Union Labor Life Insurance Company

The Union Labor Life Insurance Company (ULLICO) is a privately held life and health insurance company in the United States. ULLICO was founded in 1925 by the American Federation of Labor (AFL), which wanted to offer working people affordable health and life insurance. Fifty international unions provided seed-money for the company.

ULLICO is a joint stock company, but privately held. The company's constitution and bylaws permit shares to be held only by trade unions, union officials, union members and union benefit funds. The stock's value changes only once a year, when company directors set a new share price on the advice of auditors.

History

The company began operation on May 1, 1927 in Washington, D.C., and soon more than 60 international unions, hundreds of local unions, and more than 300 individuals owned its stock. Even AFL president William Green purchased $500 in stock.

In 1932, ULLICO began offering retirement annuities. It moved its headquarters to New York City in 1935. In 1942, the company began offering group accident, health and hospital insurance. It added management of pension plans in 1947. In 1977, ULLICO established a separate account to invest in building and other capital projects which would utilize unionized labor in their construction.

In 1983, ULLICO moved back to Washington. In 1986, ULLICO created its first subsidiary, the ULLICO Casualty Co., to begin providing fiduciary liability insurance to trust funds and trustees.

In 1987, ULLICO Inc. was established as a holding company for the company's subsidiaries and assets. A number of new ventures quickly followed: Zenith Administrators (a third-party pension and self insurance fund administration business) in 1988, Trust Fund Advisors (a pension fund portfolio management company) in 1990, and ULLICare (a managed care health plan) in 1999.

As of January 2007, ULLICO had $5.3 billion in assets. It had $20.6 billion in life insurance in force and $5.9 billion in union pension funds and other third-party assets under management, making it one of the largest insurers, real estate managers and money fund managers in the U.S.

By the late 1990s, ULLICO was so prosperous that it provided start-up capital for the new DreamWorks motion picture studio.

ULLICO also expanded significantly in the 1990s. It established a large number of "strategic alliances" with other insurance companies. It also made a number of acquisitions. In 1999, ULLICO bought Tri-City Brokerage, the largest and only independent national insurance wholesaler. ULLICO later formed a new underwriting subsidiary, ULLICO Insurance Group, to utilize Tri-City's underwriting business, Five Star Managers. A year later, ULLICO got into the banking business by acquiring the Amalgamated Bank of Chicago.

Scandals

In the 1990s and 2000s, ULLICO was wracked by a number of scandals.

AFL-CIO support for single-payer health care

ULLICO's first conflict of interest scandal occurred in 1991. In May of that year, the health care committee of the AFL-CIO executive council voted to reject a proposal to support a national single-payer health care plan. The stated reason was that the proposal had no chance of being enacted by Congress. But outside observers argued that the real reason was that government-supplied universal health care would have put union-run health insurance plans out of business. The deciding vote in the health committee was cast by Robert Georgine, chairman, president and chief executive officer of ULLICO.

Conflict of interest in pension fund management

ULLICO was caught up in a second conflict of interest scandal in 2002. In June 1998, the New York City local of the United Brotherhood of Carpenters and Joiners of America hired Zenith Administrators, a ULLICO subsidiary, to oversee the union's $1.7 billion pension and benefit funds. In 2002, federal prosecutors and the United States Department of Labor investigated the company for allegedly obtaining the contract through the influence of international union president Douglas J. McCarron—who was a director of ULLICO. The Labor Department ended up suing ULLICO and Zenith Administrators for mismanaging the union's funds.

Insider dealing scandal

A larger and more significant scandal also occurred in 2002, in which ULLICO officers and directors were accused of engaging in insider dealing, stock price manipulation and other crimes.

Structure of the insider deal

In 1997, Gary Winnick, founder of telecommunications company Global Crossing, gave ULLICO officers and directors the chance to buy shares of his new company at substantially lower prices than offered to the public. All but two of ULLICO's directors purchased 33 million shares for $7.6 million (or about 23 cents a share), with ULLICO buying even more stock. Global Crossing went public, and the stock soared to $62 a share in 1999. This netted ULLICO about $1.1 billion in profit.

For a variety of reasons, Global Crossing's stock price then began to decline sharply.

