[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




                        "THE ULLICO SCANDAL AND
                  ITS IMPLICATIONS FOR U.S. WORKERS"




                                HEARING

                               BEFORE THE

                       COMMITTEE ON EDUCATION AND
                              THE WORKFORCE

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS
                              FIRST SESSION
		
             HEARING HELD IN WASHINGTON, DC, JUNE 17, 2003

                            Serial No. 108-19

            Printed for the use of the Committee on Education
            and the Workforce



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                            WASHINGTON : 2003
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                 COMMITTEE ON EDUCATION AND THE WORKFORCE
                      JOHN A. BOEHNER, Ohio, Chairman

THOMAS E. PETRI, Wisconsin		GEORGE MILLER, California
CASS BALLENGER, North Carolina		DALE E. KILDEE, Michigan
PETER HOEKSTRA, Michigan		MAJOR R. OWENS, New York
HOWARD P. "BUCK" McKEON, California	DONALD M. PAYNE, New Jersey
MICHAEL N. CASTLE, Delaware		ROBERT E. ANDREWS, New Jersey
SAM JOHNSON, Texas			LYNN C. WOOLSEY, California
JAMES C. GREENWOOD, Pennsylvania	RUBE?N HINOJOSA, Texas
CHARLIE NORWOOD, Georgia		CAROLYN McCARTHY, New York
FRED UPTON, Michigan			JOHN F. TIERNEY, Massachusetts
VERNON J. EHLERS, Michigan		RON KIND, Wisconsin
JIM DeMINT, South Carolina		DENNIS J. KUCINICH, Ohio
JOHNNY ISAKSON, Georgia			DAVID WU, Oregon
JUDY BIGGERT, Illinois			RUSH D. HOLT, New Jersey
TODD RUSSELL PLATTS, Pennsylvania	SUSAN A. DAVIS, California
PATRICK J. TIBERI, Ohio			BETTY McCOLLUM, Minnesota
RIC KELLER, Florida			DANNY K. DAVIS, Illinois
TOM OSBORNE, Nebraska			ED CASE, Hawaii
JOE WILSON, South Carolina		RAU?L M. GRIJALVA, Arizona
TOM COLE, Oklahoma			DENISE L. MAJETTE, Georgia
JON C. PORTER, Nevada			CHRIS VAN HOLLEN, Maryland
JOHN KLINE, Minnesota			TIMOTHY J. RYAN, Ohio
JOHN R. CARTER, Texas			TIMOTHY H. BISHOP, New York
MARILYN N. MUSGRAVE, Colorado		
MARSHA BLACKBURN, Tennessee					
PHIL GINGREY, Georgia
MAX BURNS, Georgia


                Paula Nowakowski, Chief of Staff
           John Lawrence, Minority Staff Director


                        Table of Contents


OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, COMMITTEE ON 
EDUCATION AND THE WORKFORCE .............................................  2

OPENING STATEMENT OF RANKING MEMBER GEORGE MILLER, COMMITTEE ON 
EDUCATION AND THE WORKFORCE .............................................  3

STATEMENT OF WARREN E. NOWLIN, ESQ., PARTNER, WILLIAMS MULLEN, 
WASHINGTON, D.C. ........................................................  6

STATEMENT OF DAMON A. SILVERS, ESQ., COUNSEL TO THE CHAIRMAN, ULLICO, 
INC., WASHINGTON, D.C. ..................................................  7

APPENDIX A - WRITTEN OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, 
COMMITTEE ON EDUCATION AND THE WORKFORCE ................................ 39

APPENDIX B - WRITTEN STATEMENT OF WARREN E. NOWLIN, ESQ., PARTNER, 
WILLIAMS MULLEN, WASHINGTON, D.C. ....................................... 43

APPENDIX C - WRITTEN STATEMENT OF DAMON A. SILVERS, ESQ., COUNSEL TO 
THE CHAIRMAN, ULLICO, INC., WASHINGTON, D.C. ............................ 51

APPENDIX D - SUBMITTED FOR THE RECORD, "BUILDING WORKERS' UNION SET 
TO LIMIT POLITICKING," GREENHOUSE, STEVEN, THE NEW YORK TIMES, JUNE 9, 
2003 .................................................................... 65

APPENDIX E - SUBMITTED FOR THE RECORD, REPORT OF THE SPECIAL COUNSEL, 
ULLICO STOCK PURCHASE OFFER AND REPURCHASE PROGRAMS AND GLOBAL 
CROSSING INVESTMENT, GOVERNOR JAMES R. THOMPSON, CHAIRMAN, 
WINSTON & STRAWN, NOVEMBER 26, 2003 ..................................... 69

APPENDIX F - SUBMITTED FOR THE PERMANENT HEARING ARCHIVE, APPENDIX 
TO THE REPORT OF THE SPECIAL COUNSEL, ON ULLICO STOCK PURCHASE 
OFFERS AND REPURCHASE PROGRAMS AND GLOBAL CROSSING INVESTMENT, 
AND CD ROM.  TAB NUMBER REFERENCES TO APPENDIX INCLUDED IN PRINTED 
HEARING REPORT ..........................................................217

APPENDIX G - SUBMITTED FOR THE RECORD, LETTER FROM JOHN A. BOEHNER, 
CHAIRMAN, COMMITTEE ON EDUCATION AND THE WORKFORCE, TO ROBERT A. 
GEORGINE, JUNE 16, 2003	.................................................229
APPENDIX H - SUBMITTED FOR THE RECORD, LETTER FROM ROBERT A. 
GEORGINE, TO JOHN A. BOEHNER, CHAIRMAN, COMMITTEE ON EDUCATION AND 
THE WORKFORCE, JUNE 16, 2003 ............................................233

APPENDIX I - SUBMITTED FOR THE RECORD, LETTER FROM JAMES A. PARETTI, 
JR., ESQ., PROFESSIONAL STAFF MEMBER, COMMITTEE ON EDUCATION AND THE 
WORKFORCE, TO RANDALL J. TURK, ESQ., BAKER BOTTS LLP, WASHINGTON, D.C., 
JUNE 16, 2003 ...........................................................237

APPENDIX J - SUBMITTED FOR THE RECORD, CONGRESSIONAL RESEARCH 
SERVICE, REPORT FOR CONGRESS, CRIMINAL CHARGES IN CORPORATE 
SCANDALS, ORDER CODE RL31866, UPDATED MAY 15, 2003 ......................241

APPENDIX K - SUBMITTED FOR THE RECORD, CONGRESSIONAL RESEARCH 
SERVICE, MEMORANDUM TO MARK ZUCKERMAN, CIVIL CHARGES IN 
CORPORATE SCANDALS, MAY 29, 2003 ........................................255

Table of Indexes ........................................................276


 
                       HEARING ON THE ULLICO SCANDAL 
                  AND ITS IMPLICATIONS FOR U.S. WORKERS

                           ____________________

                          Tuesday, June 17, 2003


                Committee on Education and the Workforce

                      U.S. House of Representatives

                             Washington, D.C.




