As Fox News reported, Senator Bob Casey (D-PA) is pushing a bailout for Big Labor to the tune of $168 billion dollars. Casey’s bill would bailout Big Labor’s pension funds by putting the “Pension Benefit Guarantee Corporation behind struggling pensions for union workers.” The problem, as Erik Berte notes, the liability and exposure to taxpayers could far exceed the $168 billion because taxpayers’ “liability could essentially be unlimited because these pensions have to be paid out until the workers die.”
Why is Senator Casey pushing a bailout? The “pensions are in bad shape; as of 2006, well before the market dropped and recession began, only 6% of these funds were doing well.”
One reason Big Labor pensions are in such bad shape is because of malfeasance by the board of the Union Labor Life Insurance Company (ULLICO). ULLICO, a union-owned insurance company founded by the American Federation of Labor in 1925, also serves as the investor for many union pension funds who also own stock in the company.
Unfortunately for hard working labor pensioners, reprehensible schemes occurred at the Washington D.C. offices of ULLICO. The company’s board, controlled by labor bosses, made off with millions in financial gains while the values of union pension funds collapsed under the rubble of questionable investments in telecommunications company Global Crossing.
Longtime connections between union bosses and Democrat Party officials led to a marriage between ULLICO and Global Crossing. The story is a complex and disturbing tale mixing business, labor unions, Democrats, politics and greed at the expense of the pension funds used for investment.
Consider:
“For Most Of Its History, ULLICO Hewed To A Conservative Investment Strategy And Kept Its Own Stock At The Fixed Price Of $25 A Share.” (Tom Hamburger and John Harwood, “Union Bosses On Insurer’s Board Reaped Profits With Stock Deals,” The Wall Street Journal, 4/5/02)
• “ULLICO is the privately owned insurance company whose stock is held by unions and their pension funds.” (“Labor’s ‘Enron’ Scandal,” Labor Notes, 1/06)
ULLICO Shifted Its Investment Strategy When It Brought In Former Democrat National Committee Official Michael Steed. “But the company shifted its approach in 1991, when it hired Michael Steed, first as an outside financial adviser and later as a senior executive. Mr. Steed had worked with labor leaders as an official at the Democratic National Committee.” (Tom Hamburger and John Harwood, “Union Bosses On Insurer’s Board Reaped Profits With Stock Deals,” The Wall Street Journal, 4/5/02)
• “[Steed] quickly introduced an aggressive strategy to modernize ULLICO’s finances and raise capital to compete for more business.” (Tom Hamburger and John Harwood, “Union Bosses On Insurer’s Board Reaped Profits With Stock Deals,” The Wall Street Journal, 4/5/02)
Steed Introduced ULLICO To Gary Winnick, Global Crossing’s Founder. “ULLICO’s ties to Global Crossing were forged by a former Democratic National Committee official, Michael Steed, who had gone on to be director of investments for ULLICO in the early 1990s. Mr. Steed had led ULLICO investment in several private-capital deals including a Los Angeles real-estate partnership that involved, among others, Gary Winnick, the California-based financier who would later launch Global Crossing. When Mr. Winnick was looking for investors in Global Crossing in early 1997 he approached Mr. Steed.” (Tom Hamburger and John Harwood, “Federal Officials Probe Stock Offer To Union Chiefs By Global Crossing,” The Wall Street Journal, 3/18/02)
ULLICO Ended Up Providing The “Seed Money” To Gary Winnick For Global Crossing. “The labor connection involves a union-owned life insurance company that was one of the original investors in the fiber-optic outfit, providing some initial seed money to Global founder Gary Winnick.” (Aaron Bernstein, “Global Crossing: Labor’s Questionable Windfall,” Business Week Online, 3/18/02)
• Initially It Seemed As If “It Was A Savvy Deal For The Unions That Own The Insurer, ULLICO Inc., Earning The Company A $500 Million Profit On A $7.6 Million Investment.” (Aaron Bernstein, “Global Crossing: Labor’s Questionable Windfall,” Business Week Online, 3/18/02)
