Published: May 20, 2009 01:23 pm         

NEW: NEA takes over Indiana teachers union

INDIANAPOLIS — The National Education Association has taken over its 50,000-member Indiana branch as investigators look into the finances of the affiliate’s troubled insurance arm.

Indiana State Teachers Association President Nate Schnellenberger sent members an e-mail dated Tuesday that said the NEA will have complete control of the state’s largest teachers union. ISTA’s board met Saturday in a special session and requested that the NEA take over, he said.

The Indiana union is working to untangle its trust from millions of dollars in liabilities. Investigators are trying to determine whether managers did something improper or merely made risky investments for the trust, which provides medical, disability and other types of insurance to school districts.

“The purpose of this trusteeship is to assure ISTA’s current financial viability and continued long-term success,” Schnellenberger wrote in the e-mail.

The NEA appointed trustee Edward Sullivan to run ISTA, a powerful lobbying force in the Indiana Statehouse. Schnellenberger says Sullivan will try to keep ISTA running smoothly while exploring financial options for the union and making corrections as needed.

Sullivan retired last year after nearly 25 years as executive director of the Massachusetts Teachers Association.

“I am confident that he will provide sound leadership as we work to resolve the financial issues that confront us,” Schnellenberger said.

The FBI is investigating the trust, according to a person familiar with the case who spoke to The Associated Press last week on condition of anonymity because he was not authorized to discuss the investigation. State regulators referred the matter to state and federal investigators after they found several red flags, including an increase in fees when the fund was not performing well and an unusually high number of transactions, the person said.

ISTA Deputy Director Dan Clark has confirmed that there were allegations of “inappropriate fees and inappropriate trading as well as inappropriate investments.”

An FBI spokeswoman said the agency was aware of the situation with ISTA, but would not confirm or deny that it is investigating. The Indiana Secretary of State’s office is taking a similar stance, although Clark says the Secretary of State’s office issued subpoenas for two former ISTA employees who made decisions about the insurance trust.

ISTA Executive Director Warren Williams, who had planned to retire at the end of the year, announced Thursday that his retirement would begin immediately. The trust’s director, Robert Frankel, resigned earlier this month. The reasons for their departures are unclear.

The Associated Press left a message seeking comment for Frankel at his Noblesville home. Calls to Williams’ Carmel home rang to a fax machine, and the AP sent a fax requesting comment.

Investment firm Morgan Stanley said in a statement last week that the company has handled ISTA’s trust since 2008 and that it will fully cooperate with investigators.

A review by the state Department of Insurance found that ISTA’s insurance trust has a $67 million negative net worth. The department found that some of the trust’s investments had “disturbingly low liquidity” and that too much was put in private investments that are not publicly traded.