In December 1999, Georgine offered ULLICO's officers and directors a chance to participate in its Global Crossing profits. Under ULLICO's bylaws, ULLICO officers and board members had the right to buy and sell ULLICO stock. Georgine sent a confidential letter to board members inviting them to sell their Global Crossing shares and use the proceeds to purchase up to 4,000 ULLICO shares at the then-current price of $53.94. The increase in Global Crossing share price had not yet been recorded by ULLICO's auditors, PricewaterhouseCoopers. Unlike publicly traded companies, ULLICO only set its stock price once a year, based on its prior year book value. When it was, the auditors were sure to recommend a significantly higher ULLICO share price. Under the bylaws, the board members could then authorize a share repurchase plan. Board members would be able to redeem their ULLICO shares at the higher price. When the ULLICO shares were re-priced later to reflect the now-worthless Global Crossing shares, the company's stock price would return to near its previous level. It was a chance to sell their tumbling ULLICO shares.

All ULLICO shareholders, including union pension plans, could sell a prorated amount based on their total holding. Yet those with fewer than 10,000 shares--mostly the directors--could sell all their stock. ULLICO did not offer the deal to others. Rank and file union members, who owned the bulk of ULLICO stock through professionally managed union pension plans, were not told of the stock offering and would not be permitted to buy stock at the $53.94 price (had they known about the stock offering).

A majority of the ULLICO board approved the plan. Many board members duly sold their tumbling Global Crossing shares and bought ULLICO stock at the price of $53.94 a share. In May 2000, acting on the auditor's recommendation, the ULLICO board of directors approved a share price of $146. On November 2, 2000, ULLICO's board approved a plan to repurchase $30 million worth of ULLICO stock at $146 a share. Board members were permitted to sell all of their shares, making nearly $13.7 million in profits, while the unions and their pension plans were allowed to sell only a fraction of their shares. In May 2001, the ULLICO board, acting on the recommendation of its auditor, set the company's share price at $74 (a new, lower price established almost exclusively by the drop in Global Crossing shares).

Meanwhile, ULLICO began losing money. The company lost $22 million in 2001, and $74 million in 2002. ULLICO's combined capital and surplus—a key measure of an insurance company's financial health—fell from $51.8 million in 2001 to $17.95 million in 2002. PricewaterhouseCoopers expressed doubt about ULLICO's financial solvency. ULLICO then issued more stock, raising $50 million from its shareholders, and agreed to sell its newly-completed downtown office building near the White House to raise another $160 million.

Scandal exposed

Beginning March 15, 2002, the Wall Street Journal published a series of articles about ULLICO's insider stock deal. Global Crossing had filed for bankruptcy in January 2002, and a number of investors suffered significant financial setbacks. ULLICO's investment in Global Crossing was well known, and the newspaper's reporters wondered how severely union members' investments had suffered from the bankruptcy. The paper also discovered that a federal grand jury was already investigating the stock transactions.

On April 29, 2002, ULLICO's board of directors agreed to conduct an investigation into the legality and ethics of the stock sales. The board meeting which preceded the vote was a contentious one, and the all-day meeting ended very late in the afternoon. But in the end, the board unanimously voted to ask James R. Thompson, former Republican governor of Illinois and chairman and CEO of Winston & Strawn LLP (a large and prestigious D.C. law firm), to review the sales.

Thompson's report was completed in November 2002, but its release was hotly debated. Thompson and two investigators, Robert W. Tarun and Stephen J. Senderowitz (both former prosecutors with the United States Department of Justice and both now attorneys at Winston & Strawn), issued a 100-page report just before Thanksgiving. The report, more than 100 pages long, harshly criticized Georgine and the secretive, manipulative nature of the stock trades. The report also concluded that the officers and directors had breached their fiduciary duties and probably violated some states' securities laws. The report noted that the board's compensation committee had approved the repurchase plan even though its members were prohibited from making decisions relating to their own compensation. Although the report said no ULLICO directors or officers had violated criminal laws, it did strongly recommend that all board members return any profits to the company. Finally, the report found that ULLICO officers may also have made millions of dollars in profits in special purchases and other bonuses, which may not have been properly approved.

Debate over Thompson report

A fight broke out over whether to make the report public. Thompson made the report available to ULLICO's board of directors, and required board members to sign statements promising to keep the findings confidential. Without a board vote to release the report, it would have remained secret. A number of board members did not want their role in the stock scandal made public. Board member John J. Sweeney, president of the AFL-CIO and one of the board members who did not participate in the stock trading scheme, demanded the release of the report. Georgine and Sweeney engaged in numerous heated arguments for several weeks, debating whether to release the Thompson report. Finally, on December 1, 2002, Sweeney resigned from the ULLICO board in protest. Four other members of the board followed suit over the next month.