“Opening Shares Of Global Crossing Were In Great Demand When The Company First Went Public In August 1998.” (Tom Hamburger And John Harwood, “Federal Officials Probe Stock Offer To Union Chiefs By Global Crossing,” The Wall Street Journal, 3/18/02)
“But Union Leaders Had An Inside Track, Thanks To An Invitation Passed Along By ULLICO Executives To Buy What Are Known Informally As ‘Friends And Family’ Shares Of The Initial Public Offering.” (Tom Hamburger And John Harwood, “Federal Officials Probe Stock Offer To Union Chiefs By Global Crossing,” The Wall Street Journal, 3/18/02)
• “Such shares are typically offered to investors personally associated with a company.” (Tom Hamburger And John Harwood, “Federal Officials Probe Stock Offer To Union Chiefs By Global Crossing,” The Wall Street Journal, 3/18/02)
Robert A. Georgine, ULLICO’s Chief Executive Officer, Used Global Crossing As “A Profit-Making Opportunity For Himself And Other ULLICO Board Members.” “At the same time, however, ULLICO CEO Robert A. Georgine, a long-time AFL-CIO official, used the Global investment as a profit-making opportunity for himself and other ULLICO board members, most of whom are current or former union presidents.” (Aaron Bernstein, “Global Crossing: Labor’s Questionable Windfall,” Business Week Online, 3/18/02)
In A Deal That Earned Him Millions On A $100,000 Investment, Terry McAuliffe, President Bill Clinton’s Reelection Co-Chairman And Then-Democrat National Committee Chairman, Was Also Given An Early Opportunity To Invest In Global Crossing. “[Terry] McAuliffe was an early investor in Global Crossing. He invested $100,000 in March 1997, well before its initial public stock offering in August 1998. As the stock soared, his stake rose to as much as $18 million. McAuliffe has acknowledged selling some stock in 1999 and making millions, but he has declined to say how much. McAuliffe insists he got no favorable insider deal: he is a venture capitalist who risks money in startups, and he took no role in management.” (William M. Welch, “Telecom Firm Spread Money, Too,” USA Today, 3/1/02)
Labor Officials Say That Some ULLICO Directors Made Millions In Windfall Profits Off Their Purchase And Sale Of Global Crossing’s IPO Stock. “[Georgine] extended to his directors an offer from Winnick to get in on Global Crossing on the ground floor, say several directors, letting them buy shares at the IPO price. That’s no different from the way many investors made windfall profits during the IPO boom—benefiting from their close ties to newly formed companies. Labor officials say some directors made millions off their sales, although no director contacted by Business Week would disclose his or her gains.” (Aaron Bernstein, “Global Crossing: Labor’s Questionable Windfall,” Business Week Online, 3/18/02)
The Union Of Global Crossing And The ULLICO Board Was Mutually Beneficial As The Communications Workers Of America—Part Of ULLICO—Often Supported Global’s Bids To Take Over Other Telecommunications Firms. “The relationship also helped politically, at least occasionally. In the late 1990s, Global Crossing needed the approval of state and federal regulators to purchase Rochester-based Frontier Telephone Inc. One union that is part of ULLICO, the Communication Workers of America, offered support for the deal, which may have speeded approval. Later, the union issued a press release supporting Global Crossing’s unsuccessful bid for U S West Inc.” (Tom Hamburger And John Harwood, “Federal Officials Probe Stock Offer To Union Chiefs By Global Crossing,” The Wall Street Journal, 3/18/02)
Shortly After Global Crossing’s Stock Peaked, Michael Steed Left ULLICO To Work Directly For A Company Run By Gary Winnick. “Mr. Steed, the financial adviser, left ULLICO’s employ in early December 1999, not long after Global Crossing’s share price peaked. He went to work for a separate investment company run by Global Crossing’s Mr. Winnick.” (Tom Hamburger and John Harwood, “Union Bosses On Insurer’s Board Reaped Profits With Stock Deals,” The Wall Street Journal, 4/5/02)
With ULLICO’s investment in Global Crossing gaining value during the late 1990s, the ULLICO board naturally increased the value of their company stock. However, before the new price was made public, ULLICO’s board of directors were given an insider’s opportunity to purchase company shares and then collect future windfall profits.
