The board of Ullico, a union-owned insurance company, has named James R. Thompson, the former Illinois governor, to investigate the private sale of company stock that resulted in big profits for its directors.
(Editorial commentary by CrimeDawg)
After a stormy meeting that ended late Monday in Washington, the directors unanimously voted to have Mr. Thompson review the sales, which have badly embarrassed the labor movement and the presidents of several prominent unions.
A federal grand jury in Washington is investigating whether Ullico's sale and subsequent repurchase of its stock enabled several union presidents on its board to enrich themselves improperly at the expense of labor unions, which are the company's chief shareholders.
According to Ullico's proxy statements, several board members made hundreds of thousands of dollars in profits by buying shares from the company in private trades and then selling them back at a far higher price that was set by the company.
Ullico's officials allowed the union presidents to sell the stock at the far-higher price even when company officials knew from financial results that they would soon set the stock price far lower. The proxy statements indicate that all told the board members made more than $6 million in profits. Among those who profited were the presidents of the plumbers and carpenters unions and the former president of the iron workers.
The sales were reported by The Wall Street Journal last month.
Ullico's chairman and chief executive, Robert A. Georgine, sold 16,868 shares last year, according to a proxy released last week, and those sales could have made him more than $2 million in profit.
John Rodgers, a Ullico spokesman, said Mr. Georgine, who used to head the A.F.L.-C.I.O.'s building trades department, would not comment because of the grand jury investigation.
Mr. Thompson, a former United States attorney in Chicago, said he would hire more than half a dozen lawyers to help with the investigation. He made clear that he would follow the board's instructions.
"I'll do the investigation that they've asked me to do," he said. "I'll ask the questions they want me to get answered. Then I'll give them a report, and it's up to them."
John J. Sweeney, the A.F.L.-C.I.O's president, sits on the Ullico board and has held his Ullico stock when many other board members were selling it at a large profit. On March 21, Mr. Sweeney wrote to Mr. Georgine demanding that Ullico appoint an outsider of stature to investigate the sale-and-repurchase program.
"Ullico must live up to the standards we ask others to meet," Mr. Sweeney wrote.
Several union officials said the major debate at the board meeting was whether Mr. Thompson would be independent enough and whether the board might not act on a highly critical report.
The American Federation of Labor established Ullico in 1925 because union members often could not afford life or health insurance or knew little about how to obtain it.
The labor movement has always maintained control of Ullico, the parent of Union Labor Life Insurance, because the company allows only unions, officers and directors to purchase its stock. Traditionally, Ullico's board sets the company's stock price once a year on the recommendation of its auditors.
For decades, Ullico's stock price was set at $25, but the stock price soared after Ullico became one of the original investors in Global Crossing, investing $7.6 million. When Global Crossing shares were at their peak, Ullico's holdings were worth $2.1 billion, almost a dozen times Ullico's value when the company purchased the Global stock two years earlier.
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.
In May 2000, Ullico's board, acting on its auditor's recommendation, approved a share price of $146, even though Global Crossing shares had fallen nearly 50 percent from their 1999 peak.
In November 2000, Ullico's board approved a $30 million stock repurchase at $146 a share. While board members were allowed to sell all of their shares back to the company, the unions that were shareholders were allowed to sell back only a fraction of their shares.
In May 2001, Ullico's share price was set at $74, largely because of the drop in Global Crossing shares.
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