The Lessons of Ullico



The latest scandal-plagued corporation is union-owned.

Tuesday, June 17, 2003 12:01 a.m.

Scandal has a way of making the most run-of-the-mill corporate types into household names. By this point, the whole country knows that former Tyco CEO Dennis Kozlowski fancied $6,000-shower curtains, that former ImClone CEO Sam Waksal jet-set with Martha Stewart, and that former Salomon telecom analyst Jack Grubman would do anything to get his daughters into a trendy nursery school. It's fame, if not the kind most people crave.

Another man may deserve such notoriety. Former Ullico CEO Robert Georgine recently stepped down from that union-owned life insurance company in the middle of a financial scandal that rivals any Enron. Ullico is under federal and state investigation (and the subject of congressional hearings today) for its role in a stock purchase and buyback deal that netted directors and officers millions in profits. But Mr. Georgine made out far better than is commonly reported, and the details deserve a lot more scrutiny.

What is by now well known is that Ullico is a private firm, and as such can adjust its own share price; an accountant performs a year-end review and suggests a price that is then ratified by the board. By 1999, thanks to an investment in Global Crossing (which was rocketing up the stock market), Ullico's finances were booming--suggesting that its own share price would soon be set higher. But in December 1999, Mr. Georgine sent a confidential invitation to the company's senior officers and directors offering to let them buy as many as 4,000 shares at the current Ullico price of about $53. Sure enough, the year-end audit suggested a new price of $146, which the board ratified in May 2000--thus voting to treble the price of shares they'd just bought.

If this exclusive purchase isn't bad enough, keep holding your nose. By 2000, with the stock market souring (and Ullico's investment in Global Crossing crashing), it was clear that the next audit would yield a lower price. Yet in November 2000 Mr. Georgine and the board authorized Ullico to buy back shares (at $146) that the directors and officers had purchased in 1999 (at $53). The buyback was crafted so that only "small" investors could participate, excluding Ullico's primary shareholders--union pension funds.

All told, 20 Ullico board members and officers scooped up close to $13.7 million. Mr. Georgine alone reaped $837,000 from the trades. Most of the other directors involved were either current or former officials of the nation's largest unions. As these chiefs received big checks, their own union pension plans, unable to sell, were left holding shares as Ullico's price was lowered to $74.

Most of the focus has understandably been on the share purchase and buyback deals. But read further into an investigative report on the deal, prepared by former Illinois Gov. James Thompson at Ullico's request, and it's clear that those deals were but a small slice of the pie. The changing share price allowed senior officers, Mr. Georgine in particular, to bank a lot more.

Take, for instance, the company's deferred compensation plan. Deferred compensation is a fairly common retirement-planning vehicle at companies--but it became more to Ullico officials. When the labor company's stock price was attractive in 1998 and 1999, many of Ullico's top brass chose to allocate compensation into Ullico stock. When the share price spiked at $146 in 2000, these same officers cashed back out of all the Ullico stock. As a result, Mr. Georgine's earnings were boosted by $4 million over a two-year period while three other top officials--including the general counsel and the chief financial officer--also made substantial returns.

At the end of 1999, when it was clear that Ullico's share price would increase, Mr. Georgine was also in line for a $2 million bonus. The board's compensation committee decided to give Mr. Georgine the opportunity to purchase 40,000 Ullico shares--financed by a loan provided by Ullico to be forgiven over five years.

This wouldn't be unusual, were it not for the timing: A few months after the agreement, the board ratified a new price of $146 a share--on the very same day, as it happens, that Mr. Georgine's share deal was officially executed for $53 a share. Presto, Mr. Georgine's $2.1 million bonus became $5.8 million. Mr. Georgine went on to cash out 8,000 of the 40,000 bonus shares, worth $1.17 million.

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All told, between the bonus, retirement plan and purchase/buyback scheme, Mr. Georgine realized millions. Ullico, under new management, tells us it has demanded that Mr. Georgine return the $837,000, has frozen some of his compensation, and is investigating what else he should return. Mr. Georgine's lawyer declined to comment on the case.

Let's be clear--there's nothing inherently wrong with company officers expressing confidence in their firm by investing, or using a retirement plan, or receiving a bonus through stock. And while the Thompson report suggests that Mr. Georgine failed in his "fiduciary duties" to shareholders, it is maddeningly vague on how much information he possessed about the changes in the share price, or how much intent there may have been to game the system.

Those are questions that must be answered. Ullico's shareholders deserve to know how much information officers and directors had about how the company's stock would fare. Likewise, they deserve to know how deliberately the compensatory programs were designed to allow a select few to get in and out with minimum risk and maximum profit.

