<DOC>
[108 House Committee Prints]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:90179.wais]
[COMMITTEE PRINT]
REPORT
ON
INVESTIGATION OF ULLICO INC.
PREPARED FOR USE BY THE
COMMITTEE ON
EDUCATION AND THE WORKFORCE
U.S. HOUSE OF REPRESENTATIVES
TOGETHER WITH MINORITY VIEWS
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
OCTOBER 2003
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Serial No. 108-A
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Printed for the use of the Committee on Education and the Workforce
JOHN A. BOEHNER, Chairman
This report has not been officially approved by the Committee and,
therefore, may not necessarily reflect the views of all of its members.
U.S. GOVERNMENT PRINTING OFFICE
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C O N T E N T S
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Page
Report of the Committee on Education and the Workforce....... 1
Minority Views: ULLICO Investigation......................... 305
Appendices
Appendix A: GRequests for Production by ULLICO Inc. from the
Committee on Education and the Workforce (March 18, 2003).. 14
Appendix B: GLetter from Hon. John A. Boehner, Chairman,
Committee on Education and the Workforce, to Robert A.
Georgine, Chairman of the Board, ULLICO Inc. (March 31,
2003)...................................................... 19
Appendix C: GSubpoena Testicandum to Robert A. Georgine (May
8, 2003)................................................... 20
Appendix D: GSubpoena Testicandum to Robert A. Georgine (May
21, 2003).................................................. 22
Appendix E: GHearing on ``The ULLICO Scandal and Its
Implications for U.S. Workers'' before the Committee on
Education and the Workforce, U.S. House of Representatives,
108th Congress, First Session, Serial No. 108-19........... 25
REPORT OF THE COMMITTEE ON EDUCATION AND THE WORKFORCE CONCERNING ITS
INVESTIGATION OF ULLICO INC.
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OCTOBER 14, 2003
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SUMMARY
In early 2003, pursuant to the constitutional authority of
the U.S. House of Representatives and the oversight authority
conferred upon it by the Rules of the House of Representatives,
the Committee on Education and the Workforce (the
``Committee'') commenced an investigation into certain stock
dealings and transactions by individuals associated with the
Board of Directors of ULLICO Inc. (``ULLICO'' or the
``Company'').
The purpose of the Committee's investigation was to examine
matters within its legislative and oversight jurisdiction
regarding alleged misconduct of officers of the Company and/or
members of its Board of Directors, including but not limited to
the methodology employed for the valuation of the Company's
stock, the purchase and sale of this stock by officers,
directors, and other shareholders of the Company, the effect
these transactions had on the Company's union and multi-
employer benefit plan shareholders, and related matters within
the Committee's jurisdiction.
In the course of its investigation, the Committee requested
and received more than 95,000 pages of documentary evidence. In
June 2003, the Committee convened an investigatory hearing
examining questionable stock transactions at ULLICO, at which
it received oral and documentary testimony from both fact and
expert legal witnesses.
Based on its investigation, the Committee remains deeply
concerned that the transactions undertaken by certain officers
and members of ULLICO's Board of Directors in connection with
the Company's stock repurchase program may have violated
federal labor law under the Labor-Management Reporting and
Disclosure Act of 1959 and/or federal pension law under the
Employee Retirement Income Security Act of 1974. The Committee
strongly recommends that those regulatory and investigative
authorities currently investigating ULLICO and these
transactions give the closest scrutiny to their lawfulness
under the aforementioned federal labor and pension laws. Should
these agencies determine that federal labor or pension laws are
insufficient to adequately safeguard the rights of those whom
the laws were enacted to protect, the Committee welcomes an
analysis of any such deficiencies and recommended legislative
or administrative solutions. The Committee in turn will
continue the vigorous exercise of its oversight authority to
ensure that these laws are effective in protecting the rights
of American workers, and if they are not, in considering
legislative solutions.
COMMITTEE ACTION
In the spring of 2003, the Committee commenced its
investigation into ULLICO and a series of questionable stock
transactions brought to light at the Company. The purpose of
the Committee's investigation was to examine matters within its
legislative and oversight jurisdiction regarding alleged
misconduct of officers of the Company and/or members of its
Board of Directors, including but not limited to the
methodology employed for the valuation of the Company's stock,
the purchase and sale of this stock by officers, directors, and
other shareholders of the Company, the effect these
transactions had on the Company's union and multi-employer
benefit plan shareholders, and related matters within the
Committee's jurisdiction.
By way of Requests for Production dated March 18, 2003 (the
``Requests''), the Committee requested from ULLICO the
production of responsive documents, records, and materials
concerning these matters. A copy of the Committee's Requests is
included with this report as Appendix A. The Committee called
for the production of these documents no later than the close
of business on April 17, 2003.
Among the materials requested in the Committee's Requests
were all documents concerning a certain report to the officers
and Board of Directors of ULLICO prepared by the Honorable
James R. Thompson, Jr., formerly the Governor of the State of
Illinois, and at the time of the Requests, a partner in the law
firm of Winston and Strawn of Chicago, Illinois. In April 2002,
Governor Thompson had been engaged by ULLICO as Special Counsel
to investigate the stock transactions at issue and report to
ULLICO's Board. It is the Committee's understanding that
Governor Thompson's Report, entitled ``Report of the Special
Counsel: ULLICO Stock Purchase Offer and Repurchase Programs
and Global Crossing Investment'' (the ``Thompson Report''), was
delivered to ULLICO's Board on or around November 26, 2002.
From the time of its delivery to the Board until late March
2003, ULLICO maintained that the Thompson Report was
confidential to the Board; that it was protected from
disclosure to shareholders, investigators, or the public by the
attorney-client privilege; and that ULLICO would not release
the Thompson Report to those federal and state investigative
authorities examining the lawfulness of these stock
transactions.<SUP>1</SUP>
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\1\ The Committee understands that as of March 2003, ULLICO and the
stock transactions at issue were being investigated by the federal
Departments of Labor and Justice, the Securities Exchange Commission,
the Commissioner of Insurance of the State of Maryland, and a federal
grand jury in the District of Columbia.
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The Committee's Requests called for production of the
Thompson Report (and all other responsive documents) by April
17, 2003. On March 28, 2003, the Board of ULLICO apparently
reversed its prior position and announced that it would release
copies of the Thompson Report to its shareholders. In light of
ULLICO's decision to release the Thompson Report, by letter
dated March 31, 2003, the Committee requested ULLICO's
immediate production of the Thompson Report by the close of
business on April 1, 2003. See Appendix B.
On April 2, 2003, ULLICO produced to the Committee a copy
of the Thompson Report and its three-volume Appendix (the
Thompson Report is appended to the Committee's June 17, 2003
hearing report, see Appendix E, infra, at Appendix E; the
Appendix to the Thompson Report was included in the record of
the Committee's hearing and is available through the offices of
the Committee).
In addition to these materials, ULLICO at that time
produced a document prepared by Sidley Austin Brown & Wood LLP
of Washington, DC, then counsel to ULLICO, entitled ``Summary
Analysis of the ``Report of the Special Counsel: ULLICO Stock
Purchase Offer and Repurchase Programs and Global Crossing
Investment '' dated April 2, 2003, and an additional document
entitled ``ULLICO Report of the Special Committee to the Board
of Directors,'' dated March 25, 2003.
In further response to the Committee's Requests, ULLICO on
April 17, 2003 produced documents Bates Numbered U-MIA-00001 to
U-MIA-52460. On May 9, 2003, ULLICO produced additional
documents Bates Numbered ULLICO-000000001 to ULLICO-000041543.
