UAW Files Suit Against ULLICO
To Force Release of Thompson Report
Tuesday, February 4, 2003
THE UNITED AUTO WORKERS FILED suit in the U.S. District Court for the
Eastern District of Michigan Jan. 30 against ULLICO Inc., seeking the
release of a report involving alleged insider trading by certain board
members at the union-owned insurance company (International UAW Staff
Retirement Income Plan v. ULLICO, Inc., E.D. Mich., No. 03-70408, filed
The suit, filed on behalf of the union's employee pension plans, which own
more than 150,000 shares of ULLICO stock, asks the court to determine that
the shareholders are entitled to either a copy of the report or a detailed
summary of the factual and legal conclusions of the report.
The union said as a shareholder it needs the report to determine what action
it should take in response to the alleged illegal activity by board members.
The suit sets out three courses of possible action including the holding of
a special meeting of shareholders to seek the removal of certain directors.
ULLICO, formerly known as Union Labor Life Insurance Company, is a
union-owned insurance company founded in 1925 to provide affordable life
insurance for workers. ULLICO also invests and manages approximately $6
billion of largely building trade union pension fund assets. A number of
current and former top union officials are members of ULLICO's board of
directors. The company is headed by Chairman and President Robert Georgine,
the former head of the AFL-CIO's Building and Construction Trades
At issue in the UAW lawsuit is a report prepared by former Illinois Gov.
James Thompson Jr. (R), who was named last April by the ULLICO board of
directors to lead an internal investigation of the company's investment in
Global Crossing Ltd. and allegations of insider trading by board members.
The report was concluded in November, but Georgine has refused to release
it, citing attorney-client privilege. Georgine also refused to let members
of the board view the report unless they agreed not to divulge its contents
to shareholders or others.
In December, three board members--AFL-CIO President John J. Sweeney,
Executive Vice President Linda Chavez-Thompson, and International Union of
Operating Engineers President Frank Hanley--resigned from the board in
protest over the refusal to release the report to shareholders.
Citing press accounts, the suit lays out the following account of the
alleged wrongful actions. On Dec. 17, 1999, the suit charged, ULLICO
management offered members of its board the opportunity to purchase stock at
$54 a share, although management and the directors knew that the price of
the stock, which is set at the end of the year, would be reset at about $146
a share. Some directors bought stock at the $54 price and in November 2000,
when they knew the stock would be revalued at years' end to $71 due to
reversal in some of the company's investments, sold the stock back at $146,
the lawsuit alleges.
Members of the board also were given the opportunity to purchase shares in
Global Crossing at a favorable initial public offering price, and some made
large profits on this stock, according to the suit.
Some members of the board who participated in the stock transactions reaped
profits ranging from less than $10,000 to more than $6 million, the suit
said. None of the opportunities to buy stock were provided to other
investors or shareholders, including the UAW Plan, the suit said.
Again citing press reports, the suit said Thompson had called on the
directors to repay their profits from the stock transactions and also
outlined laws that the directors may have violated. Prior to Thompson's
report, Douglas J. McCarron, president of the Carpenters and Joiners of
America and a member of the board, announced he would return the profit he
made on the sale of his ULLICO stock to the company.
As shareholders in ULLICO, the UAW plans have several options to responding
to the stock transactions, the suit said, including:
- nominating and seeking the election of candidates for the board of directors
at the May 2003 annual meeting of ULLICO shareholders;
- calling a special meeting, along with other shareholders, to "seek the
removal for cause of various directors" who participated in the stock
- refusing to authorize current management to vote the plans' shares by proxy
for current members of the board.
According to the suit, ULLICO is obligated as a fiduciary to disclose to
shareholders "material information necessary for shareholders to make
informed decisions in taking shareholder actions, particularly where
corporate directors may have engaged in serious malfeasance. ... The
shareholders cannot exercise those rights in an informed and meaningful
manner unless they are provided with reliable, material information
regarding the stock transactions engaged in by the current members of the
board of directors."
In a Jan. 30 statement announcing the filing of the suit, UAW President Ron
Gettelfinger said, "We need to know the facts. If we've learned anything
from Enron and other corporate scandals that have unfolded during the past
year, it's that shareholders must be vigilant in demanding transparency,
openness, and accountability from corporate officers and directors."
"We were promised a full investigation, and we intend to see that ULLICO
management keeps its promise," Gettelfinger said. "ULLICO shareholders,
including UAW employees whose pension funds are invested in that
company--deserve no less than full disclosure of the Thompson report."
According to the release, Gettelfinger and UAW Secretary-Treasurer Elizabeth
Bunn sent a letter in December 2002 to ULLICO asking for a copy of the
Thompson report. "ULLICO management did not even respond to our request,"
Bunn said, adding that the union routinely requests and receives financial
disclosures from companies it bargains with. "We will demand no less from
ULLICO," she said.
A ULLICO attorney was not immediately available for comment on the UAW
lawsuit. A company spokesman declined Jan. 31 to comment on the lawsuit.
Maryland Agency Also Seeks Report
Pressure on ULLICO to release the Thompson report also has come from the
Maryland Insurance Administration, which on Oct. 18, 2002, filed a subpoena
with the Maryland Circuit Court covering Baltimore County seeking virtually
all ULLICO documents from Jan. 1, 1999, to the present including Thompson's
report. The subpoena was filed by the state agency after attorneys for
ULLICO rejected several written requests for the documents.
Thompson's report is an internal document, counsel for the company have
argued, and not available to the public.
A hearing on the motion to enforce the subpoena and to respond to ULLICO's
contention that Maryland Insurance Commissioner Steven B. Larsen lacks
authority to investigate the company is scheduled for March 3 before the
circuit court, a spokeswoman for the Maryland Insurance Administration told
BNA Jan. 31. The agency is responsible for insuring that state-based
insurance companies comply with the Maryland insurance code.
ULLICO attorneys asserted in their Jan. 27 response to the state's subpoena
that the commissioner's requests "are so unreasonable, both in terms of the
scope and the manner of investigation" that the company "cannot comply
consistent with the interests of its shareholders." They filed a motion to
quash the subpoena as well as a motion for declaratory and injunctive
Concern about ULLICO, a company incorporated in Maryland with headquarters
in Washington, D.C., was expressed by the state insurance commission in a
Dec. 19, 2001, "limited scope examination" of the company. In that report,
the state agency said the examination was ordered "as a result of the
deterioration during 2001 of the company's financial condition."
Noted in the report was the federal grand jury investigation of ULLICO
concerning repurchase of ULLICO shares at "inflated prices" from the
company's directors and officers and whether this activity provided them
with "extraordinary financial benefits that were unavailable to all
Also noted in the report was that Arthur A. Coia, formerly president of the
Laborer's International Union of North America, had pleaded guilty in
January 2000 to federal criminal charges but retained his position on
ULLICO's board until Aug. 31, 2001, when he resigned. The commission
recommended that any member of ULLICO's board who had been convicted of or
had pleaded guilty to criminal charges "should be immediately removed" from
the company's board.
Jake West, a member of the ULLICO board and former president of the Bridge,
Structural and Ornamental Iron Workers, who pleaded guilty to criminal
charges of embezzlement from an employee pension benefit fund and making
false statements, has since resigned from the board, a ULLICO spokesman
confirmed Jan. 31.