Report: Ullico Officials "Acted Inappropriately" in Stock Repurchase

April 2, 2003 ( - Union presidents who reaped $5.6 million from a stock-repurchase program at a labor-owned financial services and insurance firm they helped direct should be forced to give back their profits, an investigative report concluded.

The report of an investigative team appointed by Ullico Inc.’s board of directors, headed by former Illinois Gov. James Thompson, cleared the company officials of criminal violations, according to news accounts. Investigators warned, however, that the officials’ actions might have violated state securities laws – a civil violation. The report said Ullico officers and board members “arguably acted inappropriately and to the detriment of the rights of Ullico institutional shareholders.”

Although the board fought release of the report for months, directors decided this week to abandon that policy and distribute the Thompson report to shareholders (See  Ullico Votes For Thompson Report Release).   The board also voted to adopt corporate-governance reforms recommended in the report.

The report lays out a pattern of questionable decisions that allowed President and Chief Executive Robert Georgine and 19 other Ullico directors and officers, who collectively owned less than 2% of the company’s stock, to earn more than $13.7 million under stock buyback programs while pension funds that owned more than 90% of the stock earned only $28 million. Georgine’s pretax profits were $837,760. The report noted that Georgine and others acquired stock under a program that allowed each director and senior officer — and no other investors — to buy stock at $28.70 a share in 1998 and $53.94 in 1999. They were later able to sell the shares at $146.40.

Ullico’s stock price was based on its book value, which soared because of a large run-up in the price of the stock of telecommunications concern Global Crossing Ltd., in which it had a large investment. The company’s 2000 stock repurchase program allowed smaller shareholders, including officers and directors, to sell back all of their shares while the largest shareholders, such as pension funds, were limited in how much stock they could sell. Shortly thereafter, the value of Ullico shares declined sharply along with the value of Global Crossing, which eventually filed for bankruptcy protection.

Georgine and the firm’s legal counsel, Joseph Carabillo, “bear responsibility for the defects” in the stock offer and repurchase plans, the report says. “A forceful argument exists that certain senior officers of the Company, principally Georgine and Carabillo, violated their duties of loyalty and care to the company,” investigators wrote.

Controversy Prompts Resignation

Georgine, the person most severely criticized in the Thompson report, may retire before the company’s annual meeting in May, according to sources at the company. At a board meeting last week, Georgine, former president of the AFL-CIO’s Building and Construction Trades Department, offered to step aside, but the board gave him a vote of confidence and rejected his offer.

The long-running controversy has caused several of the union officials to break their Ullico ties. John Wilhelm, president of the Hotel and Restaurant Employees International Union, resigned in protest over the board’s rejection last week of a proposal to return the stock profits. His departure followed similar actions by AFL-CIO President John Sweeney and three other union executives who were unhappy with the company’s response to the stock allegations, which were detailed in the media last year.

Georgine, the sources said, disclosed that Ullico has over the past eight years built up for him a tax-deferred fund, known as a “Rabbi Trust,” that now has $11.2 million in it. The money would allow him to pay back the profits from the stock transactions, unnamed said

The company is being investigated by Congress and several government agencies, including the US Labor Department and the Maryland Insurance Administration. To add to its woes, public rating agencies twice downgraded the company’s insurance division. Ullico has suffered continuing operating losses at its life- and property/casualty-insurance subsidiaries as well as substantial operating shortfalls in each of the past two years in several of its business lines.