A final production of documents Bates Numbered BS-00001 to BS-
01965 was made on May 15, 2003.
Based on preliminary review of the documents it had
received in response to its Requests to date, the Committee on
April 24, 2003 announced that it would convene hearings to
further investigate the ULLICO matter. On May 8, 2003, the
Committee announced that it had issued a subpoena to the then-
Chairman of ULLICO, Robert A. Georgine, to testify before the
Committee on June 10, 2003. On May 20, 2003, the Committee
rescinded its May 8 subpoena and reissued a subpoena commanding
Mr. Georgine to appear before the Committee at 10:30 a.m. on
June 17, 2003. Copies of these subpoenae are attached to this
Report at Appendices C and D.
On June 17, 2003, the Committee convened a hearing on the
ULLICO matter entitled ``The ULLICO Scandal and Its
Implications for U.S. Workers.<SUP>2</SUP> Invited to testify
before the Committee were Mr. Georgine, the former President,
Chairman and CEO of ULLICO (pursuant to the Committee's May 20,
2003 subpoena); Warren E. Nowlin, Esq., a partner of the law
firm of Williams Mullen; and Damon Silvers, Esq., Special
Counsel to the current Chairman of ULLICO.
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\2\ See Hearing on ``The ULLICO Scandal and Its Implication for
U.S. Workers'' before the Committee on Education and the Workforce,
U.S. House of Representatives, 108th Congress, First Session, Serial
No. 108-19 (hereinafter, ``Hearing on ULLICO Scandal''). The transcript
of that hearing is attached to this report at Appendix E.
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At hearing, Mr. Georgine invoked his rights under the Fifth
Amendment to the U.S. Constitution, and declined to answer any
of the Committee's questions.<SUP>3</SUP> Mr. Nowlin testified
as to the divergence of disclosure laws applicable to pension
funds and their fiduciaries from the evolving laws governing
disclosure and interested party transactions in the public
company arena, and whether actions taken by members of ULLICO's
board were potentially violative of federal labor and pension
laws.<SUP>4</SUP> Mr. Silvers, counsel to the current Chairman
of the Board of Directors of ULLICO, testified as to actions
the new Board of ULLICO had taken since Mr. Georgine's
resignation from the Company, and the factual predicates
leading to that resignation.<SUP>5</SUP>
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\3\ See id. at 10.
\4\ See id. at 5-7.
\5\ See id. at 7-9.
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This report outlines the Committee's findings and
conclusions relating to its investigation of ULLICO based upon
the documents and information received and reviewed by the
Committee, the testimonial evidence of witnesses at hearing,
and independent research and review conducted by Committee
staff.
COMMITTEE FINDINGS
The Committee's factual and legal findings are set forth
below.
Factual Findings
ULLICO is a privately-held corporation, and provides
insurance, pension, and financial services to unions, union
members, and union pension funds.<SUP>6</SUP> ULLICO was
originally founded in 1925 as the Union Labor Life Insurance
Company.<SUP>7</SUP> In 1987, ULLICO, a broader financial
services holding company, was formed. The Union Labor Life
Insurance Company remains a wholly-owned subsidiary of ULLICO.
ULLICO is incorporated under the corporate laws of the State of
Maryland.<SUP>8</SUP>
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\6\ The Honorable James R. Thompson, Report of the Special Counsel:
ULLICO Stock Purchase Offer and Repurchase Programs and Global Crossing
Investment (November 26, 2002) (hereinafter, ``Thompson Report'') at
15.
\7\ See id.
\8\ See id. at 55.
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Pursuant to ULLICO's bylaws, a majority of the Company's
Board must be comprised of union-affiliated officers and
officials.<SUP>9</SUP> The Board of Directors of ULLICO has
historically consisted primarily of present or former officers
of major unions and pension funds that are substantial ULLICO
shareholders (during the time period in question, ULLICO's
board included John Sweeney, President of the AFL-CIO, Douglas
J. McCarron, President of the United Brotherhood of Carpenters
and Joiners of America, and Martin Maddaloni, General President
of the United Association for Journeymen and Apprentices of the
Plumbing and Pipe Fitting Industry, among others).<SUP>10</SUP>
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\9\ See id. App. I, Ex. 2 (bylaws of ULLICO Inc., Art. IV Sec. 1).
\10\ See Thompson Report. at Ex. 1.
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Throughout most of the Company's history, ULLICO's stock
was fixed at a price of $25 per share. Historically, the
Company returned value to its shareholders through the payment
of cash and stock dividends on these shares.<SUP>11</SUP>
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\11\ See id. at 15.
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Beginning in or around 1992, the Company embarked on a more
aggressive investment strategy, including capital and private
equity investments. In February 1997, on the advice of then
Chairman and CEO Robert Georgine, the Company approved a $7.6
million investment in a company called Nautilus LLC, which
would later be known as Global Crossing, a telecommunications
company associated with prominent members of the Democratic
National Committee, including Democratic National Committee
Chair Terry McAuliffe.<SUP>12</SUP>
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\12\ See id. at 16-17. It appears that at the same time ULLICO was
authorizing this investment in Global Crossing, Mr. McAuliffe was
himself investing $100,000 of his own money in what would become that
failed venture. ULLICO's Senior Vice President of Investments, Michael
Steed, who had been hired to assist the Company in embarking on its
aggressive investment strategy, had previously been the Executive
Director of the Democratic National Committee.
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At approximately the same time, the Company changed the
manner in which it distributed profits to shareholders: It
reduced and later eliminated dividends, and adopted a formal
stock repurchase program.<SUP>13</SUP> As initially envisioned
and designed by the Company, the stock repurchase program was
intended to allow the Company to repurchase $180 million in
stock over eleven years, with $30 million of stock repurchased
in 1997, and a fixed sum of $15 million in stock to be
repurchased in each of the following ten years.<SUP>14</SUP>
The formal repurchase program had to be considered and approved
by the Board of Directors or its Executive Committee each year
it was offered.<SUP>15</SUP>
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\13\ See id. at 18-19.
\14\ See id. at 19.
\15\ See id.
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The stock repurchase program, in the words of Chairman
Georgine, was intended to be a ``means for [ULLICO] to provide
liquidity to [its] larger shareholders.<SUP>16</SUP> The
program was overseen principally by Chairman Georgine, as was a
separate ``discretionary'' repurchase program. This
``discretionary'' repurchase program had apparently been in
effect for a number of years, but was not formally authorized
by the Board until November 2000.<SUP>17</SUP>
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\16\ See id.
\17\ See id.
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Valuation of Stock and Purchase of Stock by Officers and Directors of
ULLICO
In connection with the implementation of its new stock
repurchase program, the Company in 1997 changed the way in
which the price of the Company's stock was calculated. Whereas
historically shares of the Company's stock had been valued at a
fixed price of $25 per share, under this new system the price
for stock was set based on the prior year-end book value per
share. Book value per share was calculated by dividing the
Company's total stockholders'' equity by the number of all
outstanding shares (e.g., in May 2001 the Company would reset
the share price based on the results of the Company on December
31, 2000).<SUP>18</SUP>
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\18\ See id. at 18.
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In May 1997, ULLICO's stock was valued at $27.06/
share.<SUP>19</SUP> When Global Crossing completed its initial
public offering in August 1998, the value of Global Crossing
stock skyrocketed; as ULLICO was heavily invested in Global
Crossing, the book value of ULLICO's own stock followed
upward.<SUP>20</SUP>
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\19\ See id.
\20\ See id. at 22.
