Bureau of National Affairs
No. 61
Pensions
ULLICO Board Votes to Release Report On Investigation of Alleged Insider Trading
By Brian Lockett
Monday,
March 31, 2003
The board of
directors of ULLICO Inc. March 28 voted to make public a report prepared for
the union-owned insurance company by former Illinois Gov. James Thompson (R),
which examines the company's stock sale and repurchase programs offered to
directors and board members.ULLICO said its board also voted to instruct
company attorneys to cooperate with federal authorities investigating allegations
of insider trading related to stock transactions.
In agreeing to
release the report, the board acted on recommendations made by a special
eight-member panel of board members who had not participated in the stock
purchase offer. The special panel had approved the two recommendations at a
March 25 meeting.
According to
ULLICO, the special committee concluded from their three-month review of the
Thompson report that no laws or securities regulations were broken. Thompson
released his report to the board on his internal investigation in November 2002
(228 DLR A-8, 11/26/02).
Public release
of the Thompson report has been sought under subpoena by the Labor Department
and the state of Maryland as well as in requests from the House Education and
the Workforce Committee and numerous other groups.
"It is
important to understand that the timing of the release of the Thompson report
until today was necessary to allow the special committee sufficient time to
complete its deliberations," said Robert A. Georgine, ULLICO's chairman,
president, and chief executive officer.
"It's the
right move and something the AFL-CIO has been urging," said AFL-CIO
spokeswoman Kathy Roeder.
Thompson's
report, at nearly 110 pages plus 30 pages of exhibits, first will be released
to shareholders early next week, according to company sources. Shortly
thereafter, at a date yet to be determined, the company expects to make copies
available to news organizations, a company official said, after various legal
details including issues of attorney-client privilege have been worked out.
Allegations of
wrongdoing by company officers and members of the board have been tied to
assertions in court documents that ULLICO gave its directors the opportunity to
buy company stock and sell it when the price was significantly higher, but did
not give the same opportunity to institutional investors, particularly union
pension plans. As a result, according to court documents, some board members
allegedly reaped huge profits by selling their personal stock holdings near
peak valuation while they allowed the same investments made by institutions and
union pension plans to founder.
At the time,
ULLICO owned a large amount of stock in Global Crossing, a telecommunications
company that had seen its stock price soar after its initial public offering
and later experience a sharp drop in value.
In addition to
making the recommendation for releasing the report, ULLICO said the special
committee found that the sale and repurchase of ULLICO shares to corporate
officers and board members was conducted in accordance with provisions and
procedures developed by legal and accounting professionals; that the actions
were based on expert financial advice, with the concurrence of outside legal
counsel, and did not violate corporate bylaws or previous board actions; and
that the actions were consistent with traditional corporate decisionmaking
procedures. Because no laws were broken and no securities regulations were
violated, a majority of the special committee found that there was no reason to
recommend that the profits be given back.
Three members
of the special committee, however, recommended returning the profits for the
good of the company and to get the matter behind it, ULLICO said in a
statement.
Douglas J.
McCarron, president of the Carpenters and Joiners of America and a member of
the ULLICO board, decided to return to the company the profit he made on the
sale of his ULLICO stock, less taxes paid, or approximately $276,000 (210 DLR
A-8, 10/30/02). McCarron has since resigned from the board (51 DLR B-1,
3/17/03), becoming the fourth union leader to do so.
ULLICO,
formerly known as Union Labor Life Insurance Co., was founded in 1925 to
provide affordable life insurance for workers. The company also invests and
manages approximately $6 billion of largely building trade union pension fund
assets. The majority of the company's board of directors are either current or
former union presidents.
The special
committee also endorsed several corporate governance measures designed to
improve transparency and executive accountability, ULLICO said. Those measures
include: the immediate elimination of the discretionary share repurchase
program; the creation and disclosure of new standards for any future share
repurchase program; the adoption of comprehensive written corporate governance
guidelines and a written code of conduct and ethics; and the appointment of a
chief compliance officer to oversee and administer the code of conduct and
ethics.
"I am
pleased the special committee has concluded that there was no wrongdoing by any
corporate officer or member of the board," Georgine said. "We sought
the advice of attorneys and other professionals at the time to ensure that
would not happen."
"I look
forward to implementing quickly the special committee's recommendations with respect
to enhanced corporate governance measures, and to addressing other corporate
priorities," Georgine said. "I am especially eager to move forward
with the implementation of our new business plan, which I presented to the
board today."
In the face of
mounting allegations of wrongdoing, the board sought legal counsel from
Thompson who, in turn, brought in a legal team from Chicago-based Winston &
Strawn and lawyers from Sidley Austin Brown & Wood, Washington, D.C.
Thompson is a Winston & Strawn partner.
"With the
steps we are taking today, we can put these allegations of wrongdoing behind us
and move forward to continue to provide our customers with the highest quality
products and services," Georgine said.
Also approved
March 28 by the board but not announced by ULLICO was a proposal to engage a
business team to help get the company back on its feet financially, one board
member told BNA. Heading the team will be D. Quinn Mills, a professor at the
Harvard University Business School who worked with former Labor Secretary John
Dunlop during the era of wage and price controls during the Nixon
administration. Mills addressed the ULLICO board at its March 28 meeting.
Joining Mills,
the board member said, will be Michael Maccoby and Donald Laurie. Maccoby is a
psychoanalyst and anthropologist who consults to businesses, governments, and
unions on leadership and strategic development. He is president of the Maccoby
Group in Washington, D.C. Laurie, a Boston-based management consultant, is
founder and managing director of Laurie International Limited.
This team will
be working with The Boston Consulting Group, a company that has extensive
experience in the insurance industry.
Their work
will intersect with the work of a "senior management operations
committee" appointed by the board that is looking into ways to improve
ULLICO's cost-effectiveness, this board member explained. Also launched were
search committees to find a new chief financial officer and chief operating
officer for the company. As currently envisioned, the board member explained,
Georgine and other senior management at the company will continue to focus on
the day-to-day operations while the new chief operating officer will work on
development of a business plan and implement the operating efficiencies
recommendations.
Taking
exception to news stories, one board member told BNA following the March 28
meeting that reports about board members manipulating the stock price have been
"dead wrong." According to this board member, the price of ULLICO
stock is set annually by auditors for the company under a formula approved by
the board "long before Global Crossing." The board reviews the
auditor's report and the basis for setting the new stock price but does not set
the price, he said.End of article graphic
Copyright
© 2003 by The Bureau of National Affairs, Inc., Washington D.C.