It’s “no comment” all over Washington these days, as union presidents wonder if enriching themselves as company board members may not have been such a hot idea after all.
Reporters from Business Week and the Wall Street Journal broke the story that several union presidents who sit on the board of ULLICO, an insurance and financial services company, made hundreds of thousands of dollars by using inside knowledge of imminent changes in the company’s stock price. They were encouraged to do so by ULLICO’s CEO, Robert Georgine, former head of the AFL-CIO’s Building Trades Department.
A federal grand jury is investigating the case, as is the Department of Labor, to discover whether the union leaders violated labor law.
John Sweeney, who sits on the ULLICO board but did not take advantage of the enrichment scheme, wrote to Georgine to urge that ULLICO appoint an independent counsel to investigate the affair. Two weeks later, Georgine had not responded. Most ULLICO board members contacted by Labor Notes, including both those who did and did not profit from the inside knowledge, declined to comment. CWA President Morty Bahr said he was backing Sweeney’s request for an investigation.
Matters should come to a head at ULLICO’s board and annual meetings, set for early May.
HOW IT WORKED
ULLICO was founded in 1925 to provide death benefits for union members. It is a privately held company, and thus not subject to all the same rules as publicly traded corporations. Its stock can be bought only by unions or by ULLICO officers or directors.
During the 1990s, ULLICO profited enormously by investing in a telecom company called Global Crossing-now bankrupt, but once a star. The fluctuating profits from Global Crossing caused ULLICO’s stock price to skyrocket-and then to plunge.
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But ULLICO’s practices allowed both stock movements to work to the directors’ benefit. Each year on December 31, ULLICO sets its stock price for the upcoming year. On December 17, 1999, Georgine offered the directors the chance to buy 4,000 ULLICO shares apiece at the current price of $54-although it was already known that (because of Global Crossing’s success) the share price would rise to $146 two weeks later. The potential gain per director: $368,000. Not bad for a minute’s work.
THEY VOTED FOR IT
When Global Crossing tanked, bringing ULLICO’s price down with it, the directors benefited again. Before the December 31, 2000 price adjustment, ULLICO offered to repurchase some shares. All shareholders-including the unions and their pension funds-could sell a small amount of their holdings, but those with fewer than 10,000 shares-mostly the directors-could dump all of theirs.
The price was cut from $146 to $75. But before that happened, directors sold 73,000 of their 120,000 shares, at $146 apiece. You do the math.
Some ULLICO board members took advantage of the scheme; others did not. But it was the ULLICO board as a whole which approved the scheme that allowed some members to reap windfalls. According to the WSJ, previously, ULLICO had kept its share price at a fixed $25. But in 1997 ULLICO set up the repurchase plan as a way to allow these lucky shareholders to benefit from ULLICO’s sudden success.
Business Week raises the question: by participating in this set-up, did union officials fail to do right by their members and their members’ pensions? The arrangement favored individual board members over the unions’ and pension funds’ investments. When Georgine wrote to the directors with his offer in 1999, he did not let the unions in on the proposition.
Those mentioned by WSJ and Business Week as profiting from the scheme are Douglas McCarron of the Carpenters, Morty Bahr of CWA, Martin Maddaloni of the plumbers union, Jake West, then president of the Ironworkers, and William Bernard, former head of the Asbestos Workers.
Two directors cited as not participating are John Wilhelm of the hotel workers and Lenore Miller, former president of RWDSU. Spokespersons for board members Terence O’Sullivan of the Laborers and Frank Hanley of the Operating Engineers say that they did not participate.
Other board members, as of last year, are union presidents Earl Kruse (Roofers), Frank Hanley (Operating Engineers), Vincent Sombrotto (Letter Carriers), and Jim LaSala (ATU), and Linda Chavez-Thompson of the AFL-CIO. In addition, a slew of retired presidents and other officials from the building trades, UAW, and GCIU sit on the board.