	The Committee met, pursuant to notice, at 10:40 a.m., in Room 2175, Rayburn House 
Office Building, Hon. John Boehner, Chairman of the Committee, presiding.

	Present:  Representatives Boehner, Petri, Ballenger, Hoekstra, McKeon, Castle, Johnson, 
Greenwood, Norwood, Ehlers, Isakson, Tiberi, Osborne, Wilson, Cole, Porter, Kline, Carter, 
Musgrave, Blackburn, Gingrey, Burns, Miller, Kildee, Owens, Payne, Andrews, Woolsey, 
McCarthy, Tierney, Kucinich, Holt, S. Davis, D. Davis, Grijalva, Majette, Van Hollen, Ryan, and 
Bishop.

	Staff present:  Jim Paretti, Professional Staff Member; Chris Jacobs, Staff Assistant; 
Christine Roth, Workforce Policy Counsel; Ed Gilroy, Director of Workforce Policy; Stephen 
Settle, Professional Staff Member; David Connolly, Jr., Professional Staff Member; Jo-Marie St. 
Martin, General Counsel; Dave Schnittger, Communications Director; Kevin Smith, Senior 
Communications Counselor; Kevin Frank, Professional Staff Member; Deborah L. Samantar, 
Committee Clerk/Intern Coordinator.

John Lawrence, Minority Staff Director; Mark Zuckerman, Minority General Counsel; Peter 
Rutledge, Minority Senior Legislative Associate/Labor; Michele Varnhagen, Minority Labor 
Counsel/Coordinator; Maria Cuprill, Minority Legislative Associate/Labor; Margo Hennigan, 
Minority Legislative Assistant/Labor; Joe Novotny, Minority Legislative Assistant/Education; Ann 
Owens, Minority Clerk. 


OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, COMMITTEE 
ON EDUCATION AND THE WORKFORCE

	Good morning to all of you.  We are here this morning in exercise of our oversight authority 
- the responsibility we are charged with as Members of Congress and of this Committee.

	In March of this year, the Committee began an investigation into ULLICO, a union-owned 
insurance company that was started in 1925 by the American Federation of Labor to ensure that 
rank-and-file union members in high-risk jobs could purchase affordable life insurance.  In the 
seventy-some years since its founding, ULLICO has grown to become a multi-million dollar 
enterprise providing financial, lending, investment, and pension services to unions, union members, 
and union pension funds.

	The Committee began this investigation based on facts which, as they became public, 
suggested while at the same time organized labor was decrying corporate wrongdoing and 
corporate greed, many of the leaders of these same unions were, in fact, themselves profiting at the 
expense of rank and file union members and their families.

	Specifically, the facts suggest that ULLICO, under the leadership of its then Chairman, 
Robert Georgine, engaged in a series of transactions involving the sale of company stock to 
directors and officers at a price which the company knew or should have known was artificially 
low, and the repurchase of this stock a year or two later from the same officers and directors at a 
highly-inflated price.  Notably, at the time these repurchases were made, officers and directors of 
the company were permitted to "cash" in all of their stock holdings, while the unions and union 
pension funds that held the vast majority of shares were not given this same opportunity.

	In the course of this investigation, the Committee staff has reviewed thousands of pages of 
documents, including a highly-critical independent legal analysis conducted by the former governor 
of Illinois, James Thompson, which concluded that officers and directors of ULLICO very likely 
broke securities laws.  Governor Thompson was expressly directed not to examine whether 
ULLICO broke federal pension and labor laws, including the Employee Retirement Income 
Security Act (ERISA) and the Labor-Management Reporting and Disclosure Act (LMRDA).  As a 
result, the question of whether ULLICO's actions violated those laws remains unclear, and I think 
is a key issue for this Committee today.

	What seems clear is that these officers and members of ULLICO's board, which was 
overwhelmingly comprised of top officials of some of this country's largest unions, acted 
inappropriately and reaped personal benefit at the expense of the very union members and 
pensioners they have a moral and legal duty to represent.

	Last year, the financial collapses at Enron and WorldCom prompted this Congress to take 
strong and decisive actions to address corporate wrongdoing.  And in the wake of these scandals, 
Congress approved, and the President signed into law, the Sarbanes-Oxley Corporate 
Accountability Act, one of the farthest-reaching protections of American workers in modern 
history.  In the same spirit, this year, the House again passed the Pension Security Act to give rank-
and-file workers the same access to professional investment advice that wealthy executives have.

	Just as Congress acted quickly to hold corporate leaders accountable, it is my belief that this 
Congress should insist on the same type of financial accountability from union leaders.  Union 
members have a right to know that the union leaders who manage the billions of dollars in union 
dues and labor pension funds are following the law and acting solely in the interest of the workers 
they represent.  Rank-and-file union members deserve to know whether the leaders of ULLICO 
who participated in these stock deals violated the trust that they owe to their unions and union 
members.

	While investigations by the Departments of Justice and Labor, the Securities and Exchange 
Commission, the federal grand jury, and state regulators will reveal whether the millions of rank-
and-file union members were the victims of alleged illegal actions, we on this Committee have a 
responsibility to ensure that the interest of those union members are protected under our federal 
labor and pension laws.  The credibility of ULLICO and its obligation to the unions, union pension 
funds, and union members who invested in the company is at stake.