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In July and October 1998, ULLICO Board members were offered
the opportunity to purchase up to 4000 shares of stock at a
price of $28.70/share.<SUP>21</SUP> In December 1999, this
offer was extended so that officers and directors could
purchase an additional 4000 shares of ULLICO stock at $53.94/
share.<SUP>22</SUP> Throughout this time, ULLICO's large
institutional shareholders were not afforded the same
opportunity.<SUP>23</SUP>
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\21\ See id. at 25-26; 28-29.
\22\ See id. at 31.
\23\ See id. at 25-26, 31-32.
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Significantly, these offers to buy shares were made weeks
or even days before the Company's books for those years would
close, and the shares would be revalued. With the ongoing
success of Global Crossing, this meant, for example, that in
late 1999, ULLICO Board members were afforded the opportunity
to purchase shares at $53.94/share, at a time when they likely
knew that the share price would increase significantly when the
Company's books closed days later.<SUP>24</SUP>
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\24\ See id. at 33, 35.
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Indeed, the questionable nature of these transactions is
evidenced by the fact that PriceWaterhouseCoopers, ULLICO's
auditor, was subsequently forced to restate the Company's
audited financial statements because participants in the
officer/director stock purchase program were not subject to any
real ``investment risk.''<SUP>25</SUP>
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\25\ See id. at 33.
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Repurchase of Stock from Officers and Directors of ULLICO
While the Company had authorized a share repurchase program
in 1997, it was rarely used until 2000. In late 2000, by which
time the value of Global Crossing's shares had plummeted, the
Company began to aggressively repurchase shares from its
stockholders. As detailed below, the repurchase of these
shares, which had been offered for purchase only to officers
and directors of the Company, disproportionately inured to the
benefit of the Company's Board members, at the expense of
ULLICO's principal shareholders, unions, and union pension
funds.
In November 2000, the ULLICO board approved a repurchase
program to buy back shares at $146.04/share, with the near-
certain knowledge that the Company's share value would plummet
when its books closed on December 31, 2000.<SUP>26</SUP> The
repurchase program was designed so that smaller shareholders
(such as board members and officers) could sell back all of
their shares, while larger shareholders (unions, union pension
funds) were limited in their ability to sell shares. This was
accomplished by way of a 10,000 share proration threshold. This
threshold allowed those shareholders who held 10,000 or fewer
shares to redeem all of their shares, while shareholders with
more than 10,000 shares were required to tender all of them,
but allowed to redeem only a small portion of the tendered
shares.<SUP>27</SUP>
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\26\ See id. at 40.
\27\ See id. at 41-42, 44.
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Tender offer documents issued in connection with this
repurchase program indicated that the Company did not believe
that any of its officers and directors intended to offer their
shares for repurchase, and that the Company believed ULLICO
stock to be an ``excellent investment opportunity for investors
seeking long term growth of capital.<SUP>28</SUP> Nor did the
tender documents make clear the impact of the 10,000 share
proration threshold, its effect on larger shareholders, and the
benefit it would provide to directors and
officers.<SUP>29</SUP>
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\28\ See id. at 45, 69 & App. Ex. 82.
\29\ See id. at 36, 44.
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Notwithstanding the Company's statement that it did not
anticipate its officers and directors offering their shares of
stock for repurchase, in the 2000 repurchase offer, 31% of the
funds used to buy back stock went to officers and directors of
the Company, who were permitted under the program to redeem
100% of their stock; in contrast, large stockholders were
limited to a buy-back of 2.2% of their shares.<SUP>30</SUP>
Numerous board members sold back their stock at this $146/share
offer, which was extended through early 2001.<SUP>31</SUP> Not
surprisingly in light of the financial devastation that Global
Crossing had suffered, the value of ULLICO's shares was reset
at $74.87/share shortly thereafter.<SUP>32</SUP>
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\30\ See id. at 45.
\31\ See id. at 47 & Ex. 1.
\32\ See id. at 49.
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In 2001, the Company again approved a repurchase program.
This program again included a 10,000 share proration threshold,
thereby again allowing officers and directors the opportunity
to sell back all of their stock, while larger shareholders were
limited to a buy-back of only 2.66% of their
shares.<SUP>33</SUP>
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\33\ See id.
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In short, while board members, officers, and directors of
the Company were permitted to buy and sell all of their shares,
large shareholders (e.g., union pension funds) were limited in
their buying and selling rights. These transactions are
believed to have netted approximately $6 million in profits for
ULLICO Board members at the expense of union pension funds and
other large shareholders of the Company, insofar as absent the
program's skewed proration threshold, these monies would have
been used to repurchase shares from ULLICO's larger
shareholders.
It appears that this issue--specifically, that the stock
repurchase program would inure to the benefit of officers and
directors, but not to large shareholders--was not discussed at
the Board level. Indeed, several Board members subsequently
reported to Governor Thompson during his investigation that had
they known of this issue, they might not have approved the
program.<SUP>34</SUP> Another director reported that had he
known of the impact this would have on larger shareholders, he
would have ``considered whether this raised fiduciary duty
issues. <SUP>35</SUP>
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\34\ See id. at 47.
\35\ See id.
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While the Company repurchased stock through the formal
repurchase program described above, throughout this time period
ULLICO also employed a ``discretionary'' stock repurchase
program, administered solely by Mr. Georgine.<SUP>36</SUP>
While the Company's Compensation Committee later tried to
formally ``authorize'' this program, it is unclear whether it
had the legal authority to do so under the Company's
bylaws.<SUP>37</SUP> Mr. Georgine himself was the beneficiary
of this laxity, as over the years he was allowed to issue stock
to himself, and later sell it back to the Company.<SUP>38</SUP>
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\36\ See id. at 38-39.
\37\ See id. at 41.
\38\ See id. at 38.
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The Thompson Report
In April 2002, in response to increasing public attention
and criticism, ULLICO engaged former Illinois Governor James
Thompson as Special Counsel to review the transactions at issue
and report back to the board. The Committee understands that
Special Counsel Thompson delivered his report to ULLICO in or
around the end of November 2002.
Throughout the spring of 2003, ULLICO refused to disclose
the contents of the report. In a reversal of its position, in
late March 2003, ULLICO decided that it would release the
Thompson Report to its shareholders. As noted above, in light
of this reversal, the Committee requested that ULLICO produce a
copy of the Thompson Report immediately (i.e., prior to the
deadline of April 17, 2003 set for the production of all
responsive material). ULLICO produced a copy of the Thompson
Report to the Committee on April 2, 2003.
The Thompson Report concluded that owing to the high
standard of proof required in federal securities cases, it does
not appear that these transactions violated federal securities
law.<SUP>39</SUP> The Thompson Report did conclude, however,
that it is highly likely that these transactions violated
Maryland's (and potentially other states'') state securities
law.<SUP>40</SUP> More broadly, the Thompson report concluded
that ``Certain ULLICO officers and Board members arguably acted
inappropriately and to the detriment of the rights of ULLICO
institutional shareholders. <SUP>41</SUP> The Thompson Report
recommended that all board members who profited from these
transactions be required to return their profits.
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\39\ See id. at 75.
\40\ See id. at 92.
\41\ Id. at ii.
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Notably, pursuant to ULLICO's express direction, the
Thompson Report did not examine whether any of these
transactions ran afoul of federal pension or labor law, as
Thompson was instructed by the Company that such questions were
outside of his mandate as Special Counsel.<SUP>42</SUP>
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\42\ See id. at 65.
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On May 8, 2003, in the face of this scandal, Mr. Georgine
announced that he would resign, not seek reelection to ULLICO's
board, and would sever all ties with the Company (he had
previously indicated that he would not seek reelection to the
board; until May 8, however, Mr. Georgine maintained that he
would continue in some role at the company). That same day,
Terence O Sullivan, president of the Laborers'' International
Union, assumed leadership of ULLICO. Shortly thereafter, the
newly-elected board voted to require all directors to return
any profits from the stock transactions.