In 1998, As Global Crossing’s Stock Climbed, PricewaterhouseCoopers Established A $53.94 Share Price For ULLICO. “The Global Crossing stake quickly drove up the value of ULLICO’s stock. In late 1998, with Global Crossing trading at more than $22 a share, after the split, and the year-end audit by PricewaterhouseCoopers pointed to a share price of $53.94 for ULLICO, according to ULLICO board minutes.” (Tom Hamburger and John Harwood, “Union Bosses On Insurer’s Board Reaped Profits With Stock Deals,” The Wall Street Journal, 4/5/02)
One Year Later, ULLICO’s Stake In Global Crossing Was Worth $2.1 Billion—Ten Times More Than ULLICO Itself Was Worth Two Years Earlier. “ULLICO, which bought its shares at the ‘founders’ price of about $1, saw the stock go to $18 at the IPO. Then the stock split, and eventually it peaked in May 1999, at $64.25. At the peak, ULLICO’s Global Crossing stake was worth $2.1 billion—nearly 10 times the entire value of the insurance company when it first invested in Atlantic Crossing about two years earlier, according to a person familiar with ULLICO’s finances.” (Tom Hamburger and John Harwood, “Union Bosses On Insurer’s Board Reaped Profits With Stock Deals,” The Wall Street Journal, 4/5/02)
At The Time, According To A Financial Analyst, ULLICO’s Investment In Global Crossing Cloaked A $46 Million Loss In Its Basic Insurance Business. “When Global’s stock peaked at just over $62 a share in 1999, ULLICO was sitting on more than $1 billion in potential profits. This was particularly fortunate, since ULLICO’s basic insurance businesses were losing money. That year, ULLICO earned $127 million aftertax from the sale of Global shares, allowing it to turn a $46 million loss on its ongoing operations into a $59 million profit, says A.M. Best Inc. analyst Joseph Zazzera. Overall, the insurer sold about half its Global stock since 1999, earning an aftertax total of about $335 million, says Zazzera.” (Aaron Bernstein, “Global Crossing: Labor’s Questionable Windfall,” Business Week Online, 3/18/02)
Only Weeks Before ULLICO’s Board Set Its New, Higher Stock Price, Former AFL-CIO Executive And ULLICO CEO Robert Georgine Urged His Fellow Directors To Purchase Up To 4,000 Shares At Under $54. “In December 1999, Mr. Georgine sent a confidential letter to board members inviting them to buy up to 4,000 ULLICO shares at $53.94, the stock price at the time. When he sent that invitation, it seemed inevitable, thanks to the boom in Global Crossing stock, that the company’s auditors, PricewaterhouseCoopers, would recommend a far higher stock price the next year.” (Steven Greenhouse, “Ex-Governor To Look Into Union Stock Deal,” The New York Times, 5/1/02)
Georgine Told His Labor Colleagues That ULLICO Was A Good Investment, Assuring Them That He Himself Would Be Buying Additional ULLICO Shares. “In case colleagues doubted whether Mr. Georgine considered this a wise investment, he wrote, ‘I intend to purchase additional shares at this time.’” (Tom Hamburger And John Harwood, “Union Bosses on Insurer’s Board Reaped Profits With Stock Deals,” The Wall Street Journal, 4/5/02)
However, “The Union Pension And General Funds That Own The Bulk Of ULLICO’s Stock Were Not Given The Same Offer, Or Even Told About It, Labor Officials And Other Insiders Say.” (Aaron Bernstein, “Global Crossing: Labor’s Questionable Windfall,” Business Week Online, 3/18/02)
Georgine Was Permitted To Purchase Tens Of Thousands Of Shares—Far More Than ULLICO’s Original 4,000 Share Quota. “Georgine himself went from holding 8,800 shares in 1998 to 52,800 in 1999, according to ULLICO’s proxy and other financial statements, although the statements don’t make clear why he was able to acquire more than the 4,000 quota.” (Aaron Bernstein, “Global Crossing: Labor’s Questionable Windfall,” Business Week Online, 3/18/02)
The New Price Of ULLICO Shares, Ratified By The Board In May 2000, Was Set At $146—Almost Three Times The Share Price In 1999. “Sure enough, the Pricewaterhouse audit pointed to an increase in ULLICO’s share value to $146, nearly triple its previous level, according to board minutes. At its May 2000 meeting, the board ratified that price.” (Tom Hamburger And John Harwood, “Union Bosses on Insurer’s Board Reaped Profits With Stock Deals,” The Wall Street Journal, 4/5/02)
In 2000, as Global Crossing’s stock value plummeted, ULLICO’s finances also deteriorated. And wouldn’t you know it, when given an opportunity to feather their nests, ULLICO officials sold their shares at a high price, knowing all along that the ULLICO’s stock value would also drop.
