Whatever happened to ULLICO? From 2002 to 2004, it was hard to avoid the headlines. The Union Labor Life Insurance Company was organized labor’s version of Enron.
The company’s board members and upper management had made millions and possibly tens and even hundreds of millions of dollars from what appeared to be flagrant insider trading, leaving the company dangerously close to collapse. Worse, the workers whose assets were tied up in union benefit plans bore the ultimate cost.
The U.S. Department of Labor, the House of Representatives and the Senate each launched investigations. The House and Senate reached damning conclusions, which were a precursor to a settlement, announced by the U.S. Department of Labor (DOL) in November. Without admitting formal wrongdoing, ULLICO agreed to pay $20 million in restitution, back taxes and penalties. Given the evidence, taking the government’s offer seems like a smart move.
The Washington, D.C.-based ULLICO is a privately-held company that was established in 1925 to provide modest-cost life insurance for union members and their families. In recent decades, ULLICO has diversified into a full-service financial network, organized labor’s equivalent of Citigroup or Prudential.
The expansion didn’t go off without a hitch, unfortunately. During the late '90s, company officials engaged in business practices that seemed to defy law as well as common sense. The Department of Labor charged that the firm had failed to disclose its financial condition to benefit plan investors, a clear violation of the Employee Retirement Income Security Act (ERISA).
Most of the $20 million settlement will consist of payments to replenish a ULLICO annuity plan, “Separate Account J,” better known as “J for Jobs.” The company had set up the fund 30 years ago to invest union member benefits in secured mortgages on commercial and residential developments, with construction to be performed by workers belonging to AFL-CIO-affiliated unions.
As part of the settlement, ULLICO also agreed to be barred from accepting compensation without prior approval from independent fiduciaries.
THE THING THAT originally raised eyebrows was an apparent sweetheart deal between ULLICO and a telecommunications startup company, Global Crossing. Founded in 1997, Global Crossing had a vision to build a worldwide fiber-optic network.
It seemed a good match, politically. ULLICO — that is to say, American unions — was solidly Democratic. Global Crossing’s founder and chairman, Gary Winnick, was a top party donor and fixer. Then-Democratic National Chairman Terry McAuliffe admitted to the New York Times’ Jeff Gerth late in 1999 that he’d turned his initial $100,000 investment in Global Crossing stock into $18 million, and made millions more after the company went public in 1998.
(As a reward, McAuliffe arranged for Winnick to play golf with President Bill Clinton. Not long after, Winnick donated a million dollars to help build the Clinton Presidential Library. McAuliffe, in fact, operated out of downtown Washington offices owned by Winnick, who at the time touted himself “the richest man in Los Angeles.”)
In 1997, ULLICO bought 33 million shares of Global Crossing at a pre-IPO price of 23 cents a share. That worked out to about $7.6 million. Buying in at ground zero was a steal of a deal. During 1999, Global Crossing’s price would exceed $60 a share.
ULLICO then effectively borrowed against this anticipated windfall to invest heavily in real estate. The company laid out $160 million for the construction of its new headquarters and another $10 million for 120 acres of vacant land outside Las Vegas for a future residential development that never materialized.
As long as Global Crossing’s stock was rising, ULLICO could reap the whirlwind. But almost anyone could see that price-to-earnings ratios — at Global Crossing and in the telecom sector as a whole — were way out of whack, and headed for a fall.
ULLICO’S TOP BRASS did not have to live with the consequences of the correction. The 28-member board of directors, which included AFL-CIO President John Sweeney, already had established some unorthodox by-laws giving themselves stock buyback rights.
The contingency plan would come in handy. Internet and telecom stocks went bust during 2000-02. Global Crossing stock became nearly worthless, falling to below $1 a share, and the company in January 2002 declared bankruptcy, the fourth-largest in U.S. history.
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