The Committee understands that ULLICO is presently under
investigation by the federal Departments of Labor and Justice,
as well as the Securities and Exchange Commission and a federal
grand jury in the District of Columbia. In addition, the
Maryland state insurance commissioner's office is conducting an
investigation of the matter. These investigations are believed
to be continuing as of this date.
Legal Findings
While the Committee's inquiry examined the broad range of
legal issues presented by the activities of ULLICO's Board, its
investigation in particular focused on potential violations of
two federal laws within the Committee's plenary jurisdiction:
the Labor-Management Reporting and Disclosure Act of 1959, 29
U.S.C. Sec. 401 et seq. (the ``LMRDA''), and the Employee
Retirement Income Security Act, 29 U.S.C. Sec. 1001 et seq.
(``ERISA'').
At the outset, it bears note that in commissioning a
Special Counsel to investigate and report on the legality of
the stock repurchase transactions, ULLICO specifically directed
that Special Counsel not examine whether these transactions
were in any way violative of federal labor or pension laws,
despite their potential and recognized applicability. As the
Thompson Report explained:
Fiduciary duties similar to those imposed by [state]
law which may be applicable to self-interested
transactions involving officers and directors may also
arise under the Federal Labor-Management Disclosure and
Reporting Procedure [sic] Act (``LMRDA'') (29 U.S.C.
Sec. 501 et seq.) and the Employment [sic] Retirement
Income Security Act (``ERISA'') (29 U.S.C. Sec. 1100 et
seq.). These statutes impose fiduciary duties upon
individual directors who may be officers of unions or
trustees of union pension funds who are ULLICO
shareholders. These duties are similar to the statutory
and fiduciary duties discussed above. However, outside
Company counsel have advised the Special Counsel that
the Special Counsel's mandate does not extend to the
consideration of the applicability of these statutes to
the conduct by individual directors because of the
union or pension fund positions they hold. Therefore,
we have not analyzed these issues.<SUP>43</SUP>
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\43\ See id. at 65 (emphasis added).
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The Committee's findings with respect to both of these
federal laws are set forth below. Particularly in light of the
fact that ULLICO's own investigative counsel was advised by
ULLICO not to examine the lawfulness of the stock repurchase
transactions at issue under federal pension and labor laws, the
Committee strongly urges those investigative authorities
presently investigating these transactions to closely examine
their legality under these federal statutes. Should these
agencies determine that federal labor or pension laws are
insufficient to adequately safeguard the rights of those whom
the laws were enacted to protect, the Committee welcomes an
analysis of any such deficiencies and recommended legislative
or administrative solutions.
A. The Labor-Management Reporting and Disclosure Act of
1959: The LMRDA is widely held to be the cornerstone of
democratic rights of union members. Enacted in 1959, the LMRDA
was intended to ensure that rank-and-file union members have a
full, equal, and democratic voice in union affairs. The LMRDA,
among other things, requires that union financial matters be
publicly disclosed, and prohibits union officers and officials
from engaging in self-interested transactions.
Congress intended the LMRDA to ensure that union democracy
would be the first line of defense against union corruption,
and that armed with knowledge, union members would elect
leaders who work in their members'' best interests, and rid
themselves of union officials who serve their own interests. In
furtherance of that goal, section 105 of the LMRDA imposes a
fiduciary duty on the officers and leaders of unions to act
solely in the best interest of their members. Specifically,
section 105 of the LMRDA provides that:
The officers, agents, shop stewards, and other
representatives of a labor organization occupy
positions of trust in relation to such organization and
its members as a group. It is, therefore, the duty of
each such person, taking into account the special
problems and functions of a labor organization, to hold
its money and property solely for the benefit of the
organization and its members and to manage, invest, and
expend the same in accordance with its constitution and
bylaws and any resolutions of the governing bodies
adopted thereunder, to refrain from dealing with such
organization as an adverse party or in behalf of an
adverse party in any matter connected with his duties
and from holding or acquiring any pecuniary or personal
interest which conflicts with the interests of such
organization, and to account to the organization for
any profit received by him in whatever capacity in
connection with transactions conducted by him or under
his direction on behalf of the
organization....<SUP>44</SUP>
---------------------------------------------------------------------------
\44\ 29 U.S.C. Sec. 501 (emphasis added).
---------------------------------------------------------------------------
In light of the unambiguous prohibition on self-dealing
transactions contained in section 105, the Committee's
investigation focused on whether the transactions engaged in by
ULLICO Board members violated that section of the LMRDA.
At hearing, the Committee heard expert testimony that the
stock transactions in question may have represented a violation
of section 105 of the LMRDA.<SUP>45</SUP> The Committee remains
concerned that insofar as many of the members of ULLICO's Board
served simultaneously as officers of the country's largest
unions,<SUP>46</SUP> the activities in which these Board
members engaged--which diverted proceeds available under the
Company's stock repurchase program from ULLICO's larger
stockholders (e.g., unions and union pension funds) to
individual members of ULLICO's Board--disproportionately
benefited these Board members at the expense of these unions
and union funds, and their members and beneficiaries. This
conduct may well have violated section 105 of the LMRDA, and
may represent a breach of the fiduciary duty imposed on these
union officers by this section of federal labor law.
---------------------------------------------------------------------------
\45\ See Testimony of Warren Nowlin, Hearing on ULLICO Scandal, at
16. See also Thompson Report at 65 (noting potential applicability of
LMRDA to stock repurchase transactions).
\46\ Indeed, as noted above, ULLICO's bylaws in fact require that
the majority of the membership of the Board of Directors be comprised
of current union officers. See supra at 4 & 4 n. 9.
---------------------------------------------------------------------------
In light of the testimony and other evidence presented to
the Committee, the Committee strongly urges those regulatory
agencies presently charged with investigation of the ULLICO
matter to focus closely on the question of whether the actions
of ULLICO and its Board may have violated section 105 of the
LMRDA. Should those authorities investigating this matter
determine that current law--which has not been substantively
modified since its enactment in the 1950s--fails to adequately
address those matters raised by the facts presented, the
Committee is prepared to consider legislative change to ensure
that the prohibitions contained in the LMRDA protect against
the recurrence of incidents of this sort, and welcomes an
analysis of this point and recommended legislative or
administrative solutions from those authorities examining these
transactions.
B. The Employee Retirement Income Security Act: To ensure
that the assets of pension benefit plans would be adequately
protected, Congress in 1974 enacted ERISA. ERISA provides that
pension and welfare benefit plans shall be administered and
overseen by plan fiduciaries, and further provides that a plan
fiduciary shall discharge his or her duties with respect to an
ERISA-covered plan ``solely in the interest of participants and
beneficiaries'' with the care, skill, prudence and diligence
that a prudent person acting in a like capacity and familiarity
with such matters would use.<SUP>47</SUP>
---------------------------------------------------------------------------
\47\ See 29 U.S.C. Sec. 1104.
---------------------------------------------------------------------------
In addition to these fiduciary standards, ERISA sets forth
a series of ``prohibited transactions,'' which provide that a
fiduciary shall not engage in transactions dealing with the
assets of the plan in furtherance of his or her own interest,
and shall not receive any personal benefit from any party in
connection with transactions involving plan
assets.<SUP>48</SUP>
---------------------------------------------------------------------------
\48\ See 29 U.S.C. Sec. 1106.
