Probes Eye Union Chiefs' Trades

By Sherie Winston and Richard Korman


A federal grand jury in Washington, D.C., and the AFL-CIO are separately probing stock transactions by directors of insurance and investment company ULLICO Inc. The Washington, D.C.-based company's board is chaired by former Building and Construction Trades Dept. President Robert A. Georgine and includes many current and former construction union presidents.

According to press reports confirmed by union and other sources, the investigations are focused on trading privileges that allegedly allowed ULLICO's board members to profit from the purchase and sale of its shares. The transactions were lucrative because the privately held company's stock price was reset each year based on its book value and the board members could anticipate the change. ULLICO's shares had risen on the strength of several private placements, including a particularly lucrative $7.6-million investment in 1997 in telecommunications giant Global Crossing Ltd. That firm declared bankruptcy in January.

ULLICO board members were allegedly given the opportunity to purchase shares of Global Crossing at the initial public offering price typically reserved for insiders or family members. They also were allegedly allowed to purchase shares of ULLICO in anticipation of the big gains on Global Crossing and to sell back to ULLICO shares of the stock before its value had been reset after Global Crossing shares went into a tailspin.

The union pension funds did not enjoy the same opportunity to purchase and sell ULLICO shares or the Global Crossing shares at the IPO price, according to sources. "The issue is all about the board members," says one union source. Many members of ULLICO's board "had the opportunity to profit" from the buying and selling of the insurance company's shares, says another.

If formal charges are made, they could ensnare several building trades union presidents in an embarrassing legal quagmire. At least 12 current and former building trades presidents are ULLICO board members, as is AFL-CIO President John J. Sweeney.

Many of these officials did not return calls for comment, but Frank Hanley, president of the operating engineers' union, says in a statement that he "did not participate in the initial public offering of Global Crossing stock." He adds, "I have not bought or sold any shares of ULLICO stock during the period that ULLICO has been an investor in Global Crossing."

A spokesman for laborers' President Terence M. O'Sullivan says the union chief did not participate in the purchase of any of the stock. Officials also say Sweeney did not take advantage of the stock purchase offer.

The AFL-CIO is concerned about the allegations and is reviewing the matter to determine if anything illegal transpired. The federation will decide what the appropriate action is. "We are taking these matters very seriously and we are looking into them," says Damon Silvers, the AFL-CIO's associate general counsel.

ULLICO and Georgine decline to comment. "The company is not in a position to comment at this time," says John Rodgers, a ULLICO spokesman.

Sources say that federal prosecutors began probing the union stock transactions as part of an investigation into the financial affairs of former ironworkers' union president Jake West. In September, a grand jury indicted West on charges that he embezzled more than $50,000 in union funds. He resigned his union post in February 2001. West's attorney declined comment on whether West bought shares of Global Crossing or ULLICO.

ULLICO's investment strategy has been mapped out under the leadership of its Senior Vice President Michael R. Steed. During his tenure, ULLICO has made early private placements in companies such as Patho Genesis, a drug and medical device maker, and SuperShuttle, an operator of airport vans. But the star investment was Global Crossing, which before its recent plunge into bankrutptcy had netted ULLICO more than $320 million (ENR 2/24 p. 12).

The Global Crossing gain has helped offset losses in some years on ULLICO's insurance business. But 2001 operating losses at Union Labor Life, ULLICO's key unit, ate up so much capital and surplus that A.M. Best lowered the firm's rating. The company had spent heavily to recapture some business and that should help future earnings, says Joseph Zazzera, an A.M. Best analyst.

Since the bankruptcies of Enron and Global Crossing, union investors have shown growing concern over financial disclosure and corporate governance. For example, a coalition of institutional investors, led by the AFL-CIO and the Central Laborers' Pension Fund, is studying a proposal by Nabors Industries to reincorporate from Delaware to Bermuda. Nabors is a large land-drilling contractor.

Bermuda law limits shareholders' ability to sue directors. "Although Nabors has now filed only preliminary materials with the [U.S. Securities and Exchange Commission], what we've seen raises some red flags," says the laborers' O'Sullivan. Barry McAnarney, executive director of the laborer's fund, says he "wants to be sure we are able to seek appropriate legal remedies on behalf of our worker beneficiaries in the event of any wrongdoing."

Linda Priscilla, an advisor to the laborers on corporate governance issues, says that insurance and financial firms, not industrial firms, are most interested in moving to Bermuda. Global Crossing is among the companies based there.

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