Bureau of National Affairs
Daily Labor Report
Frustrated Lawmakers Trade Charges In Wake of Former ULLICO Head's Silence
By Fawn H. Johnson
June 18, 2003
Members of the House Education and the Workforce Committee June 17 expressed frustration at the refusal of Robert Georgine, former president, chairman of the board, and chief executive officer of ULLICO, to answer questions about alleged insider trading at the union-owned insurance company.
Georgine was the star witness at a hearing where lawmakers had hoped to delve into whether former ULLICO board members, including Georgine, had violated pension or labor laws when they profited from stock transactions in 1998 and 1999 that were not made available to participating union pension funds. The board at the time was made up mainly of former and sitting union presidents.
Committee Chairman John Boehner (R-Ohio) asked Georgine whether he was responsible for engineering a compensation program for ULLICO board members under which they purchased ULLICO stock at "artificially low" prices, only to sell them at "a highly inflated price" a year later.
"There are many questions that remain unanswered about the ULLICO scandal, and rank-and-file union members deserve answers," said committee Chairman John Boehner.
"While I'm confident that I have done nothing wrong, on the advice of my attorney, I respectfully decline to answer," Georgine replied.
Georgine confirmed to Boehner that he was invoking his Fifth Amendment right not to incriminate himself before the committee, and that he would refuse to answer all questions directed at him by committee members.
"It's unfortunate that we are not going to get the cooperation of our key witness today, but that is the gentleman's right, and we will respect it," Boehner said.
"Frankly, I am more than a little frustrated and disappointed that Mr. Georgine--who might have given this Committee answers to some important questions--has chosen to refuse to cooperate with the Committee's investigation," said Rep. Charles Norwood (R-Ga.).
Georgine also has been subpoenaed to testify before the Senate Government Affairs Committee June 19, where it is assumed he will also invoke his Fifth Amendment right not to answer questions. Also called to testify at that hearing is former Illinois Governor James Thompson (R), who conducted an inquiry into the ULLICO scandal and presented a report on the board members' activities to its members in April (64 DLR A-10, 4/3/03).
In the wake of the ULLICO scandal, Georgine in April opted to step down as chairman and not to seek re-election to the ULLICO board, but said he would stay on as president and chief executive officer. He subsequently resigned as president and CEO. Terence O'Sullivan, president of the Laborers' International Union of North America, succeeded Georgine as chairman and acting CEO in May (90 DLR A-8, 5/9/03). On May 22, Edward Grebow, former president of Sony Electronics' Broadcast and Professional Co., was named acting president of the insurance company (100 DLR A-8, 5/23/03).
LMRDA, ERISA Violations Alleged.
In questioning two other witnesses appearing before the committee, Republicans said stock transactions of ULLICO board members could have violated provisions of both the Employee Retirement Income Security Act and the Labor-Management Reporting and Disclosure Act. However, Boehner said, Thompson's investigation declined to probe those potential violations.
"Gov. Thompson was expressly directed not to examine whether ULLICO broke federal pension and labor laws," namely LMRDA and ERISA, Boehner said.
Gov. Thompson's legal analysis of the events concluded that officers and directors "arguably acted inappropriately and to the detriment of the rights of ULLICO institutional shareholders."
Damon Silvers, special counsel to the current chairman of ULLICO and an associate general counsel at the AFL-CIO, said Boehner's characterization of Thompson's report was mistaken with regard to ERISA and LMRDA. Thompson's mandate from the ULLICO board was "open-ended," Silvers said. Thompson and his investigating team "made up their own minds to not look at ERISA," he said. "In our view, that may have been mistaken, but it was understandable."
Silvers went on to say that attorneys for ULLICO the company--which is distinct from attorneys for the company's board of directors--suggested to Thompson that he not investigate possible ERISA and LMRDA violations. Under those laws, private companies are not obligated to act as their own enforcers, he said. "Companies are not obligated to spend company money to enforce the board of directors' actions," he said.
Boehner replied with disappointment. "There are many questions that remain unanswered about the ULLICO scandal, and rank-and-file union members deserve answers," he said. "American workers deserve to know: were federal labor laws violated at ULLICO? Were federal pension laws violated at ULLICO?"
Norwood Suggests LMRDA Changes.
Norwood went further than Boehner in implying that ULLICO board members violated labor law. "Where we have a board like ULLICO's composed of sitting union presidents and officers profiting on insider stock deals at the expense of their unions, their union pension funds, and their union members, how is this not a violation of that law," he asked.
Norwood also suggested that the committee should strengthen the enforcement mechanisms under the LMRDA. "The time may be here for this committee to demand more than self policing and enhance and put teeth into these laws," he said.
The committee asked Warren Nowlin, a partner at the law firm of Williams Mullen in Washington, D.C., to testify as an expert witness on labor law. He told Norwood it is "possible" that ULLICO board members' actions violated federal law.
Nowlin declined to give a more specific response to Norwood, saying only that ERISA has complicated provisions regarding when an official can be considered a pension fiduciary who is subject to the law's requirements. "The courts have found that being an ERISA fiduciary is not a 24-hour-a-day job," he said.
Democrats Cite ULLICO's Efforts.
Committee Democrats protested the committee's singling out of ULLICO's stock scandals in the wake of larger corporate scandals. "The committee has held only one abbreviated hearing on Enron," said ranking Democrat George Miller (D-Calif.), adding that billions of 401(k) dollars have been lost by former Enron employees.
By contrast, the AFL-CIO "moved decisively to clean up the mess" at ULLICO, Miller said.
Echoing on that sentiment, Silver said the company has elected a new "reform slate of directors," and all union officials who profited from the stock deals have returned or will return their profits to ULLICO.
Rep. Robert Andrews (D-N.J.) decried the lack of attention to potential ERISA violations on the part of Enron. "Thousands of people have lost billions of dollars," he said. "There has been no action, there has been no response."
Silvers said pension benefits at ULLICO have not suffered as a result of the board's stock scandal. "No one has lost a dime in pension benefits as a result of what has occurred at ULLICO," he said.