WASHINGTON -- More than two dozen union presidents were personally invited to buy shares in Global Crossing Ltd. as the international telecommunications firm was first offering its stock to the general public.
It isn't clear how many of the officials took advantage of the 1998 offer, but it nonetheless marks an unusual collaboration between organized labor and one of the nation's most-highflying companies.
Federal lawmakers are already looking into accounting methods at Global Crossing, which is in bankruptcy protection. Now, a federal grand jury is seeking information from the union officials, all of whom sat on the board of a union-owned insurance and investment firm, Ullico Inc., about their trading in Ullico stock.
Ullico, formerly known as Union Labor Life Insurance Co., was an early investor in Global Crossing, and as its stock rose and fell during the past few years, it was often in tandem with shares in the telecommunications firm.
A federal grand jury based in Washington has subpoenaed individuals from Ullico to describe how board members bought and sold the private stock of the labor-owned company. Investigators are asking whether Ullico board members wrote repurchase and sales rules that provided them extraordinary financial benefits not available to other shareholders.
All told, Ullico made a handsome profit -- about $300 million, company officials said -- on its initial $7.5 million investment in Global Crossing. But the union-owned company didn't sell all of its Global Crossing holdings. The telecommunications firm's swift demise last year left Ullico lacking the financial flexibility it had previously. That, in part, has led to a lowering of Ullico's rating to B-plus from B-plus-plus from insurance rating firm A.M. Best Co.
Global Crossing founders welcomed the union investment, seeing it as helpful in establishing credibility with investors and with other telecommunications firms whose support was needed to build trans-Atlantic fiber-optic cables. The relationship also helped politically, at least occasionally. In the late 1990s, Global Crossing needed the approval of state and federal regulators to purchase Rochester-based Frontier Telephone Inc. One union that is part of Ullico, the Communication Workers of America, offered support for the deal, which may have speeded approval. Later, the union issued a press release supporting Global Crossing's unsuccessful bid for U S West Inc.
Opening shares of Global Crossing were in great demand when the company first went public in August 1998. But union leaders had an inside track, thanks to an invitation passed along by Ullico executives to buy what are known informally as "friends and family" shares of the initial public offering. Such shares are typically offered to investors personally associated with a company. Because Ullico was an early investor in the nascent telecom firm, its executives were offered a chance to purchase relatively small lots (one thousand shares or less) of IPO stock.
Ullico's ties to Global Crossing were forged by a former Democratic National Committee official, Michael Steed, who had gone on to be director of investments for Ullico in the early 1990s.
Mr. Steed had led Ullico investment in several private-capital deals including a Los Angeles real-estate partnership that involved, among others, Gary Winnick, the California-based financier who would later launch Global Crossing. When Mr. Winnick was looking for investors in Global Crossing in early 1997 he approached Mr. Steed. By that point, Mr. Steed had introduced Mr. Winnick to his friend from his days at the Democratic National Committee, Terry McAuliffe.
Mr. McAuliffe, who is now chairman of the DNC, invested $100,000 of his own money in Global Crossing in those early days. A few months later, also before the IPO, former President George Bush received shares in Global Crossing in lieu of a fee for speaking on behalf of the company in Japan. The early stock held by Messrs. McAuliffe and Bush ballooned to a value of millions of dollars as Global's share price soared in the late 1990s.
At its high point in the summer of 1999, the stock was trading at $64 a share on a postsplit basis. It isn't known how many of Ullico's board members chose to buy IPO shares in Global Crossing for $18 a share in August 1998. AFL-CIO Chairman John Sweeney recalled being offered the opportunity to do so, but he said through a spokesman that he declined to buy any.
A few months after the initial offering, Mr. Winnick and others in the Global Crossing corporate team came to Washington to talk with union leaders. They met first at Ullico headquarters and one executive provided a brief summary of the company's business plans. They then attended a reception at the Corcoran Museum of Art for the labor leaders and Washington staff of the member unions.
