A Washington, D.C. grand jury has subpoenaed union directors and executives of the Ullico board to testify about their buying and selling of Ullico stock at the expense of the union pension funds that underwrite the company. At the time of the sales, that board included AFL-CIO chief John Sweeney, who didn’t participate in the scheme, but has since resigned in protest over the sales, even though he apparently did not protest until the scandal became public last year.
Georgine agreed on April 23 not to run for another term on the Ullico board at its annual meeting in May, but also said he intends to remain as president and CEO. However, with Sweeney and other disgruntled union chiefs pushing a slate of 13 new directors for the Ullico board, leaving only two from the board that approved the sales, Georgine may have trouble keeping his offices at Ullico come its May 8 annual meeting.
The subpoenas came after the release of frmr. Illinois Gov. James Thompson’s report on the insider stock deals, in which he concluded that any directors and officers involved in the stock deals likely violated securities law in Maryland, where Ullico is headquartered. Their apparent violation was misrepresenting to shareholders the purpose of the stock scheme, which began in 1998 when directors were allowed to buy Ullico stock before its price, set once a year, skyrocketted with its investment in the telecom firm Global Crossing.
In 2000, Ullico officials promoted their stock to union pension shareholders as an “excellent investment opportunity for..long-term growth of capital.” But they failed to mention that those directors who had bought Ullico stock were being given the opportunity to sell it back before its price was set to collapse, along with Global Crossing as the technology bubble lost air.
Strangely, however, Thompson concluded, with no further explanation, “that we have not found evidence of criminal intent.” The apparent securities violations are civil in nature. And the 139 page report delves into the directors’ fiduciary duty to Ullico shareholders under federal and state securities law. But Thompson admitted that he was ordered not to examine any possible violations of federal labor and pension law when Georgine, a contributor to Thompson’s past campaigns, asked him to conduct the internal investigation last April.
Since Ullico is mostly owned by union pension funds, the directors also have a fiduciary duty as pension trustees under the Employment Retirement Income Security Act. And since most of Ullico’s directors are union officials, they have a further fiduciary duty under the Labor-Mgmt. Reporting & Disclosure Act to not enrich themselves at the expense of union members. Due to a low ceiling on the number of shares with which a shareholder could sell back their Ullico stock before its price plummeted in 2001 and 2002, those directors will be hard-pressed to explain to the grand jury how their nearly $7 million in stock sales profits would not constitute personal enrichment at the members’ expense.
“If the Thompson report took their approach to a bank robber who jaywalked as he made his getaway, they would only have accused him of jaywalking,” said NLPC Chairman Ken Boehm. [Business Week, 4/28/03: Washington Post, 4/24/03]