Union Labor Life Insurance Company
Encyclopedia
Ullico Inc. is a privately held
insurance and financial services holding company in the United States
. The Union Labor Life Insurance Company was founded in 1925 by the American Federation of Labor
(AFL) by its then president, Samuel Gompers
, to offer health and life insurance products specifically to America’s working men and women. Matthew Woll
, president of the Photo Engravers Union, became the company’s first president. Today, Ullico is one of the largest insurers, risk solutions and investment managers focused on the union marketplace in the United States. It is based in Washington, D.C.
. 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 once a year when company directors set a new share price based on the advice of independent auditors.
As of 2009, the company insured more than two million union members and dependents through $25 billion in Life, Accidental Death and Dismemberment insurance. Further, more than six million members were served through $125 million in gross written Property and Casualty premiums. Ullico had $5.5 billion in assets and a consolidated GAAP Equity of nearly $240 million.
Union Labor Life’s Real Estate Investment Group (REIG) is responsible for originating, underwriting
and managing the company’s real estate
mortgage and equity investments, while UIA, a registered investment advisor with the United States Securities and Exchange Commission
(SEC), provides investment advice to institutional investors with a focus on jointly managed, multiemployer Taft-Hartley funds.
The UIC is a registered broker-dealer with the SEC and a member of the Financial Industry Regulatory Authority
(FINRA) and the Securities Investor Protection Corporation
(SIPC). The company markets and sells products managed through UIA and group annuity contracts offered through Union Labor Life.
, labor leaders formed the Union Labor Life Insurance Company (Union Labor Life) to provide life insurance to union workers, which was unavailable at the time. Many Americans worked in hazardous jobs and there were no work safety laws in place to protect them. Railroads, construction sites and factories all presented too much risk for many companies’ underwriters. Life insurance was either priced out of reach of workers or insurance companies denied coverage because of the risks associated with their jobs. Union Labor Life aimed to provide a new level of stability for workers and increase their standard of living.
Samuel Gompers
, the first president of the American Federation of Labor
(AFL), saw the value in a union-owned insurance company. Matthew Woll
, president of the Photo Engravers Union, became Ullico’s first president. Soon more than 60 international unions, hundreds of local unions, and more than 300 individuals owned Ullico stock. Even AFL president William Green
purchased $500 in stock.
Over the years, as the needs of unions and their members evolved, Union Labor Life grew and diversified, offering health insurance, fiduciary liability insurance, investment products for pension funds and services for administering trust fund business. As other subsidiaries formed, it was clear that Union Labor Life needed another entity for future growth and diversification. In 1987, Ullico Inc. was created as a holding company for Union Labor Life and Ullico Casualty Company.
1927: Union Labor Life opens for business on May 1, 1927, in Washington, D.C. Its first group policy was written for the Federal Employees Local 105 of Washington, D.C.
1932: Union Labor Life begins offering retirement annuities and issues its first stockholder and policyholder dividends.
1935: Company headquarters move to New York, New York.
1943: The organization begins offering group accident, health and hospitalization insurance.
1946: Union Labor Life establishes company-paid-for insurance and pension plans for its own employees.
1957: The company purchases and merges with the American Standard Life Insurance Company, founded by the International Brotherhood of Electrical Workers in 1924.
1959: Group Dental and Prescription benefits are first offered.
1961: Group annuity actuarial and administration departments are created.
1966: Group vision, extended care and an extended plan of Long-Term Disability are offered.
1977: Mortgage Separate Account J (J for Jobs) is introduced.
1979: Ullico Casualty Company is created to proceed with new kinds of insurance.
1983: Ullico headquarters move back to Washington, D.C.
1986: Ullico Casualty begins to market Fiduciary Liability insurance to funds and trustees as other carriers abandon the market.
1987: Ullico Inc. is established as a holding company for the company's subsidiaries and assets. A number of new ventures quickly follow.
1988: Zenith Administrators, a third-party pension and self insurance fund administration business, is formed.
1990: Trust Fund Advisors, a pension fund portfolio management company, is created.
1999: UlliCare®, a managed care health plan, is introduced. Ullico also buys Tri-City Brokerage, the largest and only independent national insurance wholesaler.
2006: Ullico becomes a registered broker and dealer with the National Association of Securities Dealers (NASD) and the SEC.
2008: Ullico Captive, PCC is established to offer alternative risk solutions through the Life and Health and Property and Casualty lines of business.
2009: Ullico Casualty Company posts a record $102 million in gross written in force premiums.
