Wall Street Journal



Sam Waksal, Meet Robert Georgine!

The latest scandal-plagued corporation is union-owned.



Tuesday, June 17, 2003


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.


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.

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