Skip to comments.Global Crossing: Labor's Questionable Windfall
Posted on 03/14/2002 3:14:26 PM PST by Big BunyipEdited on 04/13/2004 2:16:31 AM PDT by Jim Robinson. [history]
The unfolding scandal involving Global Crossing may be about to engulf an unlikely group: the U.S. labor movement. The labor connection involves a union-owned life insurance company that was one of the original investors in the fiber-optic outfit, providing some of initial seed money to Global founder Gary Winnick. It was a savvy deal for the unions that own the insurer, ULLICO Inc., earning the company a $500 million profit on a $7.6 million investment.........
(Excerpt) Read more at businessweek.com ...
No mention about McAuliffe. Any Freepers know of links between him and the unions mentioned?
Not sure how to find it though!
Ping to Seamole.
Thanks for the ping!
LOADED UP IN ADVANCE. The second strategy raises some red flags. According to insiders and ULLICO documents, ULLICO gave its directors the opportunity to buy and sell ULLICO's stock in such a way as to benefit themselves but not their unions. In particular, they knew to load up on ULLICO stock in advance of its yearly valuation, which would reflect the Global Crossing gains. Institutional shareholders, mostly union pension funds, were not offered the same trading opportunities, according to AFL-CIO officials and other involved (see table below).
All together, some of ULLICO's directors and officers reaped millions of dollars from the insurer's Global Crossing gains over the past two years, with Georgine receiving by far the biggest chunk, according to ULLICO documents and insiders. Not all directors took the opportunity, including AFL-CIO President John Sweeney, who owned only a few hundred ULLICO shares.
The U.S. Attorney's office in Washington, D.C., is now investigating these moves. The office had already been looking into corruption charges at the Ironworkers union, including its former president, Jacob F. West, who's also a ULLICO director. The U.S. Attorney got wind of the ULLICO scheme when trying to determine the source of some of West's money, insiders say.
FIDUCIARY BREACH? The grand jury in the case recently subpoened three ULLICO executives, as well as officials from Wall Street firms that advise the union pension funds that own ULLICO stock. Some of those subpoened say the Justice Dept., which is being assisted by the Labor Dept. and the FBI, is now deciding whether to expand the investigation to include ULLICO.
A key issue, say those involved, is whether the labor leaders who took part breached their fiduciary responsiblities 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," fumes one union president with detailed knowledge of the case. "How can we criticize them if we're doing the same crap?"
"The AFL-CIO is taking these matters seriously, and we are actively looking into them," says the federation's associate general counsel Damon Silvers. ULLICO declined comment.
DUAL ROLE. The chance for Georgine and others to reap a profit arose because of the peculiar nature of ULLICO, the parent company of Union Labor Life Insurance Co. It was founded by unions in 1927 to sell life insurance to union members. Its ownership is restricted to unions, and its leadership comes primarily from the labor movement.
Georgine, for example, headed the AFL-CIO's Building & Construction Trades Dept. for 26 years, until he retired in 2000. For the prior decade, he also served as ULLICO's CEO. The very concept of a labor-owned insurer has been periodically criticized by some labor leaders, who disapprove of unions helping to sell their members whole life insurance that may not be needed.
Georgine himself has been the subject of controversy, too, often viewed by critics as a big spender who loved the job's perks. The Building Trades used a jet for many years under his tenure, and ULLICO has another one for his use, insiders say.
PENNIES A SHARE. Still, there's no question that ULLICO made a smart move in 1997, when its investment in a Los Angeles construction project led to a relationship with Winnick. Soon ULLICO became one of the original investors in Global Crossing, getting the equivalent of 33 million shares at pennies each. When Global went public in 1998, and its stock began to soar, ULLICO came into a windfall.
When Global's stock peaked at just over $62 a share in 1999, ULLICO was sitting on more than $1 billion in potential profits. This was particularly fortunate, since ULLICO's basic insurance businesses were losing money. That year, ULLICO earned $127 million aftertax from the sale of Global shares, allowing it to turn a $46 million loss on its ongoing operations into a $59 million profit, says A.M. Best Inc. analyst Joseph Zazzera. Overall, the insurer sold about half its Global stock since 1999, earning an aftertax total of about $335 million, says Zazzera.
But these gains took awhile to show up in ULLICO's stock price. Because the company is private, its shares don't trade on the open market. Instead, ULLICO sets their price every Dec. 31, based on the book value of the company in the prior year. So ULLICO shareholders knew in the fall of 1999 that its shares would be worth about $146 on Dec. 31 of that year, say AFL-CIO officials and other insiders. "You could tell what would happen to ULLICO based on Global's stock performance," says an adviser to a union pension fund that owns ULLICO shares.