2010: In December 2010, the Ullico Board appoints Edward M. Smith as the company's new Chief Executive Officer.
in pension fund
management and insider trading
.
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.
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.
, 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.
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.
, 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.
) 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.
By 2009, under new day-to-day management and a revamped Board of Directors, the company had returned to its solid financial footing with more than $5 billion of assets under management.
Privately held company
A privately held company or close corporation is a business company owned either by non-governmental organizations or by a relatively small number of shareholders or company members which does not offer or trade its company stock to the general public on the stock market exchanges, but rather the...
insurance and financial services holding company in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. The Union Labor Life Insurance Company was founded in 1925 by the American Federation of Labor
American Federation of Labor
The American Federation of Labor was one of the first federations of labor unions in the United States. It was founded in 1886 by an alliance of craft unions disaffected from the Knights of Labor, a national labor association. Samuel Gompers was elected president of the Federation at its...
(AFL) by its then president, Samuel Gompers
Samuel Gompers
Samuel Gompers was an English-born American cigar maker who became a labor union leader and a key figure in American labor history. Gompers founded the American Federation of Labor , and served as that organization's president from 1886 to 1894 and from 1895 until his death in 1924...
, to offer health and life insurance products specifically to America’s working men and women. Matthew Woll
Matthew Woll
Matthew Woll was president of the International Photo-Engravers Union of North America from 1906 to 1929, an American Federation of Labor vice president from 1919 to 1955 and an AFL-CIO vice president from 1955 to 1956.-Early life:Born in Luxembourg in 1880 to Michael and Janette Woll, the Roman...
, president of the Photo Engravers Union, became the company’s first president. Today, Ullico is one of the largest insurers, risk solutions and investment managers focused on the union marketplace in the United States. It is based in Washington, D.C.
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
Overview
Ullico Inc. was initially founded with a mission to provide financial security to union members and their families. Ullico provides specialty insurance and investment products to labor organizations, union employers, municipalities, institutional investors and union members and retirees. Ullico is a privately held, joint stock companyJoint stock company
A joint-stock company is a type of corporation or partnership involving two or more individuals that own shares of stock in the company...
. 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 once a year when company directors set a new share price based on the advice of independent auditors.
As of 2009, the company insured more than two million union members and dependents through $25 billion in Life, Accidental Death and Dismemberment insurance. Further, more than six million members were served through $125 million in gross written Property and Casualty premiums. Ullico had $5.5 billion in assets and a consolidated GAAP Equity of nearly $240 million.
Divisions
Ullico Inc. consists of The Union Labor Life Insurance Company (Union Labor Life), Ullico Casualty Company, Ullico Casualty Group Inc., Ullico Investment Advisers Inc. and Ullico Investment Company Inc. These companies fall into three divisions: Life and Health (Union Labor Life), Property and Casualty (Ullico Casualty Company and Ullico Casualty Group) and Investment Services (Ullico Investment Advisers Inc. and Ullico Investment Company Inc.)Life and health
More than 80 years ago, the Union Labor Life Insurance Company (Union Labor Life) was founded and is the founding unit of Ullico Inc. Today, Union Labor Life provides life and health solutions specifically tailored for the labor market. Through alliances with market leaders in risk protection, the company offers an array of insurance products to unions, jointly managed trust funds and organized employers as well as supplemental voluntary insurance programs directly marketed to union members, retirees and their families, including:- Stop Loss Insurance: Protects self-funded, employer- or union-sponsored healthcare plans from incurring large or unforeseen catastrophic health expenses exceeding the plans predetermined dollar amounts. Union Labor Life helps each organization tailor their Stop Loss plans to each group’s specific needs.
- Group Term Life and Accidental Death and Dismemberment Insurance: These offerings feature a unique Strike Waiver of Premium that allows premiums to be waived during sanctioned strikes when certain eligibility requirements are met.
- Voluntary Supplemental Insurance: Marketed directly to union members and retirees, options include Term and Whole Life, Accidental Death and Dismemberment, Accident and Hospital Indemnity Protection, Dental Insurance and Dental Discount programs.
- Union Labor Life also offers Group Vision Insurance, Group Prescription Benefit Management and Group Disability Insurance.
Property and casualty
Ullico Casualty Group creates insurance products that mitigate fiduciary risks to union workplaces and its trustees. Products include:- Fiduciary Liability: As trustees and other fiduciaries of multiemployer and public benefit funds face significant personal liabilities, Ullico Casualty Group not only updates insurance coverage as these issues evolve, but knows how to resolve fiduciary claims to protect policyholders’ personal assets.
