[PEN-L:29427] RE: "Big Labor?s Enron"

["Devine, James" <jdevine@xxxxxxx>]

Title: RE: [PEN-L:29426] "Big Labor?s Enron"

 is NATIONAL REVIEW -- a right-wing McCarthyite rag -- a reliable source? is the National Right to Work group -- an anti-union organization -- someone to trust?

Jim

-----Original Message-----
From: Ben Day
To: pen-l@xxxxxxxxxxxxxxxxxxx
Sent: 8/13/2002 8:37 PM
Subject: [PEN-L:29426] "Big Labor?s Enron"

August 13, 2002, 8:45 a.m.
Big Labor's Enron
by Joel Mowbray for National Review Online

At the same time that AFL-CIO president John Sweeney is telling the
public
that unions are the best protector of workers amidst the "corporate
crime
wave sweeping the country," "big labor" may well have a similar problem
in-house to cope with.

Today National Right to Work Legal Defense Fund (NRWLDF) attorneys are
filing an administrative complaint with the National Labor Relations
Board
(NLRB) against ULLICO, a financial-services company run by union bosses
that primarily invests money from union pension funds.

The suit claims that ULLICO lined the pockets of some of the members of
its
board of directors - all current or former heads of unions - at the
expense
of the blue-collar workers whose compulsory fees already line those same

pockets.

NRWLDF's complaint is based on facts that were revealed in April by both

the Wall Street Journal and Business Week, and it comes as a sitting
grand
jury is investigating possible shenanigans at ULLICO.

Like so many of the recent corporate-corruption scandals, ULLICO's woes
were triggered by the plummeting prices of tech stocks. The demise of
Global Crossing - it is now mired in bankruptcy - hit ULLICO extremely
hard, as it had invested in an early stage in the telecom favored by
wealthy Democrats such as Terry McAuliffe.

ULLICO's original $7 million investment - at the "founders" price of $1
per
share - mushroomed in value, reaching a total worth to ULLICO of an
eye-popping $2.1 billion when Global Crossing's stock peaked at $64.25
in
May 1999. But just three years later, that investment had become
worthless
as Global Crossing fell victim to cutthroat competition and a bursting
tech
bubble.

The investment in Global Crossing only occurred because of the morphing
of
ULLICO from its roots as a life-insurance provider for blue-collar union

workers into a financial-services company, investing the money of
pension
funds from unions around the country.

At the start of the 1990's, former Democratic National Committee
official
Michael Steed took the financial reins at ULLICO, converting the company

from stodgy insurance carrier to a savvy financial-services outfit with
substantial investments in the previously booming tech sector.

Part of ULLICO's metamorphosis included making ULLICO itself an
investment
vehicle for various union pension funds, as well as for those sitting on

ULLICO's 32-member board of directors. In 1997, ULLICO changed its
longstanding policy of offering its privately held shares for a nominal,

fixed price of $25 each. At Steed's direction, share prices were
adjusted
annually - a seemly infinite amount of time in the roller-coaster
financial
world - with new prices decided each May based on an independent audit
of
the books of the previous calendar year.

Because of its large holding in Global Crossing, ULLICO's own net worth
was
tied directly to the value of the telecom's once-highflying stock. At
the
end of 1998, with Global Crossing's stock at $22 per share, slightly
higher
than its IPO price from earlier that year of $18, PricewaterhouseCoopers

determined shares in ULLICO to be worth $53.94 each. ULLICO's board
implemented that price in May of 1999, right as Global Crossing's stock
price was surging well past its levels of just five months earlier.

Near the end of 1999, with Global Crossing's stock at a still-lofty
$52.56
a share a mere two weeks before ULLICO's books would close, ULLICO's
Chairman Robert Georgine wrote a memo to members of the board - a memo
that
is the genesis of much of ULLICO's current woes.

On December 17, 1999, Georgine, who is also a former AFL-CIO official,
extended a confidential invitation to senior ULLICO officers and
directors
to purchase ULLICO shares at the bargain price of $53.94. It was
guaranteed
money in the bank to all who bought, because with Global Crossing's
stock
price in the clouds, the next audit - to be based on the condition of
ULLICO's financial portfolio as of two weeks after the date of the memo
-
was sure to peg ULLICO's value dramatically higher.

