The Wall Street Journal

Labor Department Is Suing 2 Ullico Units

By Kathy Chen
March 26, 2002

WASHINGTON — The Labor Department is suing Union Labor Life Insurance Co. and a subsidiary for mismanaging  two union pension funds, adding to the problems of the union-owned life insurance company.

According to court papers filed Friday in Federal District Court here, Union Labor Life and subsidiary Trust Fund Advisors invested more than $10 million from two Laborers International Union pension funds to help develop a 120-acre tract land in North Las Vegas into saleable building lots.

The suit alleges that Union Labor Life and TFA—both held by Ullico Inc.-failed to obtain an appraisal of the land or investigate the risk-rewards of the project, and that the companies paid too much the property. The Labor Department said the companies gave up on the development in 1997, and later sold the property at a loss in 1999 to Capital Pacific Holdings, Newport Beach, Calif., for about $9.3 million.

The Labor Department has filed a court order asking Union Labor Life and TFA to compensate the Laborers' plans for losses and interest accrued on the real estate investment.

Ian Lanoff, a lawyer here representing  Union Labor Life and TFA, said, "it is our position that both acted appropriately and prudently ... and that they will be completely vindicated.

The suit comes amid a federal jury investigation  into the trading of Ullico stock by union officials who sat on the company's board. Ullico, which makes direct investments on its own behalf besides managing unions' pension funds, was an early investor in Global Crossing Ltd., an international telecommunication s company based in Bermuda that is in bankruptcy court and under scrutiny by federal lawmakers for its accounting practices.

Ullico's stock price rose and fell in past  years often in tandem with Global Crossing share prices, and investigators are asking whether Ullico board members wrote repurchase and sales rules that allowed them to benefit from these fluctuations without providing the same opportunity to other shareholders.

Meanwhile, the AFL-CIO has been conducting its own inquiry into the purchase and sales of Ullico stock by board members.

The labor federation, an investor in Ullico, based here, is looking into whether any board members benefited improperly from the sale of Ullico stock back to the company under rules that they wrote for themselves.

It wasn't clear whether the Labor Department suit over the Las Vegas land deal stems from any larger investigation into Ullico practices. A Labor Department spokeswoman said its inquiry to date has resulted in the lawsuit. "Beyond that, I cannot say whether there will be additional actions," she said.

The case involved two defined-benefit  plans offered by the Laborers with total assets of more than $1.2 billion as of 1999. One plan serves full-time officers and employees of Laborers'locals  and district councils, covering 6,375 participants in 1999; the other covered 30,609 employees of contributing employers who have collective bargaining agreements with the Laborers.

Under the 1974 Employee Retirement Income Security Act, the Labor Department has authority to sue pension-plan managers and others for mismanaging funds and violating fiduciary duties.


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