“Board Members Received Still Another Opportunity To Trade Their Shares For Personal Advantage.” (Harry Kelber, “ULLICO Shareholders Approve Probe Of Insider Stock Deals by Directors,” Labor Education Online, 5/15/02)
“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…” (Harry Kelber, “ULLICO Shareholders Approve Probe Of Insider Stock Deals by Directors,” Labor Education Online, 5/15/02)
“… 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.” (Harry Kelber, “ULLICO Shareholders Approve Probe Of Insider Stock Deals by Directors,” Labor Education Online, 5/15/02)
While Most Shareholders Faced Complicated Restrictions On How Many ULLICO Shares They Could Sell, A Loophole Allowed Labor Bosses On The Board To Sell Unlimited Shares. “All shareholders were eligible to participate, according to the tender offer. But owners of more than 10,000 shares—mostly the unions—faced certain complicated restrictions on how many shares they could sell. Those with comparatively small stakes—such as board members—were invited to sell all of their shares. Board members took advantage of the opportunity.” (Tom Hamburger And John Harwood, “Union Bosses On Insurer’s Board Reaped Profits With Stock Deals,” The Wall Street Journal, 4/5/02)
The Repurchasing Plan Resulted In Georgine And Other Directors Selling Over 50,000 ULLICO Shares With Knowledge That The Share Value Would Drop 49 Percent. “Georgine and the other directors, knowing the price would be cut to $75, sold much of their holdings at $146, insiders say, while the pension funds with larger stakes were restricted in their sales. As a result, ULLICO officers and directors sold about 54,000 of their 100,000 shares back to the company in December, 2000, the company’s proxies show. Insiders say they sold more at the same $146 in January, 2001.” (Aaron Bernstein, “Global Crossing: Labor’s Questionable Windfall,” Business Week Online, 3/18/02)
ULLICO Continued The Practice Of Allowing Its Directors To Profit From The Purchase And Sale Of ULLICO Shares Even While The Value Of ULLICO Shares—And Labor Pension Funds—Declined. “ULLICO gave directors another chance to take gains by repurchasing an additional 200,000 shares the next year, in December, 2001, and January, 2002. As in the earlier sale, directors took advantage of the lag in the adjustment of ULLICO stock. This time, the continued collapse of Global Crossing stock would push the value of ULLICO shares to $44 in the annual price-setting on Dec. 31, 2001, but the repurchase price was still $75. Overall, those directors who participated did well. Since most had purchased at the $54 price or less, they stood to make at least $368,000 each if they had bought and sold the full 4,000 allotment at $146.” (Aaron Bernstein, “Global Crossing: Labor’s Questionable Windfall,” Business Week Online, 3/18/02)
ULLICO’s CEO and board members profited by millions of dollars when they were permitted to sell their shares and the labor pension funds were not.
ULLICO CEO Robert Georgine Personally Profited By More Than $2 Million. “Georgine sold 16,868 of his shares in 2001 at a personal profit of more than $2 million, according to proxy statements.” (Harry Kelber, “ULLICO Shareholders Approve Probe Of Insider Stock Deals by Directors,” Labor Education Online, 5/15/02)
The President Emeritus Of The International Association Of Asbestos Workers Sold Thousands Of His ULLICO Shares For $1.6 Million. “Reports filed at the Department of Labor show ULLICO making payments for stock repurchases of $1.6 million to William G. Bernard, former president of the Asbestos Workers.” (Thomas B. Edsall, “Uproar Over Stock Deals Divides Labor Leaders," The Washington Post, 2/23/03)
Jacob West, The President Emeritus Of The International Union Of Iron Workers, Collected $1.35 Million Under The Company’s Repurchase Scheme. (Thomas B. Edsall, “Uproar Over Stock Deals Divides Labor Leaders," The Washington Post, 2/23/03)
The President Of The Communication Workers Dumped All Of His ULLICO Shares, Pocketing Thousands Of Dollars Through The Repurchase Plan. “Morton Bahr, president of the Communications Workers of America and a board member, sold all 300 of his shares in early 2001, for a profit of more than $27,000, a union spokeswoman says. Since then, Mr. Bahr has become concerned about the propriety of stock trading by ULLICO board members, the spokeswoman adds.” (Tom Hamburger And John Harwood, “Union Bosses on Insurer’s Board Reaped Profits With Stock Deals,” The Wall Street Journal, 4/5/02)
The President Of The Plumbers Union Collected Nearly $200,000 By Selling His ULLICO Shares Back To The Company. “Consider how Martin Maddaloni, president of the plumbers union, has benefited from his role as a director of ULLICO Inc . . . In 2000, Mr. Maddaloni says, he reaped a profit of roughly $184,000 by selling 2,000 of his ULLICO shares back to the insurer. He did so after serving on its board for two years. ‘I didn’t think there was anything wrong with it,’ says the 61-year-old union veteran. ULLICO’s in-house lawyers had blessed the transaction, he says. ‘I just took advantage of the process.’” (Tom Hamburger And John Harwood, “Union Bosses on Insurer’s Board Reaped Profits With Stock Deals,” The Wall Street Journal, 4/5/02)
In a “fox guarding the henhouse” shell-game, the board of directors launched an internal inquiry to learn the extent of ULLICO’s nefarious scheme headed by former Illinois Governor James Thompson.
