Political Hay

Double Crossers

Unions lack the moral credibility to challenge Social Security reform.

By 3.29.05

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Organized labor claims that its campaign to pressure corporations to stop supporting President Bush's Social Security plan is necessary to protect retirees from corporate greed.

This is hypocrisy of the worst sort.

Given their sordid history of raiding union pensions for personal gain, labor bosses are in no position to offer advice about ethical management of workers' retirement funds.

One of the most notorious examples of such corruption occurred in 2002, when union officials profited from the bankruptcy of the telecom company Global Crossing. Ullico, a privately held insurance company owned largely by unions and their pension funds, was a major investor in Global Crossing. Ullico's directors exploited the telecom company's volatile stock to enrich themselves through a series of insider trading deals at the expense of the pension funds they were supposed to protect. In one shady deal, for example, Ullico bought back 200,000 Global Crossing shares and allowed the directors to cash out at $75 per share when they knew the real stock value was only $44. While the bosses got rich, the pension funds suffered.

Cynical profiteering should come as no surprise given the checkered history of many Ullico directors.

Former Laborers International Union leader Arthur Coia is a case in point. He was once described by the Justice Department as a man who had such close ties to organized crime that he was considered a "mob puppet." In January 2000, Coia pled guilty to fraud for evading Rhode Island taxes on the purchase of a $1 million Ferrari. He refuses to admit whether he profited from Global Crossing stock deals.

Marty Maddaloni is another symbol of union greed. This president of the United Association of Plumbers and Pipefitters union reaped a profit of $184,000 from inside stock dealing with Global Crossing. Morton Bahr, longtime head of the Communications Workers of America, also made money from these shady transactions. Bahr apparently wasn't bothered by the fact that many of the 9,000 workers who lost their jobs after the company's bankruptcy were CWA members.

Ullico is not an anomaly. It epitomizes the deep-seated corruption plaguing organized labor. In 2002, 44 percent of the Justice Department's 357 racketeering investigations involved union pension and welfare funds.

The amount of money labor bosses steal from their membership's retirement plans is staggering. In 2000, only quick action by the FBI stopped $300 million in pension fund money from going into management firms run by the Lucchese crime family. An alleged member of the Genovese crime family was indicted in 2002 for embezzling more than $1 million from benefit funds of New York-based locals of the United Brotherhood of Carpenters.

There are many other cases belying labor's claim that it is fit to protect retirees from greedy speculators. In 2002, a federal court in Portland, Oregon, ordered the dismissal of 27 trustees of union pension and benefit funds for losing $100 million due to risky investments. Members of the Oregon Laborers Union and two other unions sued the trustees for ignoring numerous warnings that the investment company, Capital Consultants, was making dangerous investments that were in clear violation of the federal Employee Retirement Income Security Act. One of the reasons for this gross incompetence was criminal greed. John Abbott, a key trustee and union business manager, was convicted for accepting bribes and other gifts worth hundreds of thousands of dollars from Capital Consultants.

Given the scope of criminal activity within organized labor, it is a wonder that union officials can keep a straight face when they attack corporations for having greedy motives in supporting private retirement accounts. William Patterson, who runs the AFL-CIO Office of Investment, is coordinating the campaign against financial services firms such as Charles Schwab and Wachovia. Those firms belong to lobbying coalitions backing the Bush administration on Social Security reform. Patterson charges that it is a conflict of interest for companies to support private accounts "because they stand to gain billions of dollars." Patterson stresses that his goal is to maintain "the integrity of the debate around worker-retirement security by making sure conflicts of interest do not skew the debate."

Fair enough. But Patterson should begin by pointing out that his boss, AFL-CIO President John Sweeney, served on the board of Ullico during the Global Crossing scandal.

Sweeney says that private retirement accounts are "a risky scheme for America." No, what is risky is that the labor union movement thinks it has the moral standing to weigh in on this crucial debate.

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About the Author

John Carlisle is director of policy at the National Legal and Policy Center, a nonprofit foundation based in Falls Church, Virginia.