> Georgine, who reportedly made about $6 million from the stock sales in
> question, wrote to shareholders: "It was appropriate to provide [officers
> and directors] an opportunity to invest personal funds in the company in
> recognition of their wisdom and guidance over the years." In his letter to
> labor leaders, he wrote: "We did -- and do -- believe those transactions,
> which were part of a program to return millions of dollars to Ullico's
> shareholders, were entirely legal."
>
> He blamed much of the criticism on "anti-union bias." In fact, some of his
> severest critics are top labor officials. Georgine's letters did not
> address the most controversial board decision: allowing members to sell
> shares back to the company at a high price when most knew the value would
> soon fall.
>
The whole Ullico issue underscored a larger question than whether its directors appropriately profited from their Global Crossing stock sales.
Ullico at one point, as a corporate investment, owned 7% of Global Crossing. This was largely due to the political astuteness of Gary Winnick. Winnick was a consummate politician who pushed the envelope in terms of finding support for the original financing of Global Crossing. Unlike Bernie Ebbers at WorldCom, Winnick calculated that union support would be critical, and easy to get. So, he promised that his company would be unionized, in return for Ullico's investment.
Should the directors have cash-out while other lower level shareholders couldn't? - No Should the directors have had disproportionate access to 'hot stock deals'? - No
But, I'd say that Ullico directors are being disproportionately scrutinized for their behavior relative to everything else that was going on in the 1999/2000 period.
Should they have dressed up their balance sheet right before quarterly earnings announcements to showcase the performance of Global Crossing stock as one of Ullico's core invesments? - probably not. But, they did so openly. Ullico's annual statements in 1999 emphasized its high returning invesments in Global Crossing stock.
But, the larger question is - what was Ullico doing putting so much emphasis on a junk-rated speculative company? Where were its risk controls?
This gets back to how dangerous it is to invoke drastic changes in investment policies - for Ullico, for pension funds, for corporate funds, etc. - without taking a look at the potential downside.
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