The Thompson Report Criticized The Questionable Stock Trades By ULLICO Directors And Called On Them To Return Their Ill-Gotten Gains. “An investigation into highly profitable stock trades by labor leaders on the board of ULLICO, a union-owned insurance company, severely criticizes the insurer’s chairman and calls on union leaders to return their trading profits, a ULLICO board member said yesterday. The investigation, by James R. Thompson, the former governor of Illinois, criticized stock trades in which several union presidents on ULLICO’s board made profits of more than $200,000 when they sold ULLICO stock shortly before it plunged in value, said the board member, who spoke on condition of anonymity.” (Steven Greenhouse, “Investigation Of Stock Deal Leads To Criticism Of Union Chiefs,” The New York Times, 11/28/02)
Thompson Found That Twenty ULLICO Directors And Officers Made Almost $14 Million Buying And Selling ULLICO Stock. “It found that 20 directors and officers, who collectively owned 2% of ULLICO, together made $13.7 million by buying and selling its stock, which ballooned after a $7.6 million early investment in Global Crossing Ltd. turned into a $335 million windfall. Problem is, their gains came at the expense of their unions’ pension funds. Although they own the other 98% of the company, they were allowed to take only $ 28 million in stock profits among them.” (Aaron Bernstein, “It’s Looking Uglier At ULLICO, Business Week, 4/28/03)
Even Though The ULLICO Officers Owned Less Than Two Percent Of The Stock, They Amassed Over 30 Percent Of The Repurchasing Program Proceeds. “The report noted that the officers and directors owned 1.83 percent of the stock, but in the repurchase program got 31 percent of the proceeds. ‘The November 2000 stock repurchase program failed to treat all shareholders equally and indeed greatly favored the very people, ULLICO’s directors and officers, who had formulated, approved and implemented the program,’ the report concluded.” (Steven Greenhouse, “Report Said Directors Of Union-Owned Insurer Should Return Unfair Trading Profits,” The New York Times, 4/2/03)
Thompson Also Discovered That ULLICO CEO Robert Georgine Sought To Hide His Own Compensation And The Fact That The Stock Offers To Directors Came At The Expense Of The Pension Funds. “The Thompson report lays much of the blame on Georgine. It said he ‘engaged in a concerted effort to withhold executive compensation information from the board,’ including details of his own stock profits and other pay totaling more than $12.6 million since 1998; didn’t inform his board that the stock offers to directors would come at the expense of the pension funds; and told the funds that the stock was an excellent long-term investment even while he was secretly selling his own shares.” (Aaron Bernstein, “It’s Looking Uglier At ULLICO," Business Week, 4/28/03)
Georgine’s Compensation Included Millions In Salary, Millions In Deferred Payments And Use Of A Corporate Jet. “Mr. Thompson calculated that Mr. Georgine, who made $6 million in ULLICO stock trades separate from the arrangement on which the federal inquiries are focused, received $10.7 million from 1999 to 2001, including the proceeds of those trades. Two directors said that in addition, the board had established an $11 million deferred compensation plan for him. Further, Mr. Georgine had ULLICO buy a corporate jet that board members say costs $3 million a year to operate.” (Steven Greenhouse, “Stock Dealing At Union-Owned Insurer Creates A Schism Within Labor,” The New York Times, 4/8/03)
Georgine Even Obtained Bank Loans Without Board Approval In Order To Buy ULLICO Stock In The Special Purchase Program. “The report singled out Georgine, who, along with two other officers, obtained bank loans without board approval—using ULLICO as collateral—to buy company stock in the special purchase program. It questioned the legitimacy of that and other purchase deals in which Georgine made millions of dollars in profits.” (Leigh Strope, “Insurance Company Officials Probably Violated Law, Report Says,” The Associated Press, 4/2/03)
The Thompson Report Argued That The ULLICO Directors Had “Breached Their Fiduciary Duties And Probably Violated Some States’ Securities Laws.” “The Thompson report found that the officers and directors who traded ULLICO stock, many of them current or former union presidents, had breached their fiduciary duties and probably violated some states’ securities laws. That finding was seconded by an expert on state securities laws hired by Mr. Thompson, Mark A. Sargent, dean of Villanova University Law School.” (Steven Greenhouse, “Report Said Directors Of Union-Owned Insurer Should Return Unfair Trading Profits,” The New York Times, 4/2/03)
Georgine and his cronies initially rejected the findings of the Thompson report and fought desperately to keep it from ever seeing the light of day.