The fate of the Thompson report led to a number of lawsuits. The Maryland Insurance Administration subpoenaed the report, forcing ULLICO to challenge the subpoena in court. The United Auto Workers also filed suit to force ULLICO to release the report. Even the U.S. Department of Labor filed suit to force the report into public.

In late February 2003, Sweeney threatened to debate the ULLICO stock sale in an open meeting of the AFL-CIO executive council in May.

Sweeney's threat, worsening public opinion and continued media scrutiny of the affair led the ULLICO board to make the report public. On March 25, 2003, the ULLICO board of directors created a special advisory committee to debate the report's release. The advisory committee voted unanimously to accept the report and release it to the public, but voted against acceptance of the report's demand that board members surrender their profits.

At a ULLICO board meeting on March 28, the scandal deepened. Georgine proposed returning his profits to the company. But other board members argued this would pressure them to return their profits, too—something they did not wish to do. The scandal was causing a split in the AFL-CIO's member unions. Sweeney and some unions argued that surrendering profits was the only way to restore confidence in the labor movement. But other unions, led by Martin Maddaloni, president of the United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry (the plumbers' union), said they did nothing that directors in other companies had not also done. Meanwhile, an aggravated Thompson issued a public statement accusing ULLICO and its legal counsel of making defamatory statements about him and his inquiry and misrepresenting the report's findings.

New board and new investigation

Three weeks later, at ULLICO's annual meeting, Georgine was forced out and a new board of directors installed. In a hastily-organized board meeting late on April 23, 2003, Sweeney, board member Terence M. O'Sullivan, Jr. (president of the Laborers' International Union of North America) and Edwin D. Hill (president of the International Brotherhood of Electrical Workers) nominated a reform slate of 13 new board members. Georgine withdrew his name as a candidate for the board. O'Sullivan and Maddaloni (who agreed in mid-April to return his $418,880 profits) were the lone incumbents to return to the board.

Georgine attempted to stay on as president and CEO of ULLICO, but resigned on May 8 after the new board indicated it would attempt to fire him. Georgine subsequently claimed ULLICO owed him $2 million in severance pay, a claim ULLICO disputed. O'Sullivan was elected ULLICO's new chairman, replacing Georgine.

A deeper investigation by the new board found even worse problems. Georgine's profits from the stock trade were found to be far higher than anyone had guessed—nearly $8.8 million. Georgine and other ULLICO executives also received millions of dollars in special bonuses and deferred compensation never approved by the board. O'Sullivan also disclosed that ULLICO officers had loaned Georgine $2.2 million to purchase 40,000 shares of low-priced ULLICO stock prior to the stock trading scheme, further enlarging his profits, and that Georgine's salary had risen from $900,000 in 1996 to $5.4 million in 2000. ULLICO's compensation committee lacked the authority to approve both the loan and the salary increases but did so anyway. O'Sullivan then issued letters to Georgine and the other officers demanding that they refund this money.

These revelations led to an investigation by the United States Congress. The United States House Committee on Education and Labor subpoenaed Georgine to testify about the ULLICO stock trading scheme, but Georgine asserted his Fifth Amendment right against self-incrimination and refused to testify.

Regaining financial stability

Under O'Sullivan, ULLICO slowly rectified its shaky finances. On September 17, 2003, ULLICO submitted a plan to the Maryland Insurance Administration proposing to increase its capital and surplus to at least $47.6 million by December 31. ULLICO also agreed to raise an additional $50 million through a new stock sale, institute insurance rate increases, sell assets and engage in deep cost-cutting. ULLICO sold its corporate jet, and the sale and cost savings netted the company about $3 million. ULLICO sold its headquarters on Massachusetts Avenue N.W. for $25 million and sold several small business units. In 2005, ULLICO completed its turnaround plan with the sale of 100,000 group life and accident policies to Hartford Financial Services Group for $29 million.

ULLICO closed the book on its stock trading scandal in late 2005 when it reached a financial settlement with Georgine. ULLICO alleged that Georgine had breached his fiduciary duties and had sued him to recover its losses. The settlement called for Georgine to repay about $2.6 million in profits from the sale of ULLICO stock, forfeit $10 million in compensation and make other payments worth about $4.4 million. The settlement was signed on November 10, 2005, and took effect immediately.

