auditor.

Claims include breach of trust and fiduciary duty, negligence, constructive fraud, conspiracy, aiding and abetting, and professional malpractice.

The Associated Press left a message seeking comment Friday at a telephone listing for a Warren L. Williams in Indianapolis. There was no answer at a residential listing for Karandos, and Morgan Stanley offices in Indianapolis said he did not work there. No residential listing for Frankel could be found.