Acting Upon Georgine’s Advice, ULLICO’s Advisory Committee Rejected Thompson’s Call For The Directors To Return Their Gains From Insider Trades. “On March 25, a special advisory committee to ULLICO’s board, acting at Mr. Georgine’s behest, rejected Mr. Thompson’s advice and voted 6 to 2 against requiring directors who engaged in the stock trades to surrender their profits. The special committee also concluded that the directors who traded ULLICO stock had done nothing wrong.” (Steven Greenhouse, “Report Said Directors Of Union-Owned Insurer Should Return Unfair Trading Profits,” The New York Times, 4/2/03)
Other Union Officials Also Opposed “Disgorgement,” Arguing That The Labor Bosses “Acted No Differently From Directors On Many Corporate Boards.” “Martin J. Maddaloni, president of the plumbers’ union, and including other officials in the building trades unions, say there is no need for such ‘disgorgement.’ They maintain that the directors who made large trading profits did nothing wrong and acted no differently from directors on many corporate boards.” (Steven Greenhouse, “Stock Dealing At Union-Owned Insurer Creates A Schism Within Labor,” The New York Times, 4/8/03)
Georgine Told Shareholders That It Was “Simple Prudence” To Keep The Thompson Report Sealed. “In his letter to shareholders, Georgine said the board has not decided to permanently seal the report. It is doing so for now, he explained, out of ‘simple prudence’ with the outside investigations under way.” (Stephen Franklin, “Sale Of Stock In Unions’ Firm Draws Fire,” Chicago Tribune, 2/25/03)
Georgine Argued That The Critics Of ULLICO’s Board Were Mainly Trying To Embarrass The Labor Movement. “‘It is true that the officers and I did benefit, but it did not harm the shareholders,’ Georgine said. ULLICO lawyers, he added, had assured him that the stock deal was perfectly legal. ‘What I really want now is an opportunity to tell our story,’ he said. In a recent note to shareholders, Georgine, who earns $650,000 a year as ULLICO’s president, said criticisms of the stock deal ‘have injured the company’s relations with organized labor, investors and clients.’ And most of the criticism, he wrote, has been ‘designed to embarrass the labor movement’ while taking ‘the spotlight off culpable big business.’” (Stephen Franklin, “Sale Of Stock In Unions’ Firm Draws Fire,” Chicago Tribune, 2/25/03)
After Months Of Labor In-Fighting ULLICO Officials Finally Made The Thompson Report Public And Voted To Require Directors To Return The Stock Trade Profits. “Several union officials said yesterday that a special advisory committee at ULLICO, a labor-owned insurance company where directors face accusations of insider trading, had voted to recommend that the board make public a confidential report that, these officials said, criticizes the chief executive for the episode. The committee, the officials said, acted in Washington on Tuesday at a meeting where it also voted against requiring directors who earned $6 million by trading ULLICO stock to surrender those profits to the company.” (Steven Greenhouse, “Labor-Owned Insurer Urged To Release Inquiry Report,” The New York Times, 3/28/03)
As a result of the insider trades that cost pension funds millions in its investments in Global Crossing, ULLICO’s standing as a solid company with steady gains was further tarnished by Georgine pleading the fifth amendment before congressional committees.
