The Wall Street Journal



Ullico's Rotten Apples



July 23, 2003


Remember Ullico, the union-owned life insurance company whose scandal we recently detailed in these pages? Like Enron, this particular fish also started rotting from the head down, beginning with a $13.7 million sweetheart buyback deal that benefited 20 board members and officers at the expense of Ullico's largest shareholders: union pension funds.


But new information turned up by Senator Susan Collins suggests that Ullico's reform looks increasingly like business as usual.


It's true that in wake of the scandal Ullico President and CEO Robert Georgine was forced out, and the company held new elections resulting in the selection of Terence O'Sullivan as the new CEO and the departure of several -- though not all -- of the directors who had benefited from that insider deal. This new "reform board" was to clean up the company, starting with votes on specific measures that came out of an investigation led by former Illinois Governor Jim Thompson.


As Mr. Georgine resigned he sent Mr. O'Sullivan a letter, dated May 8, claiming that he was due $2 million in severance pay, and that he'd like that money to go toward paying back profits he made on the share buyback. But Mr. Georgine's letter included a curious additional request: that the money owed him also be used to cover repayment of the stock profits for six other directors. He gave no explanation for why he wanted to help William Bernard, Marvin Boede, Billy Casstevens, Joseph Maloney, James McNulty and James La Sala -- but not the dozen or so others who'd also made money off the deal.


Five days after this letter, the Ullico board voted to require Mr. Georgine to repay his profits. Enter Senator Collins. During her June hearings, the Maine Republican asked Mr. O'Sullivan which directors had voted against repayment. Ullico found its minutes and reported that out that of the six directors whom Mr. Georgine offered to bail out, five voted to let him off the hook. The sixth, Mr. La Sala, abstained.


"The obvious question," Senator Collins tells us, "is whether the votes were influenced, and whether Mr. Georgine is hoping for favorable treatment from these directors." The Senator adds that the circumstances surrounding this vote call into question a board that still contains directors who participated in the original deal, especially because it still has to vote on whether Mr. Georgine should be required to give back certain retirement and other compensation.


Meanwhile, the Georgine Six have all left the board. Messrs. La Sala and McNulty left after the Georgine vote. We're told Mr. Casstevens was removed on Friday and the remaining three quit last week rather than return their profits. That's a good start, but the board still includes other directors who took part in that deal.


More pointedly, there remains the issue of Mr. Georgine's letter. Senator Collins is trying to get to the bottom of this but isn't getting much cooperation. After the six refused her original request to come in for further informal interviews, subpoenas were issued. The six will begin appearing this week.


We'll be curious to hear what they have to say. Many companies caught up in recent financial scandals made a point of sweeping out former directors and managers and starting new. By contrast, it seems that not only has Ullico kept the bad apples, they're still going rotten.

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