Messrs. Kozlowski and Waksal (and Enron and WorldCom officials) might rightly be termed founding members of today's Corporate Rogues Club. Mr. Georgine's application is still pending.

Union members get hosed by self-dealing union officials, as their pension &amp; welfare plans take a hit. Hopefully, this hearing will expose some accountability. Mr. Thompson's report should be interesting reading. This report should be posted on the Internet for public consumption. Just another corruption scandal, which further erodes trust in union officials.


Not as bad, but our local elected a new B/A . The one that lost went to Jimmy to see about getting a re-count. He lost his bid for that. Now one of the trusties is trying to get the local shut down citing the fact that it is broke. In reviewing records from the former buisness agent, he and several of the trusties milked the union of tens of thousands of dollars. The trustie that is causing all the ruckus went on many trips with the B/A, with the union picking up the tab. One of the more lucrative scams uncovered was the BA going from the union hall to an employers place of buiness less than 20 miles from the union building. But instead of declaring those miles he declared 460 miles from his home.

And the really sad part about all this is that every one involved, including the BA and trusties are all UPS employees.



From the House Committee on Education and the Workforce Press Release:

ULLICO Witnesses Evade Questions on Sweetheart Stock Deals

Committee is Examining Whether Questionable Stock Transactions Violate Federal Labor and Pension Laws

WASHINGTON, D.C. - House Education &amp; the Workforce Committee Republicans expressed concern today about the questionable stock transactions at the scandal-plagued union-owned life insurance company ULLICO Inc., and their impact on rank-and-file union members. At a hearing this morning, key witnesses connected to ULLICO failed to ease congressional concerns that the sweetheart stock deals at the union-operated company did not violate federal labor and pension laws.

During the hearing, former ULLICO Chairman and CEO Robert Georgine refused to testify, instead invoking his Fifth Amendment right against self incrimination. In addition, Damon Silvers, counsel to the new chairman of ULLICO, suggested that no pension monies had been lost -- a proposition that lacks credibility in light of the fact that these stock transactions enriched ULLICO's leadership at the expense of the pension funds and unions that were ULLICOs shareholders.

Last year, we subpoenaed Enron executives to testify about the Enron collapse and its implications for the retirement security of American workers, and they cooperated with the Committee and answered our questions, said Rep. John Boehner (R-OH), chairman of the Education &amp; the Workforce Committee. Our committee today intended to examine the ULLICO scandal, but unfortunately Mr. Georgine chose not to respond, and Mr. Silvers did little to address the Committees concerns.

There are many questions that remain unanswered about the ULLICO scandal, and rank-and-file union members deserve answers, Boehner added. At the very same time that union leaders were joining the chorus of well-deserved criticism of Enron and others for corporate misconduct, ULLICO set up a system of insider stock deals that made millions for the board at the expense of rank-and-file union members.

I am deeply troubled that the Committee did not hear testimony from perhaps the only person who could answer some of the tough questions, ULLICOs former chairman, Mr. Georgine, said Rep. Sam Johnson (R-TX), chairman of the Employer-Employee Relations Subcommittee. I would have liked to ask Mr. Georgine, how is it possible that if Board members profited at the expense of these pension funds and the record is clear that they did did they not violate their fiduciary duties to those pension funds under ERISA?

The millions of union members whose pensions suffered while Mr. Georgine and his cronies benefited deserve more than this: they deserve answers, said Rep. Charlie Norwood (R-GA), chairman of the Workforce Protections Subcommittee. From where Im sitting, I see a lot of rank and file union members - whose interests unions are supposedly out to protect - losing money that went into the pockets of their so-called representative leadership.

There are serious questions about whether the questionable transactions at ULLICO violated federal labor law (Labor-Management Reporting and Disclosure Act; LMRDA) and federal pension law (Employee Retirement Income Security Act; ERISA) -- questions that were not addressed by former Illinois Gov. James Thompson, who investigated the ULLICO transactions and authored an independent report on the questionable deals, because ULLICO told him not to look into those areas.

The federal government has laws on the books that are designed to give working Americans confidence that the people responsible for maintaining their pension funds and their union dues are doing so, said Boehner. It remains an open question whether these laws have been violated by the questionable transactions that took place at ULLICO.

American workers deserve to know: were federal labor laws violated at ULLICO? Were federal pension laws violated at ULLICO? Boehner asked.

Witness List &amp; Testimony for the Hearing on The ULLICO Scandal and Its Implications for U.S. Workers