	With that, I want to thank our witnesses for appearing today, and we look forward to your 
testimony.

	I now yield to my colleague and friend, the gentleman from California, Mr. Miller.


WRITTEN OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, COMMITTEE ON 
EDUCATION AND THE WORKFORCE - SEE APPENDIX A


OPENING STATEMENT OF RANKING MEMBER GEORGE MILLER, 
COMMITTEE ON EDUCATION AND THE WORKFORCE

	Thank you, Mr. Chairman.  I want to agree with you that I think that this hearing is quite 
appropriate, that there clearly is a disturbing set of facts and behavior that should be of concern to 
every Member of this Committee, and certainly in our role in oversight over the pension laws of 
this nation.

	But I also want to make sure that we put this in context, and I'd like to note for the record 
what Governor Thompson said in his letter transmitting the report of his investigation of ULLICO 
stock purchase programs to the ULLICO board:

	"Certain ULLICO officers and board members arguably acted inappropriately, to the 
detriment of the rights of the ULLICO institutional shareholders.  As a result of their actions, 
certain officers and directors received preferential treatment in the sale of ULLICO stock.  It is 
important in these times of highly-publicized cases of deliberate corporate malfeasance to 
distinguish what happened at ULLICO from these other cases emphasizing that we have found no 
evidence of criminal intent."

	In many respects, the events of ULLICO represent allegations of another example of 
improper actions by corporate insiders, board members, and officers at the expense of shareholders.  
Unfortunately, that is an all too common story.  I have a Congressional Research Service (CRS) 
report that I will put in the record, that is nineteen pages long listing civil charges arising from 
numerous corporate scandals, and another that is eight pages long listing criminal charges of 
corporate scandals.

	Frankly, I wish the majority was as interested in investigating the billions of dollars 
employees lost in company 401(k) plans due to corporate fraud and abuse as it is in investigating 
the ULLICO transactions.  Millions of employees lost all or substantial amounts of their nest eggs 
in companies like Enron, WorldCom, Global Crossing, Lucent Technologies, CMS Energy, Xerox, 
Duke Energy, and yet this Committee has held only one abbreviated hearing on Enron.

	After a year-and-a-half of investigations of Enron, the Secretary of Labor has failed to 
collect one cent on behalf of Enron employees, as she is empowered to do under law.  She has 
failed to issue a report or findings on the Enron investigation, failed to provide employees and the 
Congress with updates on her progress, and has yet to file a civil action on behalf of the Enron 
employees or on behalf of any employee of these companies that I have mentioned.

	Mr. Chairman, I hope the inaction by the Secretary to address millions of pension victims of 
corporate fraud and abuse is subject to the next hearings, because a lot of employees are waiting 
after all of this time to recover the smallest portion of their nest egg.

	However, I do want to say that since the ULLICO story became public, union officials have 
led efforts to mount the investigation of the alleged misconduct, insisted the results of that 
investigation be made public, and have implemented reforms.

	Aaron Bernstein, one of the reporters who initially broke the ULLICO story, wrote in the 
May 27, 2003, issue of Business Week, and I quote, 'When it comes to good governance, corporate 
America can learn a useful lesson from all of the parties of the labor movement.  What's notable is 
that after months of earnest battles, the AFL-CIO President John Sweeney and other labor leaders 
who sat on ULLICO's board moved decisively to clean up the mess.  These actions stand as a 
model to other large companies.  It's painfully clear today that corporate boards rarely fulfill their 
designated role as watchdog over the CEOs.  But the AFL can now cite ULLICO not just as a case 
of executive greed, but as an example of how to deal with it."

	Thank you, Mr. Chairman.

Chairman Boehner. Thank you, Mr. Miller.  I'm eager to hear from 
our witnesses today, so I'll start with the introductions.

	Our first witness today is Mr. Robert A.Georgine.  He served as Chairman and Chief 
Executive Officer of ULLICO, Inc., Washington, D.C. from December of 1990 through May 2003.  
He was President of the AFL-CIO Building and Construction Trades Department from 1974 
through 2000, and also served on the AFL-CIO Executive Committee.

	The second witness is Mr. Warren E. Nowlin.  Mr. Nowlin serves as a partner in the law 
firm of Williams Mullen here in Washington, D.C., focusing on corporate and securities law.  He 
has advised pension funds and state retirement systems on their investment programs and their 
regulatory obligations under securities and tax laws, ERISA, and the Department of Labor 
regulations.  Mr. Nowlin received his Bachelor's Degree from the University of Virginia, and his 
law degree from Washington & Lee University School of Law.

	Our third witness is Mr. Damon Silvers.  Mr. Silvers serves as Counsel to the current 
Chairman of ULLICO, Inc., Washington, D.C. and also serves as Associate General Counsel for 
the AFL-CIO.

	I'd like to remind Members that we will be asking questions after the entire panel has 
testified.  In addition, Committee Rule 2 imposes a five-minute limit on all questions.

	Before the witnesses begin their testimony, I will ask each witness to take an oath.  You 
should be aware that it is unlawful to make a false statement to Congress while under oath.  In light 
of this, Mr. Georgine, will you please stand and raise your right hand?

[Witness sworn.]

	Mr. Georgine, you may be seated. You may begin your testimony.

Mr. Georgine. I don't have any testimony, Mr. Chairman.  Thank you.

Chairman Boehner. Mr. Nowlin, would you stand and raise your 
right hand?

[Witness sworn.]

	The gentleman may begin his testimony.

STATEMENT OF WARREN E. NOWLIN, ESQ., PARTNER, WILLIAMS 
MULLEN, WASHINGTON, D.C.

	Mr. Chairman and Members of the Committee, my name is Warren Nowlin.  I'm a partner 
of the law offices of Williams Mullen here in Washington, and my practice is in the corporate area, 
specifically with focus on pension fund and fiduciary matters, and particularly their investment 
programs.

	I'm not going to reread the brief testimony that I have submitted for the record.  I will give 
you a brief background of my view of this, although I must say that I'm here as an expert, so I 
really don't have a strong position one way or the other.