In March 2002, Standard & Poor’s Downgraded The ULLICO’s Financial Strength Due To The Company’s Risky Investments And Poor Profitability. “Standard & Poor’s said today it lowered its financial strength rating on The Union Labor Life Insurance Co. by two categories to single-‘Bpi’ because of the company’s high level of risk assets, recent declines in capital and surplus, and poor profitability. ‘Although the company’s year-end 2000 capital ratio was strong, about 89% of its capital was in risk assets, which is excessive,’ explained Standard & Poor’s credit analyst Alan Koerber. At the end of the third quarter of 2001, the company reported a loss from operations of $44.1 million. The company’s geographic diversification is good, with only 26% of direct business in its major state of New York.” (Standard & Poor’s, Press Release, “S&P Lowers The Union Labor Life Ins. Co. FSR to ‘Bpi,’” 3/27/02)
In March 2003, ULLICO’s Rating From “Very Good” To “Fair.” “A.M. Best Co., the insurance rating company, on March 3 lowered ULLICO’s life insurance operations from B+ (very good) to B (fair). The rating went to B- (fair) on March 7. A.M. Best also lowered ULLICO’s property and casualty operations from A- (excellent) to B++ (very good) to B. Major insurance companies rarely get ratings from Best below an A-.” (Thomas B. Edsall, “Union-Owned Insurer Ullico’s Troubles Mount,” The Washington Post, 3/14/03)
Over The Disastrous Two Year Meltdown, ULLICO Had Lost Well Over $150 Million. “Ullico had a pretax net loss of $115.9 million last year, according to company documents, far worse than its loss of $44.4 million the previous year. Much of last year’s loss came in Ullico’s Washington-based holding company, which ran up more than $10 million in legal bills related to the scandal, union official said.” (Steven Greenhouse, Laborers’ Leader Takes Over Troubled Union-Owned Insurer,” The New York Times, 5/9/03)
Citing His Constitutional Protection Against Self-Incrimination, Former ULLICO Chairman Robert Georgine Refused To Testify Before The House Education And Workforce Committee. “The former chairman of a union-owned insurance company asserted his Fifth Amendment right against self-incrimination Tuesday and refused to testify before Congress about accusations he set up exclusive stock trades that earned some labor leaders almost $6 million in questionable profits. Robert Georgine, former chairman and chief executive of ULLICO Inc., appeared under subpoena before the House Education and Workforce Committee, but when Chairman John Boehner, R-Ohio, asked if he was the architect of the stock trading plans, Georgine cited his constitutional protection against self-incrimination.” (Leigh Strope, “Former ULLICO Chairman Refuses To Testify To Congress About Stock Deals,” The Associated Press, 6/17/03)
Georgine’s Response To Congress’ Questions: He Took The Fifth. “His hands clasped on the table with his lawyer next to him, Georgine said: ‘Mr. Chairman, while I am confident that I have done nothing wrong, on the advice of my attorney, I respectfully decline, based upon my rights under the Fifth Amendment of the Constitution of the United States.’ Georgine also refused to answer whether ULLICO’s officers directed the investigator they hired to examine the stock trades, former Illinois Gov. James Thompson, to ignore federal pension laws in his assessment of potential wrongdoing.” (Leigh Strope, “Former ULLICO Chairman Refuses To Testify To Congress About Stock Deals,” The Associated Press, 6/17/03)
After Georgine’s Scandalous Tenure, Terence O’Sullivan Was Elected ULLICO’s New Chairman And Said He Would Try “To Save The Company From Going Under.” “Terence M. O’Sullivan, the newly elected chairman of ULLICO, the beleaguered union-owned insurer, said yesterday that he would try to save the company from going under and restore its reputation after it became the focus of four insider trading investigations. Mr. O’Sullivan, president of the laborers’ union, was elected chairman and chief executive yesterday as Robert A. Georgine, widely criticized for heading a stock-trading effort that made millions of dollars for ULLICO’s directors, relinquished his positions as chairman, chief executive and president.” (Steven Greenhouse, Laborers’ Leader Takes Over Troubled Union-Owned Insurer,” The New York Times, 5/9/03)
Congressional investigations found widespread corruption and abuse of power inside ULLICO’s leadership that may have violated federal labor and pension laws and betrayed the trust of pensioners.
