Allied with AFL-CIO president John Sweeney, a cabal of union chieftains are set to oust the CEO who conspired with other union bigwigs to make millions in profits from Ullico, a union-focused financial company formerly known as Union Labor Life Insurance Co. Having deposed Ullico CEO Robert Georgine, Sweeney will try to change the subject back to Enron. The problem is, there is far too much smoke behind the wizard's curtain.
In 1997, Ullico got in on the ground floor of high-flying Global Crossing. When that stock peaked at $62 a share in 1999, Ullico had turned its $7.6 million investment into more than $1 billion, drastically pushing up the value of Ullico itself. Ullico's directors, mostly current or retired union officials, decided to cash in by giving themselves the right to buy and sell Ullico stock before its price was revalued. (Being a privately held company, Ullico stock could be set by insiders rather than by the market.) Several directors bought Ullico stock in late 1999 before its price was sure to rise in 2000.
As the technology bubble -- and Global Crossing's stock -- plummeted in 2000 and 2001, the same union directors sold their stock back to Ullico before its price was lowered, first in 2001, and again in 2002. But only Georgine and fellow board members, including five current and retired international union presidents, shared in the profits. The union funds that held most shares of Ullico stock were never even told about these deals, nor would they have been able to participate since company rules only allowed small shareholders to deal themselves in.
The scandal has proven to be a major distraction from the AFL-CIO's "No More Enrons" campaign against what it describes as "greed, self-dealing and plain selfishness" among corporate directors "charged with acting in the interests of investors." That perfectly describes the Ullico episode. At Ullico's annual meeting this week, Sweeney's supporters in the Big Labor hierarchy will try to remove Georgine from all positions he holds at Ullico. They would like to hustle Georgine off the stage and refocus the spotlight on their favored corporate targets. But behind the curtain looms a federal grand jury investigating the stock deals.
Section 501(a) of the Labor-Management Reporting and Disclosure Act of 1959 (commonly referred to as the Landrum-Griffin Act) requires representatives of labor organizations to manage and invest an organization's assets "solely for the benefit of the organization and its members." The inside stock deals at Ullico have twisted the benefit 180 degrees. The union directors made millions in personal profits while their company and its pension funds were left in the cold.
The Act makes it a crime, punishable by five years in prison and/or a $10,000 fine, for anyone to "convert to his own use...any of the moneys, funds, securities, property, or other assets of a labor organization of which he is an officer." As an organization almost entirely owned by unions and their pension funds, Ullico falls squarely under the Landrum-Griffin Act. And the grand jury that has been looking into this scandal for more than a year is surely aware of this.
John Sweeney may wax eloquent about the obligation of union leaders to protect the workers they claim to represent. But he is more than three years too late in his moves against Georgine and other directors who gamed the system for personal profit.
As a Ullico director, Sweeney was there in late 1999, when Georgine offered the option of buying Ullico stock "low." And he was there in 2000 and 2001 when the directors were allowed to sell it back "high." Sweeney did not participate in the insider deals. But he apparently did not protest what he must have realized was a rotten deal for the millions of workers whose dues and pensions were tied to the gyrations in Ullico's stock.
One possible explanation for Sweeney's earlier silence involves a $24 million debt that the AFL-CIO has owed to Ullico's insurance arm to cover renovation costs at the federation's Washington, D.C. headquarters. During 2000 and 2001, there were no repayments, according to financial disclosure forms filed with the U.S. Department of Labor. In 2002, the loan was converted to a mortgage. Presumably, Sweeney was aware of the AFL-CIO's debt to Ullico.
Sweeney should not be allowed to bury his history as a ex-board member beneath the righteous indignation he now displays. When he and the rest of the hierarchy of organized labor claim to have cleaned house at Ullico, don't ignore the smoke behind the curtain.