	I think the Committee here today is considering some interesting issues regarding the 
alignment of the laws of disclosure as they relate to corporations on the one hand, and pension fund 
and union pension funds on the other.  When I say "pension funds," I don't really differentiate 
between defined contribution plans and benefit plans for corporations and those for union pensions.

	I appreciate the opportunity to testify today and to help the Committee investigate these 
matters.  I have not examined all the facts, and indeed, I have not been privy to any non-public 
information in this matter.  My information is limited, basically, to what's been in the press and 
certain excerpts I've received from others.

	ERISA, as you all know, imposes a very high standard of care for its fiduciaries.  It contains 
numerous restrictions and regulations on the plan trustees, and imposes a very high standard of 
loyalty and care.  For example, a fiduciary must execute his duties solely, and I emphasize "solely" 
in the interest of the plan and its beneficiaries.

	The duty of loyalty imposes an obligation upon fiduciaries to act with complete and 
undivided loyalty, with an eye single to the interests of the participants and the beneficiaries.  
Moreover, ERISA requires that a fiduciary must act with the care, skill, prudence, and diligence 
under the circumstances then prevailing that a prudent person acting in like capacity and with 
familiarity with such matters would use.  We all know this standard.  Most of us have looked at it.  
And it's frightening sometimes for the fiduciaries.

	Fiduciaries can be held personally liable for breaching this standard.  And Congress has 
adopted extensive rules under ERISA pertaining to prohibited transactions, what fiduciaries can 
and cannot do.  And those rules generally prohibit any type of self-dealing or interested party 
transactions.

	I guess in terms of remedies, if you look at ERISA, where there's been a breach of those 
prohibited transaction requirements, the fiduciary can be personally liable for any losses of the 
plan.  But more importantly, the fiduciary is liable to disgorge any profits that he or she may have 
made on an interested party or an inside transaction.

	The SEC has also adopted, as part of the Sarbanes-Oxley regimen, an ethics code as part of 
this new regimen that Congress passed the year before last.  The new rules require a company to 
disclose whether or not it has adopted a Code of Ethics for its senior financial officers, and if not, 
why they haven't done so.

	While the increased disclosure requirements that are imposed on publicly-traded companies 
under Sarbanes-Oxley may not have prevented what happened at ULLICO, the Committee should 
examine them and the divergence between the disclosures required and the actions required under 
Sarbanes-Oxley to those required by pension fiduciaries.  Congress should consider aligning these 
disclosure schemes to protect the pension beneficiaries much in the way it has acted to protect the 
shareholders of public companies under Sarbanes-Oxley.

	I think that concludes my initial remarks, and thank you.

WRITTEN STATEMENT OF WARREN E. NOWLIN, ESQ., PARTNER, WILLIAMS 
MULLEN, WASHINGTON, D.C. - SEE APPENDIX B

Chairman Boehner. Mr. Nowlin, thank you.

	Mr. Silvers, would you stand and raise your right hand?

[Witness sworn.]

	The gentleman may begin his testimony.

STATEMENT OF DAMON A. SILVERS, ESQ., COUNSEL TO THE 
CHAIRMAN, ULLICO, INC., WASHINGTON, D.C.


	  Good morning, Chairman Boehner, Congressman Miller, and 
Members of the Committee.  My name is Damon Silvers.  I am Counsel to the Chairman of 
ULLICO, Inc. I'm also an Associate General Counsel of the AFL-CIO.  I'm grateful for the 
opportunity to appear today on behalf of ULLICO to discuss the events of the last several years.

	Let me begin by stating that we believe our company was the victim of serious misconduct 
during the period from 1998 to 2002.  ULLICO today, as a consequence, faces great challenges.  
But we believe the record shows that the labor movement and our company have one standard for 
corporate conduct, and that that standard has been enforced at ULLICO.

	ULLICO is a private insurance holding company.  Its mission, as the Chairman said in his 
introductory remarks, is to provide insurance and other financial services to working families, their 
unions, and their benefit funds.

	From 1998 to 2001, due to a successful private capital investment, the value of ULLICO 
stock was largely a function of the price of Global Crossing, a publicly-traded company.  During 
this time, ULLICO management constructed stock repurchase programs that enabled officers and 
directors of ULLICO to transact in the company's stock on terms significantly more favorable than 
those available to the unions and pension funds that hold 98 percent of that stock.

	Special Counsel to ULLICO, former Illinois Governor, James Thompson, found in his 
report "a compelling case" that these transactions involved breaches of state corporate law, 
fiduciary duty, and strong cases that then Chairman Robert Georgine and then Chief Legal Officer 
Joseph Carabillo engaged in intentional misconduct.  Thompson found "no evidence of criminal 
intent," but did find that there were arguments on both sides as to whether the transactions involved 
had breached either federal or state securities laws.  His report recommended that most of the 
directors return their stock-trading profits.

	I would be happy to answer questions about the details of these transactions.  However, the 
bulk of my testimony focuses on the response to these events by ULLICO shareholders and 
directors.

	Over the last year, ULLICO board members, elected union leaders, union pension funds, 
their qualified plan professional asset managers, and unions themselves have worked together, first 
to bring about Governor Thompson's investigation of these stock transactions; secondly, to obtain 
the release of the results of that investigation; and finally, ultimately, to change the management of 
the company and adopt the Governor's report.

	President Sweeney of the AFL-CIO led the call for an investigation and for its results to be 
made public. President Douglas McCarron of the Carpenters was the first person to return profits 
from the transactions voluntarily to the company.  And later, he resigned in protest over 
management's resistance to the Thompson report.  President Terry O'Sullivan of the Laborers 
International Union and John Wilhelm of the Hotel Workers led the fight on the board to adopt the 
Thompson report.

	A month ago, at ULLICO's May 8th annual meeting, a reform slate of directors was elected, 
and chose Terry O'Sullivan as Chairman and CEO of ULLICO.  He serves without pay or other 
compensation.  Since May 8th, a number of steps have been taken to address ULLICO's business 
issues.  Most importantly, ULLICO has hired an Acting President, Edward Grebow, who has 
extensive experience in fixing troubled businesses, to run ULLICO from day to day.

