AFL-CIO / IRON WORKERS / (BSOIW) / COMMUNICATIONS WORKERS
(CWA)
Grand Jury Probing Union Bosses' Tainted Stock Offer
More than two dozen union presidents were reportedly invited to buy
shares in Global Crossing, as the Bermuda-based telecom was first offering
its stock to the general public. Now a federal grand jury in Washington,
D.C., is probing stock transactions by directors of insurance and investment
firm ULLICO (f.k.a. Union Labor Life Ins. Co.), a union-dominated firm
founded by the AFL. ULLICO's board is chaired by ex-AFL-CIO Building &
Construction Trades Dep't president Robert A. Georgine and includes many
current and ex-union presidents.
Reportedly, the investigations focus on trading privileges that allegedly allowed ULLICO's board members to profit from the purchase and sale of its shares. The transactions were lucrative because the privately held company's stock price was reset each year based on its book value and the board members could anticipate the change. ULLICO's shares had risen on the strength of several deals, including a $500 million profit on a $7.6 million investment in telecom firm Global Crossing, which declared bankruptcy in Jan. 2002.
In Aug. 1998, ULLICO board members were allegedly given the opportunity to purchase shares of Global Crossing at or near the initial public offering price ($18 a share). They also were allegedly allowed to purchase shares of ULLICO in anticipation of the big gains on Global Crossing and to sell back to ULLICO shares of the stock before its value had been reset after Global Crossing shares went into a tailspin ($64 a share to $.30 a share). The union pension funds were allegedly not afforded the same opportunities. "The issue is all about the board members," said one union source. Many members of ULLICO's board "had the opportunity to profit" said another. [For a summary of the transactions, see time line below.]
If formal charges are made, they could ensnare several union bosses in an embarrassing legal quagmire. A key issue is whether the bosses who took part breached their fiduciary duties by profiting from ULLICO at the expense of their unions. "If people got greedy, they should be treated just like the Enron officials who did the same thing," said an unnamed union president with detailed knowledge of the case. "How can we criticize them if we're doing the same crap?" Three union bosses, or their spokesmen, have told the media that they avoided the tainted deal, thereby raising the pressure on the remaining bosses to come forward. The three: AFL-CIO, John J. Sweeney; Int'l Union of Operating Eng'rs, Frank Hanley; Laborers' Int'l Union of N. Am., Terence M. O'Sullivan. The AFL-CIO has also allegedly initiated a probe.
Reportedly, prosecutors began probing the deal as part of an investigation into the financial affairs of indicted ex-president of the Int'l Ass'n of Iron Workers Jacob "Jake" F. West. In Aug. a grand jury indicted West for embezzling more than $50,000 in union funds. A superceding indictment was returned in Dec. against West; it contained the same 49 initial counts and added one count of conspiracy to embezzle, defraud, and file false reports, and one count of obstruction of justice. The link between ULLICO's scandal and West's prosecution suggest that he may be cooperating on the ULLICO probe in order to work out a favorable plea agreement with prosecutors.
ULLICO's ties to Global Crossing were forged by an ex-Democratic Nat' Committee official, Michael R. Steed, who was director of investments for ULLICO in the early 1990s. When Global Crossing CEO Gary Winnick was looking for investors in Global Crossing in early 1997 he approached Steed, whom he previously dealt with in a L.A. real estate deal. Steed had introduced Winnick to his DNC friend, Terry McAuliffe. McAuliffe, now DNC chairman, invested $100,000 in Global Crossing and reportedly cashing out with approximately $18 million in profits.
Global Crossing reported welcomed the early union investment, seeing it as helpful in establishing credibility. The relationship also helped politically. In the late 1990s, Global Crossing needed the approval of state and federal regulators to purchase Frontier Tele. Inc. One union that is associated with ULLICO, the Communication Workers of Am., offered support for the deal, which may have speeded approval. Later, CWA issued a press release supporting Global Crossing's failed bid for US West.
In another CWA-related development, CWA president Morton Bahr suspiciously
declined an invitation to testify Mar. 20 before a House Financial
Servs. subcommittee, which was looking into whether certain accounting
techniques masked the true financial picture of telecom companies, including
Global Crossing. One inference is that Bahr may not have wanted to be fielding
questions in the wake of the first reports of the ULLICO scandal. Another
is that Bahr actually had a scheduling conflict--maybe a meeting with the
grand jury? According to a State of N.Y. Ins. Comm'n document, Bahr was
a ULLICO board member as of Sept. 30, 2000. [Eng'g News-Record 3/25/02;
Wall. St. J. 3/15, 3/18/02; Business Week 3/18/02; Bloomberg News 3/18/02]
1997: ULLICO invests $7.6 million in Global Crossing for a 7.7% stake.
Fall 1999: ULLICO is losing money on its operations but earns $127 million by selling some Global stock. Insiders knew those gains would lift the annual valuation of ULLICO's shares from $54 to about $146 when its books closed on Dec. 31, 1999.
December 1999: ULLICO offers each director the chance to buy 4,000 ULLICO shares at the 1998 valuation of $54. The union pension funds that own almost all of ULLICO aren't given the same offer, or even told about it.
Dec. 2000/Jan. 2001: ULLICO buys back 205,000 of its 7.9 million shares at $146. Stockholders with fewer than 10,000 shares are allowed to sell all their holdings, so officers and directors can take full advantage, but the pension funds can't. Insiders know that the decline of Global Crossing's stock puts the true value of ULLICO's shares closer to $75.
Dec. 2001/Jan. 2002: ULLICO buys back an additional 200,000 shares, allowing officers and directors who hadn't sold before to cash out at $75. Again, insiders know that the further collapse of Global Crossing has again cut ULLICO's true value, this time to $44.
March 2002: ULLICO's pension-fund shareholders now own a less valuable
company. Its Global Crossing profits have gone disproportionately to officers
and directors, some of whom are trustees of the union pension funds that
lost out on the deal.
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