- Union Liability: Under federal labor law, officers and directors of labor unions can be exposed to personal liability, but must defend themselves, in certain circumstances, at their own expense. Union Liability covers the duty of fair representation, employment practices liability, financial management of the union and personal injury liability.
- Commercial Lines: The Property and Casualty portfolio includes Property, General Liability, Automobile, Umbrella and Workers’ Compensation coverage.
- Surety Bonds: The Surety Bond program provides the bonding that union contractors need to qualify for work projects, thus allowing small and medium-size contractors to compete more effectively.
- Alternative Risk Solutions: The company’s captive insurance programs, managed through Ullico Captive PCC and Ullico Risk Solutions LLC, help keep costs low by allowing policyholders with similar risk profiles to share in their own insurance risk.
Investment services
Ullico offers products and services designed for institutional investors through The Union Labor Life Insurance Company (Union Labor Life) and Ullico Investment Advisors Inc. (UIA). These products, including Ullico’s real estate-related Separate Account J (also known as “J for Jobs”), are sold through the Ullico Investment Company (UIC).Union Labor Life’s Real Estate Investment Group (REIG) is responsible for originating, underwriting
Underwriting
Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products . The name derives from the Lloyd's of London insurance market...
and managing the company’s real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
mortgage and equity investments, while UIA, a registered investment advisor with the United States Securities and Exchange Commission
United States Securities and Exchange Commission
The U.S. Securities and Exchange Commission is a federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States...
(SEC), provides investment advice to institutional investors with a focus on jointly managed, multiemployer Taft-Hartley funds.
The UIC is a registered broker-dealer with the SEC and a member of the Financial Industry Regulatory Authority
Financial Industry Regulatory Authority
In the United States, the Financial Industry Regulatory Authority, Inc., or FINRA, is a private corporation that acts as a self-regulatory organization . FINRA is the successor to the National Association of Securities Dealers, Inc. ...
(FINRA) and the Securities Investor Protection Corporation
Securities Investor Protection Corporation
The Securities Investor Protection Corporation is a federally mandated, non-profit, member-funded, corporation in the United States. It protects investors in certain securities from financial harm if a broker-dealer fails...
(SIPC). The company markets and sells products managed through UIA and group annuity contracts offered through Union Labor Life.
History
On May 1, 1927 in Washington, D.C.Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
, labor leaders formed the Union Labor Life Insurance Company (Union Labor Life) to provide life insurance to union workers, which was unavailable at the time. Many Americans worked in hazardous jobs and there were no work safety laws in place to protect them. Railroads, construction sites and factories all presented too much risk for many companies’ underwriters. Life insurance was either priced out of reach of workers or insurance companies denied coverage because of the risks associated with their jobs. Union Labor Life aimed to provide a new level of stability for workers and increase their standard of living.
Samuel Gompers
Samuel Gompers
Samuel Gompers was an English-born American cigar maker who became a labor union leader and a key figure in American labor history. Gompers founded the American Federation of Labor , and served as that organization's president from 1886 to 1894 and from 1895 until his death in 1924...
, the first president of the American Federation of Labor
American Federation of Labor
The American Federation of Labor was one of the first federations of labor unions in the United States. It was founded in 1886 by an alliance of craft unions disaffected from the Knights of Labor, a national labor association. Samuel Gompers was elected president of the Federation at its...
(AFL), saw the value in a union-owned insurance company. Matthew Woll
Matthew Woll
Matthew Woll was president of the International Photo-Engravers Union of North America from 1906 to 1929, an American Federation of Labor vice president from 1919 to 1955 and an AFL-CIO vice president from 1955 to 1956.-Early life:Born in Luxembourg in 1880 to Michael and Janette Woll, the Roman...
, president of the Photo Engravers Union, became Ullico’s first president. Soon more than 60 international unions, hundreds of local unions, and more than 300 individuals owned Ullico stock. Even AFL president William Green
William Green (labor leader)
William Green was an American trade union leader. Green is best remembered for serving as the President of the American Federation of Labor from 1924 to 1952.-Early years:...
purchased $500 in stock.
Over the years, as the needs of unions and their members evolved, Union Labor Life grew and diversified, offering health insurance, fiduciary liability insurance, investment products for pension funds and services for administering trust fund business. As other subsidiaries formed, it was clear that Union Labor Life needed another entity for future growth and diversification. In 1987, Ullico Inc. was created as a holding company for Union Labor Life and Ullico Casualty Company.