	New management has also acted to address the recent misconduct starting on May 9th, the 
day after the new board took office, when the company asked the trustees of ULLICO 
management's rabbi trust to make no payments to anyone pending a board investigation of those 
trusts and how they came into being.

	On May 13th, five days after the annual meeting, the new board voted to adopt Governor 
Thompson's recommendations, and to demand the return of $5.6 million in stock profits from 
officers and directors.  Demand letters have been sent.

	On May 13th, the board delegated to a subcommittee chaired by retired federal judge and 
new board member Abner Mikva the tasks of reviewing the remaining stock transactions pursuant 
to Governor Thompson's recommendations, as well as past executive compensation and past 
attorney and other service provider conduct.  Further actions along those lines are listed in my 
written testimony.

	In conclusion, the labor movement takes the very strong position that the problems in our 
corporate economy, conflicts of interest and lack of accountability, are structural.  The story of 
misconduct at ULLICO is the story of these same structural problems manifesting themselves in a 
labor-affiliated business.

	ULLICO is a private, for-profit company.  During these transactions, it had numerous 
prominent corporate firms advising it, equity-linked executive compensation, and a board of 
directors with close relationships with its CEO.  Like other private companies, and unlike public 
companies, unions, and pension funds, ULLICO was and is not required to disclose basic 
information about its governance or executive compensation.  However, we have changed that in 
recent days voluntarily.

	ULLICO's painful experience should reinforce the lesson of the last two years of corporate 
scandal.  Conflicts of interest are real and can harm companies.  Executive compensation is real 
and can harm companies.  Stock-based compensation is not always a good idea.  Expert 
gatekeepers can easily aid and abet wrongdoing, and boards can easily become captive to CEOs.

	But at ULLICO, our directors and shareholders stood their ground, fought, and won, and the 
company is now acting to obtain the return of wrongful gains.  Compare this story to those of one 
large public company after another, where investors seem unable to either recoup hundreds of 
millions of dollars in insider gains, or stop executive misconduct from rendering their investments 
worthless.

	Finally, with regard to pensions, no one has lost a dime in pension benefits as a result of 
what has occurred at ULLICO.  ULLICO employees have a defined benefit pension plan which, 
while it may have been hurt by these events, is properly diversified and in no danger of defaulting 
on its obligations.

	What sacrifices there must be to put ULLICO back on track will be shared.  But there has 
not and will not be the horrifying spectacle of dedicated, honest employees abandoned with no 
severance, no pension or health care, while executives wire themselves severance bonuses, as has 
occurred at powerful companies many times ULLICO's size.

	Ultimately, the labor movement has one standard for corporate governance.  It is a standard 
we fight for every day in the companies where worker money is invested, and it is the standard that 
has prevailed at ULLICO.

	Thank you.


WRITTEN STATEMENT OF DAMON A. SILVERS, ESQ., COUNSEL TO THE CHAIRMAN, 
ULLICO, INC., WASHINGTON, D.C. - SEE APPENDIX C


Chairman Boehner. I thank all the witnesses for their testimony.  

	Mr. Georgine, throughout the time period in which this Committee's investigation is 
focused, you were the President and Chief Executive Officer of ULLICO and Chairman of its 
board.  As such, you owed duties, both legal and moral, to the shareholders of your company, who 
were among some of the biggest unions and union pension funds in the country.

	ULLICO's own investigation conducted by former Illinois Governor James Thompson, 
acting as Special Counsel, found, and I quote, "A compelling argument exists that the directors of 
ULLICO who benefited from the stock transactions in question violated their fiduciary obligations 
as directors and officers of the company."

	Furthermore, Governor Thompson concludes, and I quote, "Certain senior officers of the 
company", and you are explicitly noted as one of those officers, sir, "violated the duties of loyal 
and care that you owe to the company."  The Thompson report concluded that you and your 
principal advisor were "primarily and most directly responsible" for incomplete and potentially 
misleading stock documents, and that you should have been more forthcoming with your 
shareholders regarding these inside stock transactions.

	Mr. Georgine, as you sit here today, is it your testimony that this 
stock repurchase program, which netted millions of dollars for union leaders on the board at the 
expense of other shareholders, did not come at your direction, and that you were not the architect of 
this scheme?

Mr. Georgine. Mr. Chairman, while I'm confident that I have done 
nothing wrong, on the advice of my attorney, I respectfully decline to answer that question based 
upon my rights under the Fifth Amendment of the Constitution of the United States.

Chairman Boehner. Let me ask you this, Mr. Georgine.  Is it true 
that while ULLICO ultimately and under public pressure engaged former Governor Thompson to 
investigate the company's actions, ULLICO's management did expressly instruct him not to 
examine whether ULLICO's actions broke federal pension or labor laws; is it not?

Mr. Georgine. I also decline, Mr. Chairman, with all due respect, to 
answer that question.

Chairman Boehner. Well, let me be clear, Mr. Georgine.  You're 
refusing to answer the question on the basis of the protections afforded you under the Fifth 
Amendment of the United States Constitution?

Mr. Georgine. That's correct.

Chairman Boehner. And will you invoke your Fifth Amendment 
rights in response to all of our questions today?

Mr. Georgine. Yes, sir.

Chairman Boehner. Well, it's unfortunate that we're not going to 
get the cooperation of our key witness today.  But that is the gentleman's right, and we will respect 
it.

	Mr. Silvers  XE "Mr. Silvers"  , do you have any insight as to why the former board at 
ULLICO expressly instructed former Governor Thompson not to investigate whether ULLICO's 
directors or officers or board members violated federal labor and pension laws?

Mr. Silvers. Yes, Mr. Chairman, I can address that.  I think that you are, in 
one aspect of your characterization of that matter, mistaken.  The board of directors of ULLICO 
instructed Governor Thompson, in undertaking his investigation, to look broadly at all matters 
relating to stock transactions during the period when Global Crossing was an important asset of the 
company.  There was no limitation in the instruction from the board to Governor Thompson 
regarding not looking at pension law or labor law or any particular law at all.  The mandate was 
open-ended.  That was the instruction from the board.