---------------------------------------------------------------------------
At hearing, the Committee heard extensive testimony as to
the restrictions and regulations that ERISA imposes on pension
plan trustees by way of the fiduciary duty of loyalty and care.
Attorney Warren Nowlin testified that under ERISA, a fiduciary
must execute his duties solely in the interest of plan
participants and beneficiaries, holding the plan assets in
trust and ensuring that such assets do not inure to the benefit
of the employer.<SUP>49</SUP> This duty of loyalty requirement
imposes an obligation upon fiduciaries to act with complete and
undivided loyalty with an eye solely toward the interests of
the participants and beneficiaries.<SUP>50</SUP> Penalties for
violation include a requirement to disgorge profits made in any
related-party transaction that violates the so-called
prohibited transaction rules of ERISA.<SUP>51</SUP>
---------------------------------------------------------------------------
\49\ See Nowlin Testimony, Hearing on ULLICO Scandal, at App. B,
45-46.
\50\ See id.
\51\ See id.
---------------------------------------------------------------------------
Attorney Nowlin further testified that the scope of the
fiduciary responsibility to plan participants is much wider
than generally recognized because of the broad definition of
fiduciary contained in ERISA, and that under ERISA, one may be
considered a fiduciary if one has an element of authority or
control over the plan, including plan management,
administration or disposition of assets.<SUP>52</SUP> The
Committee was informed that to the extent that plan sponsors
influence or maintain discretionary authority over plan
management or plan investments, they are also considered to be
fiduciaries.<SUP>53</SUP> Accordingly, corporate officers,
directors and in some cases, shareholders, that exert
sufficient control over such a plan may be deemed fiduciaries
and could be held liable for a breach.<SUP>54</SUP>
---------------------------------------------------------------------------
\52\ See id at 51.
\53\ See id.
\54\ See id.
---------------------------------------------------------------------------
The Committee remains concerned that the facts alleged with
respect to the ULLICO stock transactions at issue suggest
potential violations of the fiduciary duty requirements and
prohibited transaction proscriptions contained in ERISA.
Specifically, owing to the design of the Company's fixed-sum
stock repurchase plan, and its disparate treatment of large and
small shareholders, monies that would otherwise have gone to
institutional shareholders under the repurchase program in fact
went instead to members of ULLICO's Board of Directors. The
windfall reaped by these Board members came at the expense of
ULLICO's larger shareholders--notably union pension funds--the
trustees and fiduciaries of which were these same Board
members.
Put more simply, it appears that in numerous instances
individuals were both trustees and fiduciaries of union pension
plans (which plans themselves were ULLICO's largest
shareholders) and members of ULLICO's Board. These individuals
appear to have engaged in transactions that benefited them in
their personal capacity as Board members, at the expense of the
pension funds to which they owed a fiduciary duty, and,
accordingly, the union member participants and beneficiaries of
these funds. The facts presented, if true, raise the more than
colorable--and yet unanswered--question of whether the
transactions undertaken by ULLICO's Board members were lawful
under ERISA.<SUP>55</SUP>
---------------------------------------------------------------------------
\55\ Cf. Thompson Report at 65 (noting potential applicability of
fiduciary standards contained in ERISA to Board members'' conduct and
ULLICO's direction that Special Counsel not investigate or opine on
potential ERISA violations).
---------------------------------------------------------------------------
The Committee urges those investigating the ULLICO matter
to scrutinize these transactions closely in light of the
unambiguous provisions of ERISA prohibiting self-dealing
transactions and imposing fiduciary duties of loyalty on plan
trustees, to ascertain whether these provisions of federal law
were violated. Consistent with its position as regards
potential amendment of the LMRDA, the Committee stands ready to
consider legislative solutions or amendment to ensure that the
protections included in ERISA are sufficient to guard against
similar incidents and that the statute effectively protects
plan participants in accordance with Congressional intent. In
that light, the Committee welcomes an analysis of the
sufficiency of ERISA's fiduciary duty standards and self-
dealing transaction prohibitions, and any recommended amendment
thereof, from those authorities examining these transactions.
CONCLUSION
Based on its investigation detailed above, and the
documentary and oral evidence received and reviewed in the
course of that investigation, the Committee remains deeply
concerned that the transactions undertaken by certain members
of ULLICO's Board of Directors in connection with the Company's
stock repurchase program may have violated the Labor-Management
Reporting and Disclosure Act of 1959 and/or the Employee
Retirement Income Security Act of 1974. The Committee strongly
recommends that those regulatory and investigative authorities
currently investigating ULLICO and these transactions give the
closest scrutiny to their lawfulness under the aforementioned
federal labor and pension laws. Should these agencies determine
that federal labor or pension laws are insufficient to
adequately safeguard the rights of those whom the laws were
enacted to protect, the Committee welcomes an analysis of any
such deficiencies and recommended legislative or administrative
solutions. The Committee in turn will continue the vigorous
exercise of its oversight authority to ensure that these laws
are effective in protecting the rights of American workers, and
if they are not, in considering legislative solutions.
------
APPENDICES
Appendix A: LRequests for Production by ULLICO Inc. from
the Committee on Education and the Workforce (March 18, 2003)
Appendix B: LLetter from the Honorable John A. Boehner,
Chairman, Committee on Education and the Workforce, to Robert
A. Georgine, Chairman of the Board, ULLICO Inc. (March 31,
2003)
Appendix C: LSubpoena Testicandum to Robert A. Georgine
(May 8, 2003)
Appendix D: LSubpoena Testicandum to Robert A. Georgine
(May 21, 2003)
Appendix E: LHearing on ``The ULLICO Scandal and Its
Implications for U.S. Workers'' before the Committee on
Education and the Workforce, U.S. House of Representatives,
108th Congress, First Session, Serial No. 108-19
APPENDIX A
committee on education and the workforce
u.s. house of representatives
March 18, 2003
Via Facsimile and First Class Mail
Robert A. Georgine
Chairman, President & CEO
ULLICO Inc.
111 Massachusetts Ave. NW
Washington DC 20001
Dear Mr. Georgine:
Pursuant to the constitutional authority of the House of
Representatives and the authority provided by Rules X and XI of
the House of Representatives, the Committee on Education and
the Workforce (herein the ``Committee'') is investigating
matters within its legislative and oversight jurisdiction
regarding alleged misconduct of individuals associated with
ULLICO, Inc.'s Board of Directors, including but not limited to
the methodology employed for the valuation of the corporation's
stock; the purchase and sale of this stock by officers,
directors and other shareholders of the corporation; the effect
these transactions had on the corporation's union and multi-
employer benefit plan shareholders; and related matters.
By this letter, the Committee hereby requests the
production of documents, records, or other materials responsive
to the Requests for Production set forth below, in conformance
with the General Instructions and Definitions set forth herein.
Unless otherwise specified, the time period encompassed by
the request is January 1, 1997 to the present date. In
addition, please note the continuing nature of these Requests
pursuant to General Instruction 11 and your duty of timely
supplementation thereunder.
The Committee requests your response no later than 5:00
p.m. on Thursday, April 17, 2003.
GENERAL INSTRUCTIONS
1. LIn complying with these Requests, you are requested to
produce all responsive documents that are in your possession,
custody, or control, whether held by you or your past or
present agents, employees, and/or representatives acting on
your behalf. You are also requested to produce documents that
you have a legal right to obtain, documents that you have a
right to copy or have access to, and documents that you have
placed in the temporary possession, custody, or control of any
third party. No records, documents, data or information called
for by any Request(s) shall be destroyed, modified, removed or
otherwise made inaccessible to the Committee.
