ON THE LEVEL

 

April 2002

 

 

Stock windfall for labour leaders under scrutiny A black eye for labour - US grand jury investigates McCarron and others in ULLICO

 

 

by Josh Coles

 

In April, a US federal grand jury and the US Department of Labor launched separate investigations of UBCJA General President Doug McCarron. Both are investigating personal stock deals he made while sitting on the board of a union owned insurance company.

 

The Wall Street Journal and Business Week Magazine report that the grand jury is probing whether McCarron and other US union leaders violated criminal and labour laws by using their positions on the board of governors of ULLICO Inc. for personal gain, while their unions' own investments plummeted in value.

 

ULLICO, a privately-held company owned by Trade Union officials, was founded by the AFL-CIO in 1925 as Union Labor Life Insurance Co., to provide life and health insurance to union members. McCarron has sat on the ULLICO board since 1996, guiding the investment of Carpenters Union pension funds and UBCJA cash.

 

 

According to its 2001 financial statement, the UBCJA has over $14 million of its assets invested in ULLICO stocks.

 

For years, ULLICO invested conservatively and unions enjoyed moderate returns from their investments. But in 1997, a year after McCarron was appointed to its board, ULLICO changed investment strategies and invested $7.6 million in a risky telecommunications company start-up called Global Crossing.

 

While initially incredibly profitable, last year Global Crossing became the fourth largest bankruptcy in US history.

 

But during the good years, according to Business Week, ULLICO board members were allegedly given the opportunity to  personally purchase ULLICO shares at bargain prices in anticipation of the big gains ULLICO was set to make in Global Crossing investments

 

Board members, it's alleged, were then able to sell their shares back to ULLICO before their value had been reset to reflect the unavoidable reduction in price related to Global Crossing's accelerating fall during the recent industry-wide telecommunications crash.

 

Even though they knew ULLICO's troubles were jeopardizing their own unions' funds, board members personal shares were protected because they voted in a procedure that fixed their personal shares final selling price. Board members sold their ULLICO shares at a price inflated by the good years of Global Crossing but untouched by its Union and pension funds, with much larger stakes, did not enjoy the advantages of this Stock windfall for labour leaders under scrutiny.

 

A black eye for labour investigates McCarron scheme and got hit hard by ULLICO's exposure to Global Crossing, according to Business Week.

 

McCarron personally held 3,000 ULLICO shares which could have reaped well over $200,000 in personal profit from 2000 to 2001, depending on when he sold the shares.

 

Meanwhile, carpenter union funds took a ULLICO bath. One union president who commented, Martin Maddaloni of the plumbers, admitted to making $184,000 by selling 2,000 of his ULLICO shares back to the insurer. "I didn't think there was anything wrong with it," Maddaloni told the Wall Street Journal, "I just took advantage of the process."

 

According to the Journal, Maddaloni, who has served on the insurer's board for two years, said ULLICO's in-house lawyers had blessed the transaction.

 

Overall, ULLICO's board members sold 73,000 of their 120,000 shares, Business Week says, giving them combined profits of at least $ 6.7 million.

 

McCarron has refused comment on the allegations. But the Wall Street Journal reports a McCarron spokesperson stating that "the transactions were conducted properly."

 

According to Business Week, the grand jury is to determine if the board members are criminally liable for voting in a procedure where ULLICO repurchases of its stock confer benefits to board members at expense of their own unions' investments.

 

There is also the question of whether McCarron's and others dealings in ULLICO stock created a conflict of interest that violated civil labour law.

 

The Wall Street Journal reports that the U.S. Department of Labor is separately investigating this question – a probe that potentially could lead to removal of McCarron as General President and invoke civil fines.

 

Business Week also points out that several anti-union corporations are primed to use the scandal in their propaganda against persistent organizing drives by their workers.

 

BC Provincial Council President Len Embree says McCarron should do the right thing and come clean about his personal investments. "He should resign if in fact there is any conflict or wrongdoing," Embree said.

 

The Labour - Global Crossing relationship

 

When did what happen at ULLICO
from the Wall Street Journal

 

About two dozen labour leaders sit on the board of ULLICO Inc, which is an umbrella company controlling around $4 billion in insurance and union pension assets. ULLICO also controls Zenith Administrators which looks after most US Carpenters Union pension plans.

 

Some timelines:

 

1996 Douglas J. McCarron is elected to the Board of Directors of privately held ULLICO Inc. joining with 28 other trade union representatives.

 

1997 ULLICO invests $7.6 million in Global Crossing, a telecommunications startup.

 

1999 Fall- ULLICO is losing money on some of its other operations but earns $127 million by selling some Global Crossing stock. Insiders knew those gains would lift the annual evaluation of ULLICO shares from $54 to about $146 when its books closed at the end of the year.

 

1999 December - ULLICO offers each director the chance to buy 4,000 ULLICO shares at the 1998 evaluation of $54. The union pension funds that own almost all of ULLICO aren't given the same offer, or even told about it.

 

2000/01 December 2000/January 2001 - ULLICO buys back 205,000 of its shares at $146 per share. Stockholders with fewer than 10,000 shares are allowed to sell all their holdings, so officers and directors can take full advantage, but the pension funds can't. Insiders know that the decline of Global Crossing's stock puts the true value of ULLICO's shares closer to $75.

 

2001/02 December 2001/January 2002 - ULLICO buys back an additional 200,000 shares, allowing officers and directors who hadn't sold before to cash out at $75. Again, insiders know that the further collapse of Global has again cut ULLICO's true value, this time to $44.

 

2002 March - ULLICO's pension-fund shareholders now own a less valuable company. Its Global Crossing profits have gone disproportionately to officers and directors, some of whom are trustees of the union pension funds that lost out on the deal. Global Crossing shares, which peaked at just over $64 fell in March, 2002, to just 11 cents.


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