As Ullico Bd. members continued to cover up a report on their insider deals in the union-owned company’s falling stock, AFL-CIO president John Sweeney resigned from the Bd. on Dec. 2. He claimed that he could not “adequately fulfill my obligations to Ullico” and to the union members whose pension funds largely finance the insurance company.
Sweeney, however, did not explain why he failed to publicly oppose the scheme in which Ullico directors were allowed to buy Ullico stock “low” in late 1999, knowing that its value would be readjusted upward in 2000. Ullico’s stock was highly leveraged on Global Crossing, which rose with the telecom bubble, then deflated in 2000 and 2001. But in both years, Ullico directors were able to sell back their Ullico stock “high,” before its price was lowered to reflect the falling
value of Global Crossing. Because only small shareholders could participate in the deals, the huge pension funds underwriting Ullico were stuck with its stock as it fell, along with Global Crossing’s spiral toward the 4th largest bankruptcy in U.S. history.
Sweeney did not take part in the stock-purchasing scheme in 1999. Presumably, he understood the ethical problem of directors using inside information to make as much as $14 million in profits from their own company’s falling stock. But according to the AFL-CIO’s LM-2 disclosure form filed with the U.S. Dept. of Labor, the AFL-CIO owed more than $15 million in loans to Ullico in 1999. Subsequent forms reveal that at the end of 2001, that figure had risen to nearly $25 million, with no record of repayments.
“These easy loans with no repayments certainly raise the suspicion that Sweeney was in no position to publicly protest this insider scheme he knew was wrong in ’99,” said NLPC Chairman Ken Boehm. “But since Sweeney said nothing about this scandal until the press and fed. govt. began poking into it, it’s real late for him to stand up for the workers whose pension funds have taken the biggest hit of all.”
In another development, the Wall Street Journal reported that the MD Insurance Admin. began investigating Ullico this fall, when Insurance Commissioner Steven Larsen subpoenaed records of the stock deals. Ullico has refused to comply, but has asked a Baltimore City Circuit Court to quash the subpoena. Still pending is a possible investigation by the NY Insurance Commission, which NLPC Chairman Boehm prompted this summer. If MD officials determine that Ullico, headquartered in that state, has proven “untrustworthy or not of good character,” the company could lose its license to sell insurance in that state. [The Wall Street Journal 12/3/02, 12/4/02]