The New York Times
Labor Leader Wants Insurer's Directors to Give Up $6 Million
By STEVEN GREENHOUSE
April 3, 2003
The president of the A.F.L.-C.I.O, John J. Sweeney, yesterday called on the officers and directors of Ullico, the embattled union-owned insurance company, to return the more than $6 million in profits they made trading Ullico stock.
Mr. Sweeney made this recommendation the day after The New York Times and The Washington Post reported that a long-secret report prepared by a special counsel said many Ullico directors had violated their fiduciary duties and should give up their profits.
"When the labor movement is fighting as never before to protect workers' retirement savings, Ullico must live up to the standards we ask others to meet," Mr. Sweeney said.
He quit Ullico's board last December because he was upset that the board was not dealing aggressively with the stock-trading uproar and had refused to give Ullico's shareholders the special counsel's report. The report was prepared by James R. Thompson, former governor of Illinois.
In response to Mr. Sweeney's statement, Ullico's lawyers noted that a special advisory committee of eight Ullico directors had disagreed with the Thompson report and voted against requiring the directors to return their profits. The committee also concluded that the directors had not breached their fiduciary duties.
The company's lawyers released a study yesterday by an expert on Maryland corporate law, James J. Hanks, who said neither Robert A. Georgine, the company's chairman, nor the other directors had violated their fiduciary obligations.
Mr. Georgine said yesterday that the leak of the Thompson report to the news media on Tuesday "without benefit of the company's review and analysis does in fact constitute a breach of trust and, what's more, appears intended to be hurtful."
"I find that to be a most disappointing aspect of this situation," Mr. Georgine said.
Andrew L. Stern, president of the Service Employees International Union, called yesterday for Ullico's top managers, including Mr. Georgine, to step down. Not only has Ullico been rocked by accusations of insider trading by its directors, but it also faces a financial crisis because of operating losses and because insurance rating companies have downgraded the company.
"The business is suffering, and it's time for new people to come in and turn it around," Mr. Stern said. "I'm really concerned about what happened with the stock trading because it undermined confidence in the company, and I'm extremely concerned that all this is costing Ullico a significant amount of money in legal bills and other areas."
The stock trading is being investigated by the United States attorney in Washington, the Securities and Exchange Commission, the Department of Labor and the Maryland insurance commissioner.
Under Ullico's stock repurchase program, officers and directors bought thousands of shares of the insurer's privately held stock starting in 1998 at prices that were nearly certain to rise when the directors reset the price. In November 2000, when it was certain that Ullico's share price would be set far lower, the board invited the officers and directors to sell back their shares at a high price, permitting them to make large profits while Ullico absorbed the losses.
Martin Maddaloni, president of the plumbers union, who made $418,880 in pre-tax profits by trading Ullico stock, said, "The directors have given Bob Georgine their full support in running the company, and we're not asking him to step down."
"As far as president Sweeney and president Stern, they can make all the requests they want, but I believe it's an internal labor issue, and they should keep it in their own house," Mr. Maddaloni added. "If they're not that smart, that's their own problem."