- The Washington Times - Monday, June 16, 2003

House Republicans are expected to confront a scandal-plagued former labor leader today in a hearing that will highlight a stock-selling scheme that lawmakers have compared to the collapse of Enron Corp.

Robert A. Georgine, former chief executive officer of ULLICO Inc., will be forced to publicly explain for the first time how he and a handful of board members, mostly various union presidents, made roughly $6 million in profit at the expense of other shareholders in the pension fund.

Rep. John A. Boehner, Ohio Republican and chairman of the House Education and Workforce Committee, will explore whether high-level executives for ULLICO, a labor-owned insurance company and pension fund, broke any federal laws by setting up “sweetheart stock deals” for themselves.

Republicans are also eager to point out what they see as the hypocrisy of some labor leaders who loudly criticized the corporate corruption of the Enron stock scandal while they were profiting from the union scheme.

“The hearing will focus on the fact that at the very same time some union leaders were joining the chorus of well-deserved criticism for the leadership of the Enron Corp., ULLICO apparently set up a system of insider stock deals that made millions for ULLICO’s leadership at the expense of rank-and-file union members,” said a Republican aide who spoke on the condition of anonymity.

Armed with 80,000 subpoenaed documents, Republicans said they have a narrative that emulates the stock-price manipulation that brought down Enron and its Chief Executive Kenneth L. Lay, a close friend and political supporter of President Bush.

The ULLICO scandal involves the trading of shares of Global Crossing Ltd., the telecommunications company whose stock prices soared in the late 1990s only to crash into bankruptcy by 2002. The Global Crossing scandal has been associated with prominent Democrats, including Terry McAuliffe, chairman of the Democratic National Committee.

Democrats on the committee said the differences between the Enron and ULLICO scandals “are legion.”

“If you look at the scale, [ULLICO] is an ant compared to a whale” — Enron — said an aide to committee Democrats. “In Enron, the company was looted. Not only shareholders, but the employees were essentially wiped out.”

In late 1997, ULLICO changed the manner in which it distributed profits to shareholders. Instead of receiving dividends, shareholders would profit through a formal stock-repurchase program administered by Mr. Georgine.

As part of the process, ULLICO, which historically had set its share value at $25, instituted an annual re-evaluation of the stock price based on the year-end value of ULLICO’s holdings.

Several months after the new system was in place, Mr. Georgine made a $7.6 million investment to get on the ground floor of Global Crossing. As Global Crossing’s stock value skyrocketed, so did the value of the ULLICO shares.

Mr. Georgine wrote a memo urging ULLICO board members to buy shares of ULLICO stock at $28.70 a share in October 1998, knowing that the price would dramatically increase when ULLICO’s new financial report — reflecting its linkage to Global Crossing’s rising stock — was issued in 1999. However, ULLICO’s large institutional shareholders were not offered the same opportunity to invest.

By late 2000, the value of Global Crossing stock plummeted, but the ULLICO stock was still valued at $146.04 a share. Mr. Georgine and other board members sold their shares back to ULLICO when they knew the price would crash once the new financial reports, reflecting the failure of Global Crossing, were released several months later.

Mr. Georgine and ULLICO’s executive board were able to sell back all their stock, while larger shareholders — such as pension funds for rank-and-file union members — could sell back only 2.66 percent of their shares.

A report issued by former Illinois Gov. James Thompson, who was directed by ULLICO to investigate the scheme, concluded that “certain officers and board members arguably acted inappropriately and to the detriment of the rights of ULLICO institutional shareholders.”

The report, however, said that it is “unlikely” these transactions violated federal securities law but might have violated securities laws in Maryland, where ULLICO is based.

Mr. Boehner disagrees and will explore whether Mr. Georgine’s actions violated several federal laws that enforce ethics in the management of labor unions.

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