CASHED OUT. In the fall of 1999, ULLICO offered to sell each director 4,000 shares at the 1998 price of $54. The union pension and general funds that own the bulk of ULLICO's stock were not given the same offer, or even told about it, labor officials and other insiders say. Georgine himself went from holding 8,800 shares in 1998 to 52,800 in 1999, according to ULLICO's proxy and other financial statements, although the statements don't make clear why he was able to acquire more than the 4,000 quota.
In 2000, some two dozen of ULLICO's directors and officers again took advantage of the company's lagging stock-valuation system to cash out their profits. In advance of the annual price adjustment on Dec. 31, ULLICO offered to repurchase shares, as it had annually since 1997. The tender, at $146, was limited to $30 million, or 205,000 shares out of a total of 7.9 million outstanding. All shareholders were allowed to sell a prorated amount, based on the amount of ULLICO's stock they held. However, a clause in the repurchase program allowed shareholders with fewer than 10,000 shares -- mostly the directors -- to sell as much as they wanted.
The result: Georgine and the other directors, knowing the price would be cut to $75, sold much of their holdings at $146, insiders say, while the pension funds with larger stakes were restricted in their sales. As a result, ULLICO officers and directors sold about 54,000 of their 100,000 shares back to the company in December, 2000, the company's proxies show. Insiders say they sold more at the same $146 in January, 2001. The final figures won't be out until the 2001 proxy is sent to shareholders at the end of March.
IS IT ILLEGAL? ULLICO gave directors another chance to take gains by repurchasing an additional 200,000 shares the next year, in December, 2001, and January, 2002. As in the earlier sale, directors took advantage of the lag in the adjustment of ULLICO stock. This time, the continued collapse of Global Crossing stock would push the value of ULLICO shares to $44 in the annual price-setting on Dec. 31, 2001, but the repurchase price was still $75.
Overall, those directors who participated did well. Since most had purchased at the $54 price or less, they stood to make at least $368,000 each if they had bought and sold the full 4,000 allotment at $146.
While the stock program allowed ULLICO directors to take advantage of Global's runup, it's not clear if the grand jury will find anything illegal about it. Insiders point out that the repurchase rules had been set in 1997, long before anyone knew what a fantastic windfall Global would provide.
A POSSIBLE OUT. However, union leaders on ULLICO's board may face problems regarding fiduciary responsibilities they may bear for their union's pension and general funds. By voting to allow themselves to cash in all their own shares, they would have profited at the expense of their unions, whose repurchases they limited. By taking a disproportionate share of the Global Crossing profits, union leaders benefitted from gains that arguably belonged to their members, say several labor leaders and other officials involved. Even those who took little or nothing may have a problem if they merely approved the moves, insiders say.
They may have an out, according to sources. Most don't actually decide how to vote their ULLICO proxies, but rather hire Wall Street firms to act as trust-fund advisers, including ASB Capital Management, Columbia Partners, and J&W Seligman. "The directors shouldn't get into trouble, because we have the authority to make decisions on behalf of the pension fund," says an official at one of these firms.
Still, because virtually all of ULLICO's capital comes from union members, questions of ethics, at the very least, could arise. ULLICO's union leaders acted just as many executives and directors of other corporations do, cutting themselves better deals than other shareholders. In this case, though, the other shareholders are the members who elected these officials to their union posts in the first place.
The Labor-Global Crossing Connection
Some two dozen labor leaders sit on the board of ULLICO Inc., a private life insurer owned by unions. Some personally profited when ULLICO earned $335 million from its investment in Global Crossing. Here's how:
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.
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 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 profits have gone disproportionately to officers and directors, some of whom are trustees of the union pension funds that lost out on the deal.
By Aaron Bernstein in Washington
Edited by Elizabeth Weiner
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With apologies to and much empathy for those who have lost so much in the Enron debacle, this is a MUCH BIGGER story than Enron.
The DEMS are in this up to their freakin' eyeballs and if the Chicoms get their hands on the most extensive fiber network on the planet, the results could be serious beyond our imagination.
the Union Labor Life crowd seems to be stuck in Global Crossing ..... they took a huge hit at least $145 Million (on McAuliffe's advice?)
why do I find unsettling the image of Ken Lay, Martin Davis and Terry McAuliffe all together in Aspen ?
..Aaron Bernstein is the left wing bast... who tried to scuttle the Business Week article on Ron Carey. He is awfully weak and always has a far left political agenda...the idea that he would expose these union leaders and McAulliffe is hard to swallow...this is something that needs more detailed investigation.
