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Business
& Labor
Probes Eye Union Chiefs' Trades
(enr.com
- 3/25/02 issue)
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 in-vestor 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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