Timeline
1925: The AFL approves the creation of a union-owned insurance company.1927: Union Labor Life opens for business on May 1, 1927, in Washington, D.C. Its first group policy was written for the Federal Employees Local 105 of Washington, D.C.
1932: Union Labor Life begins offering retirement annuities and issues its first stockholder and policyholder dividends.
1935: Company headquarters move to New York, New York.
1943: The organization begins offering group accident, health and hospitalization insurance.
1946: Union Labor Life establishes company-paid-for insurance and pension plans for its own employees.
1957: The company purchases and merges with the American Standard Life Insurance Company, founded by the International Brotherhood of Electrical Workers in 1924.
1959: Group Dental and Prescription benefits are first offered.
1961: Group annuity actuarial and administration departments are created.
1966: Group vision, extended care and an extended plan of Long-Term Disability are offered.
1977: Mortgage Separate Account J (J for Jobs) is introduced.
1979: Ullico Casualty Company is created to proceed with new kinds of insurance.
1983: Ullico headquarters move back to Washington, D.C.
1986: Ullico Casualty begins to market Fiduciary Liability insurance to funds and trustees as other carriers abandon the market.
1987: Ullico Inc. is established as a holding company for the company's subsidiaries and assets. A number of new ventures quickly follow.
1988: Zenith Administrators, a third-party pension and self insurance fund administration business, is formed.
1990: Trust Fund Advisors, a pension fund portfolio management company, is created.
1999: UlliCare®, a managed care health plan, is introduced. Ullico also buys Tri-City Brokerage, the largest and only independent national insurance wholesaler.
2006: Ullico becomes a registered broker and dealer with the National Association of Securities Dealers (NASD) and the SEC.
2008: Ullico Captive, PCC is established to offer alternative risk solutions through the Life and Health and Property and Casualty lines of business.
2009: Ullico Casualty Company posts a record $102 million in gross written in force premiums.
2010: In December 2010, the Ullico Board appoints Edward M. Smith as the company's new Chief Executive Officer.
Scandals
Ullico expanded significantly in the 1990s, creating a large number of strategic alliances with other insurance companies and making a number of acquisitions. Beginning in the late 1990s, the organization experienced a range of problems and challenges, including a conflict of interestConflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
in pension fund
Pension fund
A pension fund is any plan, fund, or scheme which provides retirement income.Pension funds are important shareholders of listed and private companies. They are especially important to the stock market where large institutional investors dominate. The largest 300 pension funds collectively hold...
management and insider trading
Insider trading
Insider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
.
AFL-CIO support for single-payer health care
Ullico's first conflict of interestConflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
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
Single-payer health care
Single-payer health care is medical care funded from a single insurance pool, run by the state. Under a single-payer system, universal health care for an entire population can be financed from a pool to which many parties employees, employers, and the state have contributed...
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
Robert Georgine
Robert Georgine is a retired labor union activist and leader in the United States, and the former president, chairman and chief executive officer of the Union Labor Life Insurance Company....
, chairman, president
President
A president is a leader of an organization, company, trade union, university, or country.Etymologically, a president is one who presides, who sits in leadership...
and chief executive officer
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
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 CityNew York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
local of the United Brotherhood of Carpenters and Joiners of America
United Brotherhood of Carpenters and Joiners of America
The United Brotherhood of Carpenters and Joiners of America is one of the largest building trades union in the United States. One of the unions that formed the American Federation of Labor in 1886, it left the AFL-CIO in 2001.-Early years:...
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
United States Department of Labor
The United States Department of Labor is a Cabinet department of the United States government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, re-employment services, and some economic statistics. Many U.S. states also have such departments. The...
investigated the company for allegedly obtaining the contract through the influence of international union president Douglas J. McCarron
Douglas J. McCarron
Douglas J. McCarron is a labor union activist and, since 1995, president of the United Brotherhood of Carpenters and Joiners of America.-Early life and career:...
—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 WinnickGary Winnick
Gary Winnick is an American financier with a global investment career spanning three decades. He is Chairman and Chief Executive Officer of Pacific Capital Group, a diversified private investment firm founded in 1985...
, founder of telecommunications company Global Crossing
Global Crossing
Global Crossing Limited was a telecommunications company that provides computer networking services worldwide. It maintained a large backbone and offered transit and peering links, VPN, leased lines, audio and video conferencing, long distance telephone, managed services, dialup, colocation and...
