Former Illinois Gov. James Thompson found “compelling evidence” that the union boss directors of Ullico violated their fiduciary duty to the union members whose pension funds support the insurance company. In Maryland, where the union insurance company is based, state law requires company directors to act in the best interests of the company, not themselves. But from 1999 to 2001, 19 Ullico directors took advantage of insider stock deals disproportionally structured to favor them even as the company finished 2002 in debt, and has seen its insurance rating downgraded twice this year.
Thompson handed over his report to Ullico CEO, and former construction union boss Robert Georgine last November. But Georgine refused to release the report to the public, and has fought efforts by U.S. labor dept. and Maryland insurance officials to see the report, claiming attorney-client privilege. In response to the Thompson report, Georgine formed a “Special Committee” of Ullico directors who reportedly did not take part in the stock deal.
Faced with Thompson’s conclusion that Maryland securities laws were likely broken, Georgine and the Committee obtained an opinion from James J. Hanks, a Maryland corporate lawyer, claiming that no state laws had been broken in Ullico’s handling of the stock trades. With Hanks’ opinion in hand, to counter the Thompson report, the special committee voted on March 28 to release the report, but also voted against requiring any of the insider profits to be returned.
But Thompson shot back at Georgine on April 4, accusing Ullico officials of lying about his report to the press. In response to an April 2 news release in which Ullico claimed that Thompson’s staff had failed to “fully explore…[the] applicable law on the breach of fiduciary duty,” Thompson pointed out that the release itself characterized the Thompson investigation as “exhaustive.” Thompson also blasted Ullico spokesman John Rodgers for claiming that Thompson had found “no violation of the fiduciary duty” by Georgine or other directors, when in fact, Thompson did conclude that such violations occurred.
“It is one thing for you and your advisors to take issue with the conclusions in our Report. It is quite another for ULLICO and its press officers to make misleading, false or defamatory statements about the Report and my staff,” Thompson told Georgine by letter. [Press Release, James R., Thompson, Chairman, Winston & Strawn, 4/4/03, Associated Press, 4/1/03]