	It is my understanding that counsel for the company at the time, not Governor Thompson 
and his staff, but other counsel for the company, expressed the opinion to Governor Thompson that 
this mandate should be understood not to include matters that did not implicate the obligations of 
the company and its agents, and that more broadly, they should not look at ERISA in general.

	Now, what this advice to Governor Thompson meant was that the company, its directors, 
officers, and other agents have duties to the company under state fiduciary law, and they have 
obligations directly under state and federal securities laws and under the insurance laws of the 
various places in which ULLICO's subsidiaries are registered, and so on and so forth.

	However, the obligations that exist under ERISA on the part of members of ULLICO's 
board who are fiduciaries of pension plans unaffiliated with ULLICO are not obligations that run to 
ULLICO the company.  Similarly, obligations under our nation's labor laws that members of 
ULLICO's board had toward unions which they were officers of at the time are, again, obligations 
that do not run to the company.

	This was the argument that was put forth to Governor Thompson.  There's a little problem 
with it.

Chairman Boehner. Are you suggesting to me that because the 
board of directors of these large unions and union pension companies sit on ULLICO's board, 
where they have significant investments, you're suggesting to me that their fiduciary duty under 
ERISA and their obligations under the Labor-Management Reporting and Disclosure Act don't 
extend to their actions and their positions on ULLICO?

Mr. Silvers. Oh, absolutely not.  No, sir.  What I'm suggesting is that it is 
not the company's obligation to act as the enforcer of duties owed by its board members to third 
parties, and that it is not the company's obligation, this was the position taken by company counsel 
at the time, to expend company funds to enforce board of directors duties to third parties, be they 
unions or pension funds.

	The problem with this reasoning, Mr. Chairman, is that there is an ERISA fund in which 
company officers and agents are fiduciaries of, and that is the ULLICO Staff Pension Fund.  The 
ULLICO Staff Pension Fund is a shareholder in ULLICO.  And this argument that was placed in 
front of Governor Thompson with respect to that fund, although current management is still 
looking at this, in our opinion today, as a tentative matter, we are not convinced by this argument in 
relationship to the ULLICO Staff Pension Fund.

	Governor Thompson and his staff have informed us that while they listened to the views of 
ULLICO's counsel at that time, they made up their own minds not to look at ERISA matters at all, 
including those related to the ULLICO Staff Pension Fund.  In our view, that may have been 
mistaken, but it is an understandable mistake in the context on the part of the Governor.

Chairman Boehner. Well, my time has expired. We'll come back in 
the next round of questions to deal with that.

	The Chair recognizes Mr. Miller for five minutes.

Mr. Miller. Thank you, Mr. Chairman.  Mr. Georgine has made it clear that 
he's not going to answer any questions under his right provided by the Constitution, and I would 
like to reserve my time to question the others at this point.

Chairman Boehner. The Chair recognizes the gentleman from 
Georgia, Mr. Norwood.

Mr. Norwood. Thank you very much, Mr. Chairman.  I appreciate this 
opportunity to question our witnesses.  Frankly, I am more than a little frustrated and disappointed 
that Mr. Georgine, who might have given this Committee answers to some very important 
questions, has chosen to refuse to cooperate with the Committee's investigation. The millions of 
union members whose pension suffered while Mr. Georgine and his cronies benefited deserve more 
than this; they deserve answers.

	From where I'm sitting, I see a lot of rank-and-file union members whose interests unions 
are supposed to protect from losing money that went into the pockets of their so-called 
"representative" leadership.

	While our federal law may provide for a certain amount of union "self-policing", I am 
coming to believe that that may simply not be enough, that in light of what appears to be either 
flagrant disregard for or simple violation of the laws like the Labor-Management Reporting and 
Disclosure Act, which I intend to get to in a moment, the time may be here for this Committee to 
demand more than self-policing, and enhance and put some teeth into these laws.

	But I digress.  Let me say on the record that I am hopeful that the federal and state 
investigations of ULLICO that are underway, the Department of Labor, the Department of Justice, 
the Maryland State Insurance Commissioner, the SEC, the federal grand jury, will determine once 
and for all, and soon, whether and which laws have been violated here.  And I make this promise, if 
we need to have to broaden this investigation to determine why federal grand juries think this area 
of the law is so unclear, I for one am only too happy to do so.  The American people, particularly 
the millions of hard-working Americans who pay union dues, have a right to know.

	I expect we will hear a lot today about ethics and, in particular, unions' codes of ethics.  
Again, I would say that union officials should not need a code of ethics to understand that they 
have a fiduciary duty to their rank-and-file.  Any child knows that one ought not to fill their own 
pockets at the expense of the hard-working men and women they are supposed to represent.  There 
is no doubt in my mind that ULLICO's board members knew that what they were doing smelled 
like week-old fish.

	But this kind of selfish conduct seems to occur again and again, week-in and week-out, in 
the ranks of organized labor.  And time and again, union officials pilfer their union treasuries and 
only receive a slap on the wrist.

	If I may, Mr. Chairman, I'd ask to include in the record a New York Times article from last 
week that follows up on the hearing I held just last year.  Some may find it very ironic for Charlie 
Norwood to quote the New York Times to support a point he wants to make.  I assure you, it 
doesn't happen frequently.

	Mr. Chairman, this story makes plain that the unethical, if not illegal actions of union 
leaders seems to know no bounds.  I'd direct my colleagues to this story, which discusses the 
Manhattan District Attorney's investigation of Local 32BJ of the Service Employees International 
Union, and how union workers were coerced into campaigning for Mark Green, the Democratic 
candidate for mayor in 2001. Apparently, these workers told a grand jury that union officials had 
illegally pressured them to campaign for Mr. Green during their regular union workday, and to take 
personal days to campaign for Mr. Green.

	One official in particular, Dominick Bentivegna, who is running against the sitting president 
of Local 32BJ, told the grand jury that top union leaders had ordered numerous illegal campaign 
activities.  And I quote:  "Every union staff member was forced to take personal days, vacation 
days and work for Mark Green and their candidates," he said.  "We were forced to do campaign 
work during working hours.  We had quotas to meet to recruit union members to campaign for 
Mark Green.  We had to get on the phones to recruit members, and then we had to leaflet at subway 
stations during work hours. It was all illegal."