2. LIn the event that any entity, organization or
individual denoted in any Request(s) has been, or is also known
by any other name than that herein denoted, the Request(s)
shall be read to also include them under that alternative
identification.
3. LEach document produced shall be produced in a form
that renders the document susceptible of copying.
4. LDocuments produced in response to these Requests shall
be produced together with copies of file labels, dividers or
identifying markers with which they were associated when the
Request(s) was made, and shall be identified as to which
Request(s) such documents are responsive.
5. LIt shall not be a basis for refusal to produce
documents that any other person or entity also possesses non-
identical or identical copies of the same document.
6. LIf any of the requested information is available in
machine-readable form (such as punch cards, paper or magnetic
tapes, drums, disks, core storage, CD-rom, or otherwise), state
the form in which it is available and provide sufficient detail
to allow the information to be copied to a readable format. If
the information requested is stored in a computer, indicate
whether you have an existing program that will print the
records in a readable form.
7. LIf any Request(s) cannot be complied with in full, it
shall be complied with to the extent possible, which shall
include an explanation of why full compliance is not possible.
8. LIn the event that a document is withheld on the basis
of privilege, provide the following information concerning any
such document: (a) the privilege asserted; (b) the type of
document; (c) the general subject matter; (d) the date, author
and addressee; and (e) the relationship of the author and
addressee to each other.
9. LIf any document responsive to any Request(s) was, but
no longer is, in your possession, custody, or control, identify
the document (stating its date, author, subject and recipients)
and explain the circumstances by which the document ceased to
be in your possession, custody, or control.
10. LIf a date set forth in any Request(s) referring to a
communication, meeting, or other event is inaccurate, but the
actual date is known to you or is otherwise apparent from the
context of the Request(s), produce all documents which would be
responsive if the date were correct.
11. LThese Requests are continuing in nature. Any record,
document, compilation of data or information not produced
because it has not been located or discovered by the return
date shall be produced immediately upon location or discovery
subsequent thereto.
12. LAll documents shall be Bates stamped sequentially and
produced sequentially, and a log shall be provided indicating
each document, a description of the document, and its Bates
number(s), author, and source.
13. LTwo sets of documents shall be delivered, one set for
the Majority Staff and one set for the Minority Staff.
DEFINITIONS
1. LThe words ``document'' and/or ``record'' are used in
the broadest sense and means, without limitation, any writing
or recording of any type or description, whether printed or
recorded (mechanically or electronically), or reproduced by
hand, and whether provided by plaintiff or defendant or not,
including, without limitation, any letters, e-mails,
correspondence, telegrams, memoranda, notes, records, reports,
financial statements, statistical and financial records,
minutes, memoranda, notices or notes of meetings, telephone or
personal conversations, telephone records or conferences or
other communications, envelopes, interoffice, intra-office or
intra-company communications, microfilm, microfiche, tape
records, videotapes, photographs, bulletins, studies, plans,
analyses, notices, computer and/or e-mail records, runs,
programs or software and any codes necessary to comprehend such
records, runs, programs or software, books, pamphlets,
illustrations, lists, forecasts, brochures, periodicals,
charts, graphs, indices, bills, pamphlets, illustrations,
lists, forecasts, statements, files, agreements, contracts,
sub-contracts, completed forms, schedules, work sheets, data
compilations, policies, amendments to policies or contracts,
training manuals, operator's manuals, user's manuals,
calendars, diaries, test results, reports and notebooks,
opinions or reports of consultants, and any other written,
printed, typed, recorded, or graphic matter, of any nature,
however produced or reproduced, including copies and drafts of
such documents, and any and all handwritten notes or notations
in whatever form. The term ``document'' also includes all data
or documentation that is stored in a computer or other storage
device and can be printed on paper or tape, such as drafts of
documents and/or e-mails that are stored in a computer or word
processor and information that has been input into a computer
or other storage device, as well as disks or other materials in
which the data or documentation is found.
2. LThe term ``communication'' includes, without
limitation, every manner or means of statement, utterance,
notation, disclaimer, transfer or exchange of information of
any nature whatsoever, by or to whomever, whether oral or
written or whether face-to-face, by telephone, mail, personal
delivery or otherwise, including but not limited to,
correspondence, conversations, dialogue, discussions, meetings,
interviews, consultations, agreements and other understandings.
3. LThe terms ``Corporation'' and/or ``ULLICO'' refer to
ULLICO, Inc.; its subsidiary the Union Labor Life Insurance
Company; each of the foregoing entities'' attorneys,
investigators, agents, affiliates, representatives,
shareholders, officers, trustees, directors; and all persons
acting on either or both of the foregoing entities'' behalf or
in either or both of the foregoing entities'' service.
4. LThe term ``Board'' refers to the Board of Directors of
ULLICO and its members, attorneys, investigators, agents,
managers, employees, affiliates, representatives, shareholders,
officers, trustees, directors, and all persons acting on its
behalf or in its service.
5. LThe words ``person'' and/or ``individual'' means all
natural persons, corporations, business entities, partnerships,
associations, firms, any governmental agency, department,
administration, bureau or political subdivision thereof, and
any other type of organization or entity.
6. LThe words ``concerning'' and/or ``regarding'' shall be
construed to mean referring to, relating to, supporting,
constituting, embodying, discussing, describing, depicting,
illustrating, recording, summarizing, evidencing,
demonstrating, reflecting, containing, studying, analyzing,
considering, explaining, mentioning, showing, commenting upon
and resulting from.
7. LThe words ``and'' and ``or'' shall each be considered
both conjunctively and disjunctively to mean ``and/or.
8. LThe term ``identify,'' when used in reference to a
natural person, means to supply the following information: (a)
the person's name; (b) the person's present and/or last known
residential address and telephone number; (c) the name and
address of the person's present and/or last known place of
employment; and (d) the person's present or last known business
title or position.
REQUESTS FOR PRODUCTION
1. LPlease produce copies of ULLICO's Articles of
Incorporation, By-Laws, and any other documents concerning the
rules of procedure for the conduct of Board meetings of the
Corporation.
2. LPlease produce copies of all documents concerning any
codes or standards of ethical or professional behavior
applicable to any member of the Board by virtue of his or her
membership on the Board or his or her membership in any ``labor
organization,'' as that term is defined at 29 U.S.C.
Sec. 152(5).
3. LPlease identify all of the Corporation's stockholders,
officers, and Board members.
4. LPlease produce complete copies of all minutes,
memoranda or other written record of the Corporation's Board
meetings, and any other minutes, memoranda or other written
record of any other group or subcommittee of ULLICO, its
officers, employees or directors concerning the valuation,
sale, re-purchase or options of Corporation stock for the same
period.
5. LPlease produce any and all documents, including emails
or other electronic communication, regarding the retention of
Credit Suisse First Boston Corporation to perform services to
the Corporation related to the valuation of the Corporation's
stock.
6. LPlease produce any and all documents, including
internal reports, contractor/consultants reports, regarding the
methodology and the valuation of the Corporation's stock.
7. LPlease produce a complete accounting of the amount of
shares in the Corporation held by each of its stockholders.
8. LPlease produce all documents relating to any stock
option programs, stock purchase or re-purchase programs of the
Corporation, including but not limited to letters,
correspondence, emails or other electronic communication, and/
or notices to any and all shareholders, officers, or directors
of the Corporation informing them of any such programs.
9. LPlease produce a list of all shareholders, officers,
or directors of the Corporation who exercised any stock
option(s) for shares of Corporation stock for the period of
1997 through the present.
