[PEN-L:33085] Top AFL-CIO Officials Resign in Insurance Scandal

[Yoshie Furuhashi <furuhashi.1@xxxxxxx>]

US: Top AFL-CIO officials resign in insurance scandal

By Joseph Kay
13 December 2002

Three top US labor officials, including AFL-CIO President John
Sweeney, have resigned their positions as directors of the
union-owned insurance firm, Ullico. The resignations come amidst
bitter conflicts within the union bureaucracy over probes into
corrupt insider trading by board members.

Sweeney quit along with AFL-CIO Executive Vice President Linda
Chavez-Thompson and International Union of Operating Engineers
President Frank Hanley. The three have accused Ullico CEO Robert
Georgine of attempting to suppress an internal report on trading
schemes that allowed Ullico directors to make hundreds of thousands
and in some cases millions of dollars on the sale of company stock.
Georgine is the former head of the AFL-CIO's Building and
Construction Trades Department.

The stock trading involved the privileged purchase of Ullico shares
by directors -- nearly all of whom are current or former trade union
officials -- at artificially low prices and the privileged sale of
these shares at prices that were artificially high.

The company has over $6 billion in assets, consisting principally of
union pension funds. During the late '90s, these assets were
increasingly employed in stock market speculation. Because Ullico is
a privately held company, share prices are determined by the board of
directors rather than by market forces.

During 1999, Georgine and other board members put together special
arrangements that allowed directors to purchase company shares
shortly before a reevaluation of the share value. This was during the
height of the telecom stock bubble, and the Ullico portfolio was
heavily invested in telecommunications companies, particularly Global
Crossing. Thus, directors who knew that a periodic reevaluation of
Ullico stock would yield a sharp increase could reap profits by
buying up shares first at the lower price.

When the telecom bubble burst in 2000, directors were given the
opportunity to sell large amounts of shares at the inflated value.
Thus they were able to benefit personally through inside knowledge
and control of the company's share price. Georgine himself made over
$7 million in this manner, according to sources cited by the
Washington Post.

The revelations surrounding the stock agreements originally surfaced
as a side effect of an investigation into former president of the
Bridge, Structural and Ornamental Iron Workers, Jake West, who
pleaded guilty in October to embezzlement. The charges relate to his
management of his union's pension fund and a $200,000 payoff to one
of his union rivals.

When the scandal erupted earlier this year, Sweeney and other
directors scrambled to contain the crisis. The AFL-CIO has attempted
to posture as a critic of corrupt corporate practices such as those
that took place at Enron, WorldCom and Global Crossing. When it was
discovered that Ullico directors were involved in the same sort of
deals, the unions' credibility among their own members was further
undermined. This credibility has been severely eroded as the
bureaucracy has steadily integrated itself into the corporate
establishment, a process that is graphically illustrated in the
scandal itself....

The board members who resigned did not participate in the stock
deals. Nevertheless, as board members, Sweeney and the others had to
approve the stock purchase and buyback schemes proposed by Georgine.
It was only after the collapse of Global Crossing shares and the
public disclosure of the scandal that they come into conflict with
the former building trades bureaucrat....

<http://www.wsws.org/articles/2002/dec2002/ulli-d13.shtml>
--
Yoshie

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