	Now, if a district attorney can let this type of activity go by with only an agreement to 
promulgate a code of ethics, I think it is patently apparent that we need legal reform in our labor 
laws to stop this type of flagrant corruption.

	So Mr. Chairman, perhaps we are not assembled today to pass judgment on the conduct of 
any one individual, but I argue when one reviews the numerous and flagrant instances of immoral 
and unethical conduct that has gone down since 1959, it becomes obvious that we're dealing with a 
systemic problem in our labor laws, rather than an isolated case of misconduct. Organized labor 
needs more than a slap on the wrist to prevent another ULLICO!

	As I said earlier, one of the laws designed to protect against this sort of union corruption is 
the Labor-Management Reporting and Disclosure Act, or LMRDA.  The LMRDA is intended to 
protect the rights of rank-and-file union members, and to provide accountability and prevent 
corruption by union leaders.

	I ask unanimous consent for another minute.

Mr. Miller. I object, Mr. Chairman.

Chairman Boehner. Objection is heard.  The gentleman's time has 
expired.

	The Chair recognizes the gentleman from Michigan, Mr. Kildee.

Mr. Kildee. Thank you, Mr. Chairman.  Mr. Silvers, why have ULLICO 
employees been less touched by the problems at ULLICO compared to those at companies like 
Enron and WorldCom? In particular, why did they not suffer the pension losses that employees at 
many large companies have suffered?

Mr. Silvers. Yes.  This question of suffering was raised, I think, at some 
length a moment ago.  You know, there's not a single human being that exists on this planet who 
has lost a penny in pension benefits, retirement benefits of any kind as a result of the events being 
reviewed today.  That's not an excuse for those events, but it puts them in perspective, in my 
opinion.

	And I have some basis for making this perspective. I know personally hundreds of people 
who lost everything, every penny of retirement savings they had, who worked at Enron and at 
WorldCom.  I knew a gentleman; his name was Louis Allen.  He was the transportation coordinator 
for Enron.  He was 45 years old.  He has a child.  He's a single father.  And he had all of his 
retirement money in Enron stock and Enron's 401K.  He was the first person in his family to have a 
professional job.  He lost his job, his retirement, his health care, and his severance in one day, the 
day after Enron declared bankruptcy. He came up here to Washington to see if someone would help 
him.  I think he tried to meet with some of the members from the delegation from Texas.  They 
didn't want to see him.

	The AFL-CIO spent union members' money to fight to get Louis Allen his severance, and 
we got $13,000 of it.  But it was not enough for Louis.  Louis, at the age of 45, was unable to find a 
job for six months after that.  At the age of 45, he had a stroke and died, after six months in a coma 
in the hospital.

	If you want my opinion, Ken Lay murdered Louis Allen.  Ken Lay is a wealthy man.  Louis 
Allen, while he was marching to get his severance to pay for housing for his daughter, lost his 
home, by the way, in the middle of this.  While he was marching, he could literally look up and see 
Ken Lay's condominium, the value of that thing alone was $7 million.

Mr. Kildee. And there weren't similar situations at ULLICO?

Mr. Silvers. Let me come to ULLICO now.  The problems at ULLICO 
have led to some real difficulties at our company that we are hard at work in repairing.  However, 
the majority of the employees at ULLICO have a defined benefit pension plan that is adequately 
diversified.  And although that plan has a holding in ULLICO stock, and was disadvantaged in 
these transactions, whether illegally or not, I think we're not sure, but it was certainly 
disadvantaged economically, that plan is sound and continues to pay benefits.

	ULLICO employees have 401(k) plans.  Those plans are not loaded up with ULLICO stock.  
Those 401(k) plans certainly have suffered in the market, as everyone else has, but they've not 
collapsed.  Most line ULLICO employees have union contracts.  Their severance payments, their 
health care, everything is protected for them.

	I do not mean to underestimate the seriousness of these events in any way and I think my 
testimony is clear on that point, but there simply isn't in these events either the scale or the 
intensity of human suffering, not in the slightest, as there was in literally dozens of the cases that 
the Ranking Member alluded to earlier.  This is a serious matter, and one which pains the labor 
movement greatly, but it is simply not comparable to the events that this Committee, frankly, has 
ignored in the corporate economy.

Mr. Kildee. The fiduciaries of ULLICO, their actions were with greater 
dispatch than say with WorldCom or with Enron?

Mr. Silvers. Well, I think the key issue here is that the fiduciaries in a 
corporate law sense, the board of ULLICO, frankly, were split over what to do.  But the elected 
leaders of the labor movement who served on that board, over time, starting with President 
Sweeney and Frank Hanley's request that a special investigative counsel and a special committee be 
appointed, a request which came four days after the first press accounts of these events, moved a 
reform program at ULLICO, and a reform program which has resulted in new management getting 
control at the company, and the new management has demanded the money be returned.  And 
money has been returned.

	At the moment, every active union president, to my knowledge, who received a benefit 
from these stock transactions, has pledged to return the money.  And only one pledge is recent; the 
rest have been paid.  Contrast that with pick-your-corporate scandal.  All right?

	The typical series of events in a corporate scandal is that bad news comes out; the CEO and 
the officers of the company hunker down; the board runs for cover; the stock price collapses; the 
debtors march in; the company goes bankrupt; everybody sues; the individuals hide behind the 
corporation's limited liability; no money ever returns to anyone; and the wrongdoers just walk away 
clean.

	How much money has Ken Lay given to anybody?  How about Bernie Evers?  How about 
Louis Allen's mother and daughter?  Why isn't Ken Lay giving them any money?  And yet we 
investigate this matter in which people have voluntarily returned money, which the board of the 
company is demanding that all the rest of the money be returned, and in which it can't find a single 
solitary human being who's actually in their daily life been harmed.

Mr. Kildee. Thank you, Mr. Silvers.

Chairman Boehner. The Chair recognizes the gentleman from 
California, Mr. McKeon.

Mr. McKeon. Thank you, Mr. Chairman.  I would like to yield at this time 
to my good friend from Georgia, Mr. Norwood.