10. LPlease produce all documents, including any letters,
correspondence, emails or other electronic communication, and
any responses to such communications, by any officer, director,
employee, or other agent of the Corporation or from any
shareholder, director or officer of the Corporation regarding
the valuation of the Corporation's stock, or any sale or re-
purchase of that stock by any shareholder, director or officer
of the Corporation, including but not limited to all
correspondence from the Chairman of the Corporation to any
individual(s) regarding same.
11. LPlease produce all documents concerning any report to
the officers, Board, or shareholders of the Corporation
prepared by the Honorable James R. Thompson, Jr. and a copy of
said report.
12. LPlease produce all documents, to the extent not
encompassed in any of the above Requests, provided to the
Department of Labor, Department of Justice, Securities and
Exchange Commission, and/or any other government agency from
January 1, 1997 to the present in response to any investigation
of the Corporation and/or any member(s) of its Board, or in
response to any request for production of documents and/or
request for information concerning the Corporation and/or any
member(s) of its Board by any of the foregoing agencies.
* * * * *
Thank you in advance for your assistance and cooperation.
Please contact David Connolly or Jo-Marie St. Martin of the
Committee staff at (202) 225-7101 or (202) 225-4527 if you have
any questions or require additional information.
Sincerely yours,
John Boehner
CHAIRMAN
------
APPENDIX B
COMMITTEE ON EDUCATION AND THE WORKFORCE
U.S. HOUSE OF REPRESENTATIVES
March 31, 2003
Via Facsimile and First Class Mail
Robert A. Georgine
Chairman President & CEO
ULLICO, Inc.
111 Massachusetts Ave. NW
Washington DC 20001
Dear Mr. Georgine:
We write with reference to the House of Representatives
Committee on Education and the Workforce (the ``Committee'')'s
Requests for Production (the ``Requests'') to ULLICO, Inc.
(``ULLICO'') dated March 18, 2003 and received by ULLICO on
even date.
The Committee notes with interest media reports indicating
that ULLICO's Board of Directors (the ``Board'') announced on
March 28, 2003 that it would release publicly a certain report
to the Board prepared by the Honorable James R. Thompson, Jr.
(the ``Thompson Report''), the production of which was called
for, inter alia, in Request No. 11 of the Committee's Requests.
It is the Committee's position that ULLICO's immediate
production of the Thompson Report is essential to the
Committee's investigation of those matters within its
legislative and oversight jurisdiction as set forth in detail
in the Requests. In light of this fact, the Committee requests
that a copy of the Thompson Report be provided to the Committee
no later than the close of business on Tuesday, April 1, 2003.
Please note that the production of the above-requested
information is subject to the Definitions and General
Instructions contained in the Requests. Note further that such
delivery does not serve to relieve or in any way diminish
ULLICO's obligations with respect to the remainder of the
Requests (including but not limited to the production of those
documents concerning the Thompson Report set forth in Request
No. 11), which responsive production is to be made no later
than the close of business on April 17, 2003.
You or your designee may contact Jim Paretti of the
Committee's staff at 202-225-7101 to arrange for the immediate
delivery of the Thompson Report as set forth herein.
The Committee appreciates your anticipated cooperation in
this matter.
Sincerely yours,
John Boehner
CHAIRMAN
APPENDIX C
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Minority Views: ULLICO Investigation
I. Introduction
During the past two years, hard-working Americans
throughout our country have lost hundreds of millions in
irreplaceable life savings because of the unconscionable--and
often illegal--behavior of those charged with managing their
retirement savings and other investments. Numerous individuals
have already admitted criminal liability, and many others are
under investigation by the Securities Exchange Commission,
Department of Labor, and other agencies.
The events at ULLICO and the large scale corporate
criminality represent profoundly contrasting case studies on
how labor officials on one hand, and high ranking corporate
officials on the other, responded in the face of serious
allegations of misconduct and illegality at their institutions.
The corporate scandals, well documented in the press,
represent a breathtaking series of corporate obstruction,
secrecy, destruction of documents, misrepresentations, and
fraud perpetrated by companies like Enron, Global Crossing, and
WorldCom and others. In the face of public scrutiny by the
press and law enforcement, corporate officials--often aided and
abetted by their accountants, law firms, and investment
bankers--together continued their cover-up and denied
responsibility until law enforcement officials were literally
knocking down the door with fists of subpoenas and search
warrants. Taken together, the unlawful looting of companies by
top officials, and failure to take responsibility for their
actions--resulted in billions of dollars in lost nest-eggs of
employees, and losses by investors.
By contrast, when union officials at ULLICO became aware of
questionable transactions, they moved quickly to investigate
allegations of self-dealing by its board; insisted on
publishing the results; demanded the return of excess profits;
insisted on the removal of (and has filed suit against)
directors who did not cooperate; and implemented new, strict
reforms for members to follow in the future. Unlike the
considerable losses in the corporate scandals, no employee lost
one cent of their pension, or 401(k) nest-eggs. In fact, the
ULLICO investments on which this investigation turns made a net
profit of over $300 million for the company and shareholders on
an investment $7.6 million. The activities of these directors--
who wrongly took a disproportionate share of the profits for
themselves--cannot in any way be condoned; but the response of
union officials to act in the interest of their shareholders
was swift and responsible.
Assuring the retirement security of Americans is one of the
most important responsibilities of the Committee on Education
and the Workforce. And yet, despite repeated requests from the
Democrat Minority for a thorough investigation of these
scandals, the Committee has held only one public hearing
limited to the Enron debacle. There has been no serious effort
at investigating the weaknesses in current law and regulatory
oversight that allowed these tragic abuses to continue. Nor has
the Majority proposed any legislation to address the hundreds
of millions of dollars in 401(k) investments lost by employees
and other investors at WorldCom, Lucent Technologies, Global
Crossing, Dynegy, and other companies due to corporate fraud
and abuse.
It is therefore curious that while ignoring urgent calls to
investigate serious misconduct at these companies, the Majority
has focused so much time, attention and staff energy on alleged
labor union misconduct. Despite the unsubstantiated speculation
of the Majority staff, after all this effort we still do not
know if there was criminal conduct by some at ULLICO. That is a
matter for the courts to determine. However, we do know that
unlike the various corporate scandals that have been largely
ignored by the Committee and about which no reports have been
issued, no criminal actions have been brought to date regarding
ULLICO.
Last week, the Committee distributed what it claims to be a
``Report of the Committee'' on the activities of ULLICO. It
enumerates various factual matters regarding the ULLICO
investments, but omits numerous self-correcting actions by the
new ULLICO Board and reforms proposed by ULLICO board members.
The Minority was never asked or permitted to participate in
preparing the report.
We are surprised that the ``Committee Report'' notes that
the Majority ``stands ready'' to consider legislation to
``ensure that the protections included in ERISA are sufficient
to protect plan participants''.
In fact, Majority members have repeatedly voted against
amendments offered by the Minority to strengthen ERISA
protections for the retirement security of millions of
employees.
<bullet> LThey rejected amendments that would prevent
future executives like Ken Lay from dumping company stock
without notifying employees (21D-25R).
<bullet> LThey rejected efforts to make sure that corporate
abusers like Ken Lay and Bernard Ebbers are held accountable
for the pension losses they caused, and that funds are
available to pay the victims (21D-24R).
<bullet> LThe Majority rejected proposals to give employees
a voice on pension boards (19D-25R). They rejected a proposal
to curtail lavish pension perks set aside for company
executives (20D-26R).
<bullet> LThey rejected an amendment to allow employees to
diversify their own 401(k) investments in company stock after
one year (18D-27R).
<bullet> LThey rejected an amendment that would provide
workers with independent investment advice, rather than the
Majority's proposal to allow financial firms to offer
conflicted investment advice to employees for the first time
since ERISA was enacted (21D &1R- 25R).