, 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
PricewaterhouseCoopers
PricewaterhouseCoopers is a global professional services firm headquartered in London, United Kingdom. It is the world's largest professional services firm measured by revenues and one of the "Big Four" accountancy firms....
. 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
Share repurchase
Stock repurchase is the reacquisition by a company of its own stock. In some countries, including the U.S. and the UK, a corporation can repurchase its own stock by distributing cash to existing shareholders in exchange for a fraction of the company's outstanding equity; that is, cash is exchanged...
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
Rank and file
In politics and labor unions the rank and file are the individual members of an organization, exclusive of its leadership. The phrase originated in the military, denoting the horizontal "ranks" and vertical "files" of individual foot-soldiers, exclusive of the noncommissioned officers....
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
White House
The White House is the official residence and principal workplace of the president of the United States. Located at 1600 Pennsylvania Avenue NW in Washington, D.C., the house was designed by Irish-born James Hoban, and built between 1792 and 1800 of white-painted Aquia sandstone in the Neoclassical...
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 juryGrand jury
A grand jury is a type of jury that determines whether a criminal indictment will issue. Currently, only the United States retains grand juries, although some other common law jurisdictions formerly employed them, and most other jurisdictions employ some other type of preliminary hearing...
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
James R. Thompson
James Robert Thompson, Jr. , also known as Big Jim Thompson, was the 37th and longest serving Governor of the US state of Illinois...
, former Republican
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
governor of Illinois
Governor of Illinois
The Governor of Illinois is the chief executive of the State of Illinois and the various agencies and departments over which the officer has jurisdiction, as prescribed in the state constitution. It is a directly elected position, votes being cast by popular suffrage of residents of the state....
and chairman and CEO of Winston & Strawn LLP
Winston & Strawn LLP
Winston & Strawn LLP is an international law firm with approximately 900 attorneys among 13 offices in the United States, Europe and Asia.-Locations:...
(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
United States Department of Justice
The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries.The Department is led by the Attorney General, who is nominated...
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. SweeneyJohn Sweeney (labor leader)
John Joseph Sweeney was the president of the AFL-CIO from 1995 to 2009.-Early years:Born in The Bronx, New York, Sweeney is the son of Joseph and Agnes , both Irish immigrants. The family moved to Yonkers in 1944, where Sweeney attended St. Barnabas Elementary School and graduated from Cardinal...
, 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
United Auto Workers
The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, better known as the United Auto Workers , is a labor union which represents workers in the United States and Puerto Rico, and formerly in Canada. Founded as part of the Congress of Industrial...
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
United Association
The United Association of Journeymen and Apprentices of the Plumbing, Pipefitting and Sprinkler Fitting Industry of the United States and Canada, commonly known as the United Association is a trade union of journeymen and apprentices of the plumbing, pipefitting, and sprinkler fitting industry of...
(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 AmericaLaborers' International Union of North America
The Laborers' International Union of North America is an American and Canadian labor union formed in 1903. As of March 31, 2010, they have about 632,000 members, members, about 80,000 of which are in Canada.The current general president is Terence M...
) and Edwin D. Hill
Edwin D. Hill
Edwin D. Hill is an electrical worker, labor union activist and labor leader in the United States. Since January 2001, he has been president of the International Brotherhood of Electrical Workers , AFL-CIO....
(president of the International Brotherhood of Electrical Workers
International Brotherhood of Electrical Workers
The International Brotherhood of Electrical Workers is a labor union which represents workers in the electrical industry in the United States, Canada, Panama and several Caribbean island nations; particularly electricians, or Inside Wiremen, in the construction industry and linemen and other...
) 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
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
. 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
Fifth Amendment to the United States Constitution
The Fifth Amendment to the United States Constitution, which is part of the Bill of Rights, protects against abuse of government authority in a legal procedure. Its guarantees stem from English common law which traces back to the Magna Carta in 1215...
right against self-incrimination and refused to testify.
Regaining financial stability
Both of these issues culminated in company losses in 2001 and 2002. As Ullico began losing money, the company issued more stock and sold its newly completed Washington, D.C., office building to raise funds. In a board meeting on April 23, 2003, John J. Sweeney, then president of the AFL-CIO; 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. Terence M. O'Sullivan and Martin Maddaloni, president of the United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry who agreed to return his profits, were the lone incumbents to return to the board. With Terence M. O'Sullivan as the new chairman, Ullico began rectifying its finances.By 2009, under new day-to-day management and a revamped Board of Directors, the company had returned to its solid financial footing with more than $5 billion of assets under management.