A Global Crossing spokesman said the meeting and the reception were held because Ullico was "an important founding investor."
The AFL-CIO has launched its own inquiry into the purchase and sale of Ullico stock by board members. The labor federation, which is an investor in Ullico, wants to know whether any board members benefited improperly from the sale of Ullico stock back to the company under the rules they wrote for themselves.
Meantime, federal regulators and lawmakers looking into Global Crossing's accounting methods want to know whether certain so-called swap transactions, in which Global Crossing traded telecom capacity with other carriers, may have masked the firms' true financial condition.
Executives from Global Crossing, Qwest Communications International Inc., WorldCom Inc. and perhaps other telecommunications firms have been asked to appear Thursday before a House Financial Services subcommittee, which is looking into whether certain accounting techniques masked the true financial picture of the companies. Global Crossing said its chief executive, John Legere, will attend the hearings. A spokesman for Qwest, which received the subcommittee's letter late Friday, said the company will "decide [Monday], after we learn more details, what is the right response to the committee." WorldCom, which also received the letter Friday, said "we haven't decided whether or not we'll be attending it."
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Grand Jury Studies Stock Trades
By Labor-Owned Insurance Firm
By TOM HAMBURGER and JOHN HARWOOD
Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON -- A federal grand jury here is looking into stock transactions by a labor-owned insurance company that was an early and significant investor in Global Crossing Ltd., the once-highflying telecommunications company now in bankruptcy proceedings.
Details of the grand jury inquiry weren't available Thursday. AFL-CIO
officials confirmed that the national labor federation itself is concerned about stock transactions authorized by the board of Ullico Inc. and have begun their own inquiry.
Ullico, formerly known as Union Labor Life Insurance Co., provides insurance and financial services to unions and their members through a group of subsidiaries.
"We are taking these matters seriously, and we are actively looking into them," said Damon Silvers, associate general counsel of the AFL-CIO . AFL-CIO officials are examining whether a series of transactions approved by the Ullico board may have provided unusual benefits for some board members.
Members of the board of Ullico, including AFL-CIO President John Sweeney and leaders of two dozen leading trade unions, were authorized under the company's rules to buy and sell the company's privately held stock. That stock sharply increased in value in the late 1990s as a result of Ullico's profitable investment in Global Crossing. Ullico ultimately realized more than $300 million in profit from its initial $7.5 million investment.
Ullico spokesman John Rodgers said the company wouldn't have any comment. But people familiar with the Ullico case said at least two officers have been subpoenaed to appear before a federal grand jury meeting in Washington.
Among other things, the grand jury has requested information about how Ullico stock was offered for purchase and sale to Ullico officers and members of the board. Those familiar with the case said that Ullico stockholders were given the opportunity to sell their shares back to the insurance company at advantageous prices that were set months earlier. By the time of some sales, Global Crossing's stock had plunged, and Ullico's value had, in turn, decreased.
Ullico stock is held by the country's major trade unions and by board members and officers of the company. One board member, Jacob F. West, was indicted last year and is awaiting trial on charges of embezzling funds from the Ironworkers union he once headed. Mr. West's lawyer, Michele Roberts, declined to comment on the inquiry into Ullico stock transactions.
Lately, the fall in Global Crossing stock that Ullico continues to hold has created problems for the company. For example, insurance-rating firm A.M. Best Co. recently lowered Ullico's rating to B+ from B++, in part because of the decline in the value of Ullico's investment in Global Crossing. Global Crossing's stock rose as high as $64 a share, then declined to 30 cents before the company sought bankruptcy protection in January.
In Ullico's 2000 annual report, the most recent available, Chairman and CEO Robert Georgine acknowledged that the decline in the stock market "has a significant impact on the company's total assets, stockholders' equity and third-party assets under management." However, he said that decline "in no way impairs the company's ability to operate successfully."
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- Amended Filing
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