<bullet> LFinally, they rejected an amendment to ERISA that
would ensure that older employees would not have their benefits
reduced by as much as 50% if their plan was converted to a cash
balance plan (19D & 1R-23R).
II. Discussion of ULLICO Transactions
The details of the ULLICO dispute are contained in Governor
Thompson's Report to the ULLICO Board. This document was
prepared at the request of the ULLICO Board and the ULLICO
Board has adopted its findings. As a result of the findings and
recommendations of the Thompson Report, a number of directors
voluntarily returned their stock profits, and the Board of
ULLICO has demanded that all those who profited from the
transactions in question return said profits. ULLICO has
removed from the Board, for cause, any director who had not
made arrangements to return their profits. Earlier this month,
ULLICO filed a counterclaim in U.S. District Court in
Washington DC alleging breaches of fiduciary duty, violations
of employment contracts and other wrongful acts by former
officers and seeking tens of millions of dollars in damages.
ULLICO has told Minority staff that further litigation against
all other directors who have failed to make arrangements to
return profits is imminent.
The evidence provided to the Committee amply demonstrates
that these events are the culmination of an effort by current
directors and shareholders of ULLICO to determine the facts of
the stock transactions at issue, and to hold those who
committed wrongful acts accountable. While this Committee's
efforts to obtain the Thompson Report are commendable, they
followed by more than six months similar efforts by leaders of
the labor movement. The most unfortunate aspect of the
Majority's report is its refusal to recognize this sustained
and ultimately successful effort by the labor movement to
initiate an independent inquiry, obtain the release of the
results, remove those who committed wrongful acts from office,
and hold them legally and financially accountable for their
actions.
As Business Week pointed out, there is no comparable record
of aggressively dealing with corporate wrongdoing in the world
of business. (``Big Labor's Governance Lesson; At Scandal-
Tainted ULLICO, AFL-CIO Leaders Oust One of Their Own as CEO
and Set an Example Corporate America Should Heed,'' Aaron
Bernstein, Business Week Online, May 27, 2003).
This Committee's unbalanced report fails to acknowledge
those in unions who acted responsibly and sought to hold those
who acted improperly accountable, and ignores the ongoing
effort of the new management of ULLICO to recover wrongfully
obtained stock profits to the company.
III. Chronology of Events
As the Thompson Report indicates, the misconduct in
question occurred during the period from 1998 to 2001, with the
sales of stock by officers and directors occurring in 2000 and
2001. As the Majority report indicates, critical facts about
the events were withheld from ULLICO's Board of Directors. (See
Majority Views on page 7)
In mid-March 2002, detailed accounts of the key events in
question appeared in the Wall Street Journal and in Business
Week, apparently as a result of a leak from company insiders.
Within days of the appearance of these accounts, John Sweeney,
the President of the AFL-CIO and at the time a Board member of
ULLICO, sent a letter to Robert Georgine, then Chairman and CEO
of ULLICO, asking that ULLICO's Board launch an independent
investigation with independent outside counsel.
At a special Board meeting in late April, the Board of
ULLICO appointed Governor Thompson as special counsel to
conduct the investigation. The Board resolution gave Thompson a
broad mandate to inquire into matters related to stock trading
by ULLICO officers and directors.
Thompson conducted his investigation in the summer and
early fall of 2002. As the Majority report notes, the
management of ULLICO asked that he not address issues of ERISA
and labor law in his report. However, the Majority report fails
to note that Thompson agreed with the request and has continued
to say that this was the right decision, largely it appears
because he felt that the core issues at stake in this matter
involved corporate, securities, and criminal law, not labor law
or ERISA.
In September 2002, Thompson began to conclude his
investigation, and ULLICO management began an effort to prevent
his report from being released. This led to a series of
increasingly hostile letters between Thompson, John Sweeney of
the AFL-CIO, and Robert Georgine, which focused on whether the
Thompson Report would be made in writing and if so, whether it
would ultimately be made available to shareholders. It was also
in this period that United Brotherhood of Carpenters President
Douglas McCarron, a ULLICO board member, announced prior to the
release of the Thompson Report that he was returning to ULLICO
his profits on the sale of ULLICO stock.
The Thompson Report was completed and made available to the
Board of ULLICO on November 26, 2002. Rather than be party to
withholding the report from shareholders, ULLICO directors John
Sweeney, Linda Chavez-Thompson and Frank Hanley, President of
the International Union of Operating Engineers, all resigned
from the Board in protest. Shortly thereafter Carpenters
President Douglas McCarron resigned from the Board in protest.
This was followed by benefit plans affiliated with the United
Auto Workers filing suit in federal court in Detroit seeking
the release of the Thompson Report.
ULLICO then appointed a Special Committee to review the
Thompson Report. Hotel Employees and Restaurant Employees Union
President and ULLICO director John Wilhelm and Laborers
International Union of North America President Terrence O
Sullivan both served on that committee and fought for the
adoption of the Thompson Report's recommendations that those
who profited from the stock transactions return their profits.
When O Sullivan and Wilhelm found themselves in the minority,
Wilhelm resigned from the Board, and O Sullivan took a leading
role from within the Board in working with ULLICO shareholders
and the broader labor movement to effect a change in ULLICO
management on May 8, 2003.
On May 8th, the new Board members joined with certain
continuing Board members to elect Terrence O Sullivan Chairman
and CEO, and to adopt the Thompson Report. They also demanded
the return of the stock profits, and to take the steps that
resulted in the removal from the Board and the company all
individuals who refused to return their profits from the
improper stock transactions. The new majority of the new Board
consists of current officers of labor organizations, and the
Board also includes individuals like former Congressman,
Federal Judge and White House Counsel Abner Mikva, former
Secretary of Labor Alexis Herman, and former Chairman of the
New York Metropolitan Transit Authority Richard Ravitch. Judge
Mikva has led since May a special subcommittee of the Board
charged among other things with implementing the Thompson
Report.
ULLICO has demanded the return of the stock profits as
recommended by Governor Thompson. Directors and Former
Directors Morton Bahr, Martin Maddaloni, Douglas McCarron,
James La Sala, and Kenneth Brown have done so voluntarily or
are in the process of doing so. Since the Majority noted the
presence of John Sweeney, Douglas McCarron and Martin Maddaloni
on the ULLICO Board during the events in question, it seems
only fair to note that John Sweeney demanded the investigation
that enabled this Committee to have the benefit of the Thompson
Report; that Douglas McCarron was the first person to return
his stock profits voluntarily to ULLICO and later resigned in
protest over management's efforts to suppress the Thompson
Report; and that Martin Maddaloni, the only one of the three
who is a continuing director, voted to adopt the Thompson
Report and is in the process of voluntarily returning his stock
profits as well.
IV. Conclusion
The Majority's ``Committee Report'' fails to recognize the
initiatives of labor leaders who acted aggressively to protect
their members and their members'' pension funds even when that
meant driving from office and ultimately suing their own
colleagues. While no one condones the improper actions ascribed
to the former ULLICO Board, it seems only fair to recognize
leaders in our society who act responsibly and forthrightly at
a time when there have been so many examples of others looking
the other way while the companies they were responsible for
were destroyed and the life savings of innocent men and women
were lost. The Majority's biased and distorted report ignores
these responsible actions by the leaders of the labor movement
that occurred not in response to congressional inquiries, but a
year before the Committee even scheduled a hearing on the
ULLICO matter. We are still awaiting comparable scrutiny of far
larger abuses by the executives of Enron, Global Crossing and
other corporations.
GEORGE MILLER
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