Bureau of National Affairs
ULLICO Board Votes to Release Report On Investigation of Alleged Insider Trading
By Brian Lockett
Monday, March 31, 2003
The board of directors of ULLICO Inc. March 28 voted to make public a report prepared for the union-owned insurance company by former Illinois Gov. James Thompson (R), which examines the company's stock sale and repurchase programs offered to directors and board members.ULLICO said its board also voted to instruct company attorneys to cooperate with federal authorities investigating allegations of insider trading related to stock transactions.
In agreeing to release the report, the board acted on recommendations made by a special eight-member panel of board members who had not participated in the stock purchase offer. The special panel had approved the two recommendations at a March 25 meeting.
According to ULLICO, the special committee concluded from their three-month review of the Thompson report that no laws or securities regulations were broken. Thompson released his report to the board on his internal investigation in November 2002 (228 DLR A-8, 11/26/02).
Public release of the Thompson report has been sought under subpoena by the Labor Department and the state of Maryland as well as in requests from the House Education and the Workforce Committee and numerous other groups.
"It is important to understand that the timing of the release of the Thompson report until today was necessary to allow the special committee sufficient time to complete its deliberations," said Robert A. Georgine, ULLICO's chairman, president, and chief executive officer.
"It's the right move and something the AFL-CIO has been urging," said AFL-CIO spokeswoman Kathy Roeder.
Thompson's report, at nearly 110 pages plus 30 pages of exhibits, first will be released to shareholders early next week, according to company sources. Shortly thereafter, at a date yet to be determined, the company expects to make copies available to news organizations, a company official said, after various legal details including issues of attorney-client privilege have been worked out.
Allegations of wrongdoing by company officers and members of the board have been tied to assertions in court documents that ULLICO gave its directors the opportunity to buy company stock and sell it when the price was significantly higher, but did not give the same opportunity to institutional investors, particularly union pension plans. As a result, according to court documents, some board members allegedly reaped huge profits by selling their personal stock holdings near peak valuation while they allowed the same investments made by institutions and union pension plans to founder.
At the time, ULLICO owned a large amount of stock in Global Crossing, a telecommunications company that had seen its stock price soar after its initial public offering and later experience a sharp drop in value.
In addition to making the recommendation for releasing the report, ULLICO said the special committee found that the sale and repurchase of ULLICO shares to corporate officers and board members was conducted in accordance with provisions and procedures developed by legal and accounting professionals; that the actions were based on expert financial advice, with the concurrence of outside legal counsel, and did not violate corporate bylaws or previous board actions; and that the actions were consistent with traditional corporate decisionmaking procedures. Because no laws were broken and no securities regulations were violated, a majority of the special committee found that there was no reason to recommend that the profits be given back.
Three members of the special committee, however, recommended returning the profits for the good of the company and to get the matter behind it, ULLICO said in a statement.
Douglas J. McCarron, president of the Carpenters and Joiners of America and a member of the ULLICO board, decided to return to the company the profit he made on the sale of his ULLICO stock, less taxes paid, or approximately $276,000 (210 DLR A-8, 10/30/02). McCarron has since resigned from the board (51 DLR B-1, 3/17/03), becoming the fourth union leader to do so.
ULLICO, formerly known as Union Labor Life Insurance Co., was founded in 1925 to provide affordable life insurance for workers. The company also invests and manages approximately $6 billion of largely building trade union pension fund assets. The majority of the company's board of directors are either current or former union presidents.
The special committee also endorsed several corporate governance measures designed to improve transparency and executive accountability, ULLICO said. Those measures include: the immediate elimination of the discretionary share repurchase program; the creation and disclosure of new standards for any future share repurchase program; the adoption of comprehensive written corporate governance guidelines and a written code of conduct and ethics; and the appointment of a chief compliance officer to oversee and administer the code of conduct and ethics.
"I am pleased the special committee has concluded that there was no wrongdoing by any corporate officer or member of the board," Georgine said. "We sought the advice of attorneys and other professionals at the time to ensure that would not happen."
"I look forward to implementing quickly the special committee's recommendations with respect to enhanced corporate governance measures, and to addressing other corporate priorities," Georgine said. "I am especially eager to move forward with the implementation of our new business plan, which I presented to the board today."
In the face of mounting allegations of wrongdoing, the board sought legal counsel from Thompson who, in turn, brought in a legal team from Chicago-based Winston & Strawn and lawyers from Sidley Austin Brown & Wood, Washington, D.C. Thompson is a Winston & Strawn partner.
"With the steps we are taking today, we can put these allegations of wrongdoing behind us and move forward to continue to provide our customers with the highest quality products and services," Georgine said.
Also approved March 28 by the board but not announced by ULLICO was a proposal to engage a business team to help get the company back on its feet financially, one board member told BNA. Heading the team will be D. Quinn Mills, a professor at the Harvard University Business School who worked with former Labor Secretary John Dunlop during the era of wage and price controls during the Nixon administration. Mills addressed the ULLICO board at its March 28 meeting.
Joining Mills, the board member said, will be Michael Maccoby and Donald Laurie. Maccoby is a psychoanalyst and anthropologist who consults to businesses, governments, and unions on leadership and strategic development. He is president of the Maccoby Group in Washington, D.C. Laurie, a Boston-based management consultant, is founder and managing director of Laurie International Limited.
This team will be working with The Boston Consulting Group, a company that has extensive experience in the insurance industry.
Their work will intersect with the work of a "senior management operations committee" appointed by the board that is looking into ways to improve ULLICO's cost-effectiveness, this board member explained. Also launched were search committees to find a new chief financial officer and chief operating officer for the company. As currently envisioned, the board member explained, Georgine and other senior management at the company will continue to focus on the day-to-day operations while the new chief operating officer will work on development of a business plan and implement the operating efficiencies recommendations.
Taking exception to news stories, one board member told BNA following the March 28 meeting that reports about board members manipulating the stock price have been "dead wrong." According to this board member, the price of ULLICO stock is set annually by auditors for the company under a formula approved by the board "long before Global Crossing." The board reviews the auditor's report and the basis for setting the new stock price but does not set the price, he said.End of article graphic
Copyright © 2003 by The Bureau of National Affairs, Inc., Washington D.C.