Terrry McAuliffe let the fearless AFL "leaders" in on the deal and in turn they had to kick back ........ they just doubled down on this one ........ trading on insider pension moves is certainly not new .... but when the bottom falls out and you use the fund to prop up your own position is a ballsy paper trail (unless you have Mary Jo White on the case)
Bob Georgine is just the tip of this iceberg
I doubt these guys took much money out of their own pockets to fund the DNC ....... I'm sure the gratitude to Terry's DNC is reflected with the union coffer
it looks like the fearless AFL "leaders" partially Funded Global Crossing's IPO with Bernie Rappaport's Union Labor Life (backed by union pension funds) and all got on board for the ride up then used the insurance company's assets to prop up the stock so the AFL directors could get out at the top
the lawyers in these matters. Stanley Brand is representing Arthur Anderson in the criminal case. He was a talking head Clinton defender...he represents some of these union leaders and many of the PACs associated with their unions.
My guess is that these union leaders also contributed (from the union coffer) to the DNC and to Gore. It may be that this was a means to get money out of ULLICO and into the politcal arena. I'll bet that this was at least some of what was going on here.
this is a variant on the Union First Credit card deal ........ when will Ted Kheel surface ?
In 1995, Kheel played a major role arranging the sale of the AFL-CIO's "affinity credit card" from the Bank of New York to Household Finance. The sale brought over $35 million to the AFL-CIO, which gave it the liquidity to pump over $30 million into the Democratic Party's 1996 congressional campaigns. Kheel brokered the deal with Democratic fundraiser Terry McAuliffe. In 1992, Kheel had convinced the newly elected Carey to endorse the credit card program. Carey delivered 1.5 million Teamsters who previously had not participated in the program. Kheel profited handsomely, from the new Teamsters in the credit card program, and he subsequently contributed the $20,000 to Carey's 1996 Teamsters reelection bid.
A bio on Steed from page 48 of the Global Crossing's SEC page...
MICHAEL R. STEED--Mr. Steed, a director of GCL since its inception, is Senior Vice President of Investments for the Union Labor Life Insurance Company, ULLICO Inc. ("ULLICO") and its Family of Companies and President of Trust Fund Advisors, ULLICO's investment management subsidiary. Mr. Steed joined ULLICO in November 1992 after serving seven years as President and Founder of A.F.I.C. Group, Ltd., a financial and investment consulting firm. From 1983 to 1985, Mr. Steed was the Executive Director of the Democratic National Committee. He received his JD degree from Loyola University School of Law in Los Angeles and his BA degree from Loyola Marymount University in Los Angeles.
Jade, this ping is for you incase you weren't on the ping list.
Double Crossing might become the biggest nightmare of the elite of the DemonicRats from Senators to Union leaders.
Remember they did it for the chilrun, abortions for all and expanding the Gay Agenda. None of these elite fascists did these things to enrich themselves. (Yeah sure!)
"In 1995, Kheel played a major role arranging the sale of the AFL-CIOs "affinity credit card" from the Bank of New York to Household Finance. The sale brought over $35 million to the AFL-CIO, which gave it the liquidity to pump over $30 million into the Democratic Partys 1996 congressional campaigns. Kheel brokered the deal with Democratic fundraiser Terry McAuliffe. In 1992, Kheel had convinced the newly elected Carey to endorse the credit card program. Carey delivered 1.5 million Teamsters who previously had not participated in the program. Kheel profited handsomely, from the new Teamsters in the credit card program, and he subsequently contributed the $20,000 to Careys 1996 Teamsters reelection bid."...
...."McAuliffe, chairman of a record-breaking Democratic fundraiser in May and chairman of recent Democratic convention in Los Angeles, has long been associated with organized labor. In addition to his work on the Union Privileges "affinity" credit card, McAuliffe has had a major role handling investments for the AFL-CIO Union Labor Life Insurance Company (ULLICO)."
Not a 'new' revelation to many, but a pretty good HISTORY.
The 'beginnings' of Terry McAuliffe from 'Mother Jones, April, 1997.
it's the hippies v. the construction workers ......a 60s redux ......except that now the war protesters have some of the sissy unions ..... but the hard hats still hate them (and their unions are still candy stores for the mobs and will therefore support whomever owns the cops)
Bernstein is a rat who must be analyzed carefully. He will do anything to build up the left and destroy everything he believes is not the left. It looks like he is trying to knock off Georgine and the Bldg Trades and exhonorate Sweeny and the left. Bernstein wants the left to control Labor and to continue to pump 90% plus into the Democrat Party.
President Clinton: "Arms dealer? Golly, gee, I thought he said he was delivering my double
order of General Tso's chicken with egg roll from the Chinese restaurant on "O" Street."