To make crystal clear to those reading the memo that he believed it an
opportune time to buy more ULLICO shares, Georgine wrote, "I intend to
purchase additional shares at this time."

Georgine proved remarkably prescient five months later when the annual
Pricewaterhouse audit nearly tripled ULLICO's share price up to $146 in
May
2000. But by the time the board ratified the new, higher share price for

ULLICO, Global Crossing's fortunes had already started sinking, with the

stock price off by 45 percent from its year-earlier peak, down to $35 a
share. In other words, with Global Crossing's stock price heading south
in
a hurry, the $146 stock price for ULLICO was inflated from the moment it

became official.

In November of 2000, ULLICO's board voted to buy back $30 million worth
of
its own shares at $146 a piece - much of which was to be purchased from
the
very board members voting for the stock-repurchasing plan. ULLICO
shareholders were even given five extra months to sell back stock, right
up
until the next price re-adjustment in May of 2001, when the new price
was
bound to be far lower than $146.

But not all ULLICO shareholders were treated equally. Those with large
holdings of over 10,000 shares, such as union pension funds, were
restricted in how much they could sell, but those with relatively
smallholdings, such as ULLICO officers and board members, could sell
back
all their shares. The net result of this disparate treatment is that the

self-dealing profited board members - some quite handsomely, in fact -
but
that bounty came at the expense of the pensions of rank-and-file union
members.

Sure enough, the collapse of Global Crossing's stock dragged down
ULLICO's
value, nearly halving the stock price to $74. All those who sold shares
between November of 2000 and May of 2001 wound up receiving double what
they would have at ULLICO's true value.

Among the union leaders who took advantage of the sweetheart deal were
the
following ULLICO board members: Morton Bahr, president of the
Communications Workers of America; Martin Maddoloni, president of the
plumbers union; William Benard, former head of the asbestos workers
union;
Jacob West, former head of the ironworkers union; and Douglas McCarron,
president of the carpenters' union.

The personal profiteering of union bosses coming at the expense of
rank-and-file union workers is at the heart of NRWLDF's complaint to the

NLRB. The suit charges that ULLICO's special deal to its board members
violated the Taft-Hartley Act of 1947 by "enriching union officials to
the
detriment of ordinary workers," says Stefan Gleason, vice president of
NRWLDF.

So far, the White House has been conspicuously silent about the millions
of
dollars of ill-gotten gains by union bosses through ULLICO, in large
part
because of its budding friendship with McCarron and his carpenters'
union.
But the White House might want to reconsider: McCarron's union has
donated
$2.1 million in campaign cash so far this year, 88 percent to Democrats,

including $1 million in soft money to the Democratic Senatorial Campaign

Committee in late June.

Sen. Ted Kennedy, chairman of the Senate committee that would be tasked
with looking into ULLICO wrongdoing, received $1,000 from ULLICO in
2000.
ULLICO's political action committee has handed out $31,500 this year, 94

percent to Democrats.

Don't hold your breath waiting for a "perp walk" for ULLICO officials
anytime soon. The NLRB is limited to fining individuals and demanding
the
ill-gotten gains be returned to the pension funds of union members.

The sitting grand jury, on the other hand, is looking into a broader
array
of possibly illegal activities, which could result in hard jail time for

some - though that's hardly likely. Few familiar with the situation
believe
that prosecutors will decide to do battle with politically powerful
union
bosses.

Despite the reluctance of Democrats or the White House to discuss
unions'
malfeasance in the same breathless way as corporate accountability,
there
are at least a handful of Republicans in Congress who are targeting "big

labor."

Rep. Charlie Norwood (R, Ga.) had the best take on the
fox-guarding-the-henhouse problem of ULLICO:

"I raise a few chickens on my place back in Georgia. I also have had
dogs
on that property that I have loved very much. However, I would never
start
letting my dogs eat my chickens. It would naturally be rough on the
chickens, and the dogs would never hunt again.

Now I know my Democratic friends love the support they get from labor
leaders. I know they want to feed them any last chance they get. But
please
don't feed them the savings of hard-working American families.

It's bad for the dog, and murder for the chickens. And friends, that
dog's
already got feathers on his snout that look a whole lot like pension
money."