In October 2003, The U.S. House Education And Workforce Committee Found “That Federal Labor And Pension Laws May Have Been Violated.” “Some former directors of a union-owned insurance company may have violated federal labor and pension laws with special stock trades that earned them almost $6 million in questionable profits, a congressional investigation has found. The GOP-controlled House Education and Workforce Committee issued its report Tuesday, saying it was deeply concerned about the stock deals at Ullico Inc. that pushed the Washington, D.C.-based company into financial turmoil. The report was an indictment of the former union chiefs that ran Ullico, saying that federal labor and pension laws may have been violated, and urging regulatory investigators and law enforcement to scrutinize the transactions.” (Leigh Strope, “House Panel Says Union Firm May Have Violated Labor, Pension Laws,” The Associated Press, 10/28/03)
In June 2004, The U.S. Senate Government Affairs Committee Revealed Their Findings. “Following a 13-month investigation, Senate Governmental Affairs Committee Chairman Susan Collins (R-ME) today released a comprehensive majority staff report on Ullico Inc. - a union-owned financial services company - that detailed a pattern of self-dealing, insider transactions, and other financial abuses.” (U.S. Senate Governmental Affairs Committee, “Sen. Collins’ Committee Releases New Staff Report On ULLICO Insider Stock Deals,” Press Release, 6/2/04)
Committee Chairman Susan Collins (R-ME) Called The ULLICO Case “An Extraordinary Case Of Insider Dealing, Corruption, And Abuse Of Power” That “Betrayed” Pensioners. “‘This was an extraordinary case of insider dealing, corruption, and abuse of power. The ULLICO Board of Directors and management utterly failed in their responsibilities to their shareholders. The company betrayed the trust of the unions and pensioners that owned ULLICO, which makes it all the more unacceptable,’ said Senator Collins, who chaired a Committee hearing on ULLICO in June 2003.” (U.S. Senate Governmental Affairs Committee, “Sen. Collins’ Committee Releases New Staff Report On ULLICO Insider Stock Deals,” Press Release, 6/2/04)
In November 2007, after five years of investigations, the U.S. Department of Labor settled the case with ULLICO requiring the company to pay “$16.7 million in fees and compensation to benefit plans” and pay an additional $3.3 million “to an escrow account to cover additional civil penalties and excise taxes resulting from alleged violations of federal employee benefits law.”
“The U.S. Department Of Labor Today Announced A Settlement Requiring Union Labor Life Insurance Co. (ULLICO) Of Washington, D.C., To Pay Back Nearly $16.7 Million In Fees And Compensation To Benefit Plans…” (U.S. Department of Labor, “U.S. Labor Department Obtains $20 Million Settlement With Union Labor Life Over Retirement Plan Fees,” Press Release, 11/16/07)
“In Addition, The Insurer Must Pay $3.3 Million To An Escrow Account To Cover Additional Civil Penalties And Excise Taxes Resulting From Alleged Violations Of Federal Employee Benefits Law.” (U.S. Department of Labor, “U.S. Labor Department Obtains $20 Million Settlement With Union Labor Life Over Retirement Plan Fees,” Press Release, 11/16/07)
“‘Self-Dealing By Pension Fiduciaries At The Expense Of Workers' Retirement Plans Cannot Be Tolerated,’ Said Secretary Of Labor Elaine L. Chao.” (U.S. Department of Labor, “U.S. Labor Department Obtains $20 Million Settlement With Union Labor Life Over Retirement Plan Fees,” Press Release, 11/16/07)
Chao: “This $20 million settlement is a loud and clear message to all plan fiduciaries that they will be held accountable when their actions are detrimental to workers' benefit plans.” (U.S. Department of Labor, “U.S. Labor Department Obtains $20 Million Settlement With Union Labor Life Over Retirement Plan Fees,” Press Release, 11/16/07)
The settlement between the Labor Department and ULLICO may have ended the union and pension-owned company’s jeopardy with the government, but it didn’t solve all of ULLICO’s problems. In fact, the $20 million settlement created a net loss of $2.4 million for company in 2007.
“Ullico Inc. Posted A $2.4 Million Net Loss For 2007, As The Impact Of A $20 Million Settlement With The U.S. Labor Department Over A 5-Year-Old Investigation Of Alleged Employee Benefit Plan Self-Dealing Placed The Union-Owned Insurance Holding Company In The Red.” (Raymond J. Lehmann, Labor Department Settlement Leads To Ullico Posting Full-Year Loss,” BestWire, 4/28/08)
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