ULLICO Shareholders Approve Probe Of Insider Stock Deals by Directors
By Harry Kelber
May 2, 2002
Pension fund stockholders at ULLICO's annual meeting on May 7, 2002 in Washington gave their seal of approval to CEO Robert A. Georgine and his board of directors without any comments or questions about the charges of insider stock trading that have been levied against them.
In fact, it was Georgine himself who devoted a single paragraph to the subject in his annual report by announcing that the board had hired former Illinois Governor James R. Thompson to “independently examine questions raised by the recent media coverage.”
Currently, a federal grand jury in Washington, D.C. is investigating the self-enrichment schemes approved by the board, which enabled many of its members to gain personal profits totaling more than $6.5 million.
A separate investigation is being conducted by the U.S.
Labor Department to determine whether union leaders on the board, in their management roles, breached their fiduciary responsibilities to their union pension funds.
What is especially unusual about the ULLICO insiders' stock trading scandal is that all but two of the 28 board directors are current or retired national union presidents and secretary-treasurers and include AFL CIO President John Sweeney and Executive Vice President Linda Chavez Thompson. CEO Georgine, who chose most of them as directors, was president of the AFL-CIO Building and Construction Trades Department for 26 years before his retirement in January 2000.
Damaging allegations against the directors, which they have not denied and which will undoubtedly be spotlighted in the three forthcoming investigations, deal with the buying and selling of their shares at lucrative profits, from January 2000 to September 2001.
Specifically, on Dec. 17, 1999, Georgine sent a private letter to board directors inviting each of them to buy 4,000 shares of the company stock at $53.94 a share based on its 1998 book value, even though the company stock was now worth $146 a share as the result of windfall profits from an early investment of $7.6 million in Global Crossing that netted ULLICO an enormous after-tax profit of $330 million.
Board members received still another opportunity to trade their shares for personal advantage. In November, 2000, as Global Crossing was in a free-fall toward bankruptcy, causing a sharp decline in the value of ULLICO shares, the directors gave themselves the privilege of selling back their shares to the company at the price of $146 a share, even though they knew that the book value of the company's shares would be fixed at $75 a share by the end of 2001.
While all shareholders were allowed to participate in the $30 million stock repurchase offer, a series of restrictions were placed on union pension funds with more than 10,000 shares. Georgine sold 16,868 of his shares in 2001 at a personal profit of more than $2 million, according to proxy statements.
Questions have been raised about the composition of the board, which has only three of its 28 directors with actual management experience in the insurance and financial services industries in which ULLICO is engaged.
Why were these prominent union leaders selected, and what expertise in insurance and corporate investments did any of them bring to the board?
What did they actually do on the board?
Were they there to serve as window dressing and to rubber stamp decisions made by management personnel behind the scenes?
ULLICO directors receive $6,000 a year, while those on the executive committee (about half of the board) get $16,000 annually. They also are paid $500 for attending each semi-annual board session or an additional executive committee meeting.
This is regarded as modest compensation, compared with what directors on major corporate boards are paid.
Even if Sweeney and other directors did not personally cash in on the ULLICO stock offer, they approved the stock transactions and the rules that enabled co-directors to reap huge profits, even extending the time limit to give them five more months to cash in additional shares.
ULLICO is a union-owned insurance and financial services company, founded by the American Federation of Labor in 1925 as the Union Labor Life Insurance Company to provide affordable health and life insurance to union members.
In the last eleven years since Georgine became its chief officer, ULLICO has made a profit every year. With a stable labor force of 1,800 workers, its investments have provided thousands of good-paying jobs for unionized construction workers.
The Thompson investigation is seen as a thinly-veiled effort at damage control by ULLICO's directors.
Thompson, a former United States attorney in Chicago, told The New York Times: “I'll do the investigation that they've asked me to do. I'll ask the questions they want me to get answered. Then I'll give them a report, and it's up to them.” And if the board doesn't like his recommendations, it can ignore them.
Meanwhile, the AFL-CIO and its affiliates are suffering considerable embarrassment over the ULLICO scandal, especially since they have been so vehemently critical of Enron executives. The ULLICO mess is being characterized as “Labor's Little Enron,” and will be used to discredit unions in both their organizing and political campaigns.
No matter what the outcome of the current investigations, the image of American labor and its leaders has been severely tarnished. There never was a time when so many powerful national union leaders were implicated in a self enriching scheme involving a company dedicated to the welfare of union members.
Will the AFL-CIO resurrect its Ethical Practices Committee to conduct hearings on the behavior of the 11 ULLICO directors who are also members of the labor federation's policy-making Executive Council?
What penalties, if any, will they be required to pay for conduct unbecoming a union officer? Or will a cover-up be followed by a whitewash?
Like the fallout over Enron, the ULLICO scandal will be unfolding in the weeks and months ahead, and we shall be watching it closely.