The union Enron:
A New Twist in Labor's ULLICO Scandal
NOVEMBER 15, 2002
NEWS ANALYSIS
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Some officials at the union-run life insurer seem reluctant to take the wraps off an internal report on directors' ULLICO stock trades
Top execs are reluctant to allow what's likely to be a damning internal report on stock trading to be presented to the board of directors at union-owned insurer ULLICO, BusinessWeek Online has learned. ULLICO's two dozen directors reaped hundreds of thousands of dollars for themselves by buying and selling the privately traded company's stock.
Last spring, AFL-CIO President John Sweeney, a ULLICO board member, demanded the report after news broke that a grand jury was investigating the trading. In response, ULLICO hired former Illinois Governor James Thompson to look into the transactions, in which the company's board members profited from a sharp runup in ULLICO's stock after it reaped $335 million from an early investment in Global Crossing (see BW, 11/18/02, "Labor Chieftans' Secret Stock Deal" [subscribers only]).
Earlier this week, ULLICO CEO Robert Georgine canceled the Nov. 20 board meeting, where Thompson was due to present his report. In response, Thompson fired off a letter to Georgine and all 30-odd ULLICO directors, offering to present it to them individually. "I can't compel them to have a board meeting, so I can only offer to make the report available to all the directors," says Thompson. ULLICO declined to respond to a request for comment for this story.
HOT POTATO. Cancellation of the meeting could put union leaders in a tough spot regarding their fiduciary responsibilities as directors of ULLICO, the parent of Union Labor Life Insurance. The report, which is likely to establish that Georgine stood to make millions of dollars from the sale of ULLICO stock, has caused fierce maneuvering among labor leaders. At first, Georgine wanted Thompson to deliver it orally and not give directors a written copy, according to some ULLICO directors.
When that didn't fly, ULLICO set up an elaborate procedure to keep the report under lock and key. Directors were to be allowed to read it at an office of Thompson's law firm, Winston & Strawn, in the week before the Nov. 20 meeting. But they couldn't make notes or take a copy home. Experts on corporate fiduciary issues say, as a rule, once an internal report like this has been commissioned, directors have a responsibility to discuss it with each other. ULLICO's other shareholders weren't going to get a copy at all.
All these precautions were aimed at maintaining attorney/client privilege regarding the report, say Thompson and others involved. "The report is protected by attorney/client privilege, so we established the security procedures to make sure no one broadcast it," Thompson says. That would also keep it out of the hands of the U.S. Attorney for the District of Columbia, which is helping the grand jury in its investigation of the affair.
MAKING TROUBLE? Now that Georgine has canceled the Nov. 20 board meeting, Thompson, whose own reputation as an independent outsider is at stake, is trying to make sure directors have at least some way to read it. He says he has agreed to delay giving them access until Nov. 26, to allow time for a new law firm ULLICO has hired to get up to speed. However, since a majority of directors appear to be siding with Georgine against Sweeney's desire for a more public airing, it's not clear how many of them will take Thompson up on his offer.
Insiders say discussions are still ongoing about having a board meeting at a later date. But if a majority vetoes the idea, Sweeney or anyone else who disagrees may be outmaneuvered. Individual directors can't release the report unilaterally, since it's bound by attorney/client privilege. They also may not be able to oppose a board majority, even if they think directors might violate their fiduciary responsibilities by not holding a meeting to discuss possible wrongdoing by officers and directors.
A key question is whether suppressing the report might actually worsen directors' legal woes in the long run. Lawyers involved say the legal issues regarding the ULLICO stock transactions are murky, with little precise precedent. By trying to shield the company's own internal investigation, union leaders might give the feds more reason for suspecting foul play.
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By Aaron Bernstein in Washington
Edited by Douglas Harbrecht |
