The New York Times
Report Said Directors Should Return Unfair Trading Profits
By STEVEN GREENHOUSE
April 2, 2003
A long-suppressed investigative report has concluded there was compelling evidence that many officers and directors of Ullico, a union-owned insurer, had enriched themselves at the expense of shareholders and should return more than $6 million in profits they made from trading the company's stock.
The report, prepared by James R. Thompson, the former governor of Illinois and a special outside counsel to Ullico, singled out Ullico's chairman and chief executive, Robert A. Georgine, saying he netted another $6 million in trading profits and arguably awarded large amounts of stock to himself without proper authorizations.
The Ullico affair has become a stinging embarrassment to the labor movement because it is seen as an example of how some union leaders put their own financial interests above those of their unions and union members. Labor unions and their pension funds own almost all of Ullico's stock.
On March 25, a special advisory committee to Ullico's board, acting at Mr. Georgine's behest, rejected Mr. Thompson's advice and voted 6 to 2 against requiring directors who engaged in the stock trades to surrender their profits. The special committee also concluded that the directors who traded Ullico stock had done nothing wrong.
Mr. Georgine, who is also trying to reverse Ullico's financial crisis, seized on the committee's vote as vindication. "I am pleased the special committee has concluded that there was no wrongdoing by any corporate officer or member of the board," he said on Friday.
The Thompson report found that the officers and directors who traded Ullico stock, many of them current or former union presidents, had breached their fiduciary duties and probably violated some states' securities laws. That finding was seconded by an expert on state securities laws hired by Mr. Thompson, Mark A. Sargent, dean of Villanova University Law School.
Mr. Thompson concluded that no Ullico directors or officers had violated criminal laws because he found no evidence of criminal intent, even though he found they had improperly favored themselves in financial transactions. The Ullico trades are being investigated by the United States attorney in Washington, the Department of Labor and the Securities and Exchange Commission.
Five labor leaders have quit Ullico's board, upset that the board was not dealing with the scandal more aggressively. John J. Sweeney, the A.F.L.-C.I.O.'s president, quit in December, and last Friday, John J. Wilhelm, president of the hotel employees, resigned. Mr. Wilhelm was one of the two directors on the special committee to vote to require that the directors surrender their profits. The other was Terence O'Sullivan, president of the laborers.
The Ullico board decided to keep the Thompson report confidential and not distribute it to shareholders after it was completed last November. But last Friday, the board, under pressure from shareholders, said it would release the report to shareholders this week. One shareholder made the 138-page report available to The New York Times.
A Ullico spokesman said yesterday that Mr. Georgine would not comment on the report. But a person who attends Ullico board meetings and spoke on condition of anonymity defended Mr. Georgine and the board, noting that the Thompson report found neither criminal violations nor violations of federal securities law.
The person said Mr. Thompson was wrong to conclude that Ullico's directors had violated their fiduciary duties under the laws of Maryland, where Ullico is incorporated. The person said the board acted on the advice of two respected law firms, Arnold & Porter and LeBoeuf Lamb.
The report also noted that from 1999 to 2001 Mr. Georgine's total compensation was $10.7 million, including salary and stock sales from deferred compensation.
The Thompson report found that Jake West, former president of the iron workers, made $837,760 in pretax profits selling Ullico stock, while Bill Casstevens, former secretary-treasurer of the auto workers, made $603,080. Martin Maddaloni, president of the plumbers, made $418,880 in pretax profits, the report found, as did Douglas McCarron, president of the carpenters. Mr. McCarron has quit Ullico's board and agreed to return his profits.
Last Friday, in announcing plans to release the report, Mr. Georgine said, "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."