Notes

References

• 2005 Annual Report. Washington, D.C.: ULLICO, 2006.
• Boehm, Ken. "Slippery Stock Deal Benefits Union Bosses, Not Members." Investor's Business Daily. June 24, 2002.
• Chen, Kathy. "Labor Department Is Suing 2 ULLICO Units." Wall Street Journal. March 26, 2002.
• Edsall, Thomas B. "ULLICO Board Seeks Return of Stock Profits." Washington Post. May 14, 2003.
• Edsall, Thomas B. "ULLICO Forces Chairman Out Amid Stock-Trading Dispute." Washington Post. April 24, 2003.
• Edsall, Thomas B. "Union Firm Pressured on Claims of Insider Trading." Washington Post. January 21, 2003.
• Edsall, Thomas B. "Union Insurer's Board to Review Probe of Stock Deals." Washington Post. November 26, 2002.
• Edsall, Thomas B. "Uproar Over Stock Deals Divides Labor Leaders." Washington Post. February 23, 2003.
• Fitch, Robert. "Big Labor's Big Secret." New York Times. December 28, 2005.
• Franklin, Stephen. "Sale of Stock in Unions' Firm Draws Fire." Chicago Tribune. February 25, 2003.
• Goodman, David. "UAW Sues Union Insurer, Seeks Probe Report Release." Associated Press. January 30, 2003.
• Gottlieb, Jenna. "Hartford Buys Union Labor Policies." American Banker. February 15, 2005.
• Greenhouse, Steven. "Ex-Chairman of Insurer Won't Testify." New York Times. June 18, 2003.
• Greenhouse, Steven. "Ex-Governor to Look Into Union Stock Deal." New York Times. May 1, 2002.
• Greenhouse, Steven. "The Fighting O'Sullivan." New York Times. May 18, 2003.
• Greenhouse, Steven. "Laborers' Leader Takes Over Troubled Union-Owned Insurer." New York Times. May 9, 2003.
• Greenhouse, Steven. "Report Said Directors of Union-Owned Insurer Should Return Unfair Trading Profits." New York Times. April 2, 2003.
• Greenhouse, Steven. "Stock Dealing at Union-Owned Insurer Creates a Schism Within Labor." New York Times. April 8, 2003.
• Greenhouse, Steven. "Union Head Cites Secret Report in Quitting Insurer." New York Times. December 3, 2002.
• Greenwald, Judy. "Tri-City Brokerage, Inc." Business Insurance. October 4, 1999.
• Hamburger, Tom. "How Union Bosses Enriched Themselves on an Insurer's Board." Wall Street Journal. April 5, 2002.
• Hamburger, Tom. "Global Crossing Courted Union Leaders." Wall Street Journal. March 18, 2002.
• Hamburger, Tom. "Grand Jury Reviews Stock Transactions by Insurance Firm." Wall Street Journal. March 15, 2002.
• Irwin, Neil. "Unions Invest $50 Million More in ULLICO." Washington Post. October 2, 2003.
• Phelan, Craig. William Green: Biography of a Labor Leader. Albany, N.Y.: State University of New York Press, 1989. ISBN 0887068715
• Raab, Selwyn. "Critics See a Conflict in Union Contract." New York Times. August 9, 1999.
• Schwartz, John. "Overnight, A Firm Big Enough to Buy US West." Washington Post. May 18, 1999.
• Strope, Leigh. "Feds Sue Union-Owned Insurance Company." Associated Press. February 13, 2003.
• Strope, Leigh. "House Panel Says Union Firm May Have Violated Labor, Pension Laws." Associated Press. October 28, 2003.
• Strope, Leigh. "Lawyer: Stock Trades Enriched ULLICO Exec." Associated Press. June 19, 2003.
• Strope, Leigh. "ULLICO Chief Forced Out in Stock Scandal." Associated Press. May 8, 2003.
• Thompson, Laura K. "Union-Connected Insurer to Buy, Expand Amalgamated of Chicago." The American Banker. September 1, 2000.
• "ULLICO, Georgine Settle." Pensions and Investments. November 14, 2005.
• "ULLICO: History," ULLICO, no date accessed Jan. 14, 2007
• Waxman, Sharon. "DreamWorks Drops Plan for New Studios." Washington Post. July 3, 1999.

External links

• ULLICO Web site