Mr. Norwood. I thank the gentleman for that. We've given this a lot of 
thought, and I'd like to complete my statement, and I appreciate it very much.

	As I said earlier, one of the laws designed to protect against this sort of union corruption is 
the Labor-Management Reporting and Disclosure Act, or the LMRDA.  The LMRDA is intended 
to protect the rights of rank-and-file union members, and to provide accountability and prevent 
corruption by union leadership.  Specifically, Section 501 of the LMRDA provides, and I quote the 
relevant portions, that "the officers, agents . and other representatives of a labor organization 
occupy positions of trust in relation to such organization and its members as a group. It is, 
therefore, the duty of each such person. to refrain. from holding or acquiring any pecuniary or 
personal interest which conflicts with the interest of such organization, and to account to the 
organization for any profit received by him in whatever capacity."

	That law seems pretty plain to me: where we have a board like ULLICO's composed of 
sitting union presidents and officers, profiting on insider stock deals at the expense of their unions, 
their union pension funds, and their union members, how is this not a violation of that law?

	Since Mr. Georgine has chosen not to testify, I will ask that same question to our expert, 
Mr. Nowlin, here today. Mr. Nowlin, do you believe that there has been a violation of the law on 
the books?

Mr. Nowlin. Congressman, it's unclear on the facts that I have reviewed 
whether there is a violation of the law. I think it's clear that the law, at least when it comes to both 
corporate fiduciaries and ERISA fiduciaries, in the case of corporate law, it's intended to provide a 
mechanism by which interested director transactions can be approved by independent board 
members so that they are fair to the corporation.  In this case, the corporation being ULLICO.

Mr. Norwood. Well, if the allegations were true, would it violate Section 
501 of LMRDA?

Mr. Nowlin. It's possible.

Mr. Norwood. Now, I'll go further and ask if these deals didn't fall within 
the letter of Section 501; is it your testimony that they are the sorts of transactions intended to be 
prevented under this law?  Does the law need to be changed, in your opinion?

Mr. Nowlin. Well, I think the most interesting part of the facts underlying 
this inquiry, and I don't think this is necessarily a union issue as much as it is a pension regulatory 
issue, if there is an issue at all.

Mr. Norwood. That may be correct.  But do you feel like under the 
circumstances, if the allegations are true, should we change the law?

Mr. Nowlin. Possibly.  And let me explain.  If you look at what has 
happened under Sarbanes-Oxley in terms of expanding disclosure to shareholders, providing 
mechanisms by which shareholders have more information about, for example, incentive stock 
plans and things of that nature, and if you look at pension fiduciaries who may be serving in a 
separate capacity, in this case, the thing that is intriguing to me, and something that I think the law 
has a gray area in, I think this being a law-making body, this is where I find the policy issues to be 
interesting.  If you look at the board composition at ULLICO, it was comprised principally of 
pension plan fiduciaries.  They were not necessarily serving on that board as pension plan 
fiduciaries.  They were serving as board members of ULLICO.  But they derived a benefit through 
this stock plan, and it was indirectly as a result of their service as fiduciaries of the underlying 
union pension plans.

	So what would be the query for the Committee? It's clear that ERISA, in Section 406, 
basically prohibits any type of self-dealing by a pension plan fiduciary.  It prohibits the receipt 
directly or indirectly of benefits or additional compensation as a result of that fiduciary power and 
control.  There are complex regulations that govern when those fiduciary duties apply. They're 
called the plan asset regulations when you're acting in a fiduciary capacity.  And in this case, there 
are certain exemptions.  For example, when a fiduciary becomes, or acts through an operating 
company, for example exemptions if you will, in this case, it is unclear that those duties applied to 
their actions and the benefits they received in their capacity as board members. However, I think 
it's clear that the intent of ERISA is to preclude those types of personal benefits.  The intent of 
ERISA.

	Now, the question is whether the law actually gets there.  But there is language in ERISA 
and in Section 406 that prohibits direct and indirect benefits by fiduciaries, which in this case, the 
board members at ULLICO were all fiduciaries of an underlying pension plan.

	Now, Mr. Silvers' testimony went to a whole different issue.  That issue was that ULLICO's 
pension plan didn't lose any money.  And indeed, I'm not sure there were any losses by any of the 
pension plans who own stock in ULLICO as a result of this.

	But the question is broader.  And the question is whether those fiduciary duties should 
extend to the role of the board members who were only there because of their underlying service as 
a pension plan fiduciary that was a stockholder of this company, ULLICO.

Mr. Norwood. I see our time is up, Mr. Chairman. And I sort of gather 
you're saying we need to do some corrections in the law so there's not so many questions about it.

Mr. Nowlin. It needs to be scrutinized.

Mr. Norwood. Will there be another round of questions?

Chairman Boehner. There may be.  Gentlemen, Mr. Silvers would 
like to make a comment.

Mr. Silvers. I think that I concur with my fellow panelist's assessment that 
there's a complex ERISA issue here.  He may have, I think, unintentionally perhaps misstated what 
I was saying about the impact of these events on ULLICO's staff pension plan.  It appears to us at 
very first glance that the staff pension plan was disadvantaged by these transactions, meaning that 
the staff pension plan did not have access to the ability to tender under the same terms that insiders 
have.

Chairman Boehner. And neither did the unions who were 
represented by the members of the board of directors.

Mr. Silvers. No.  The unions and the pension funds that were not affiliated 
with ULLICO that were represented by board members also were disadvantaged.  The staff pension 
plan was not disadvantaged in any unique way.

	What is unique about the staff pension plan in relation to all of this, in relation to the 
company's obligations, is the question that my fellow panelist raised about the obligations of 
officers of the company which is a sponsor of an ERISA plan, and the question of what those 
obligations are in a situation such as this.

	There's complex case law that looks at when you are wearing your ERISA fiduciary hat and 
when you are not.  Because the courts have found that being an ERISA fiduciary is not a 24-hour-
a-day job, in a sense.  You can be an ERISA fiduciary and also be in some other context in which 
your ERISA obligations may not apply with full force.

	But conversely, there may be limits to that.  And I'm not sufficient enough of an expert to 
be able to sit here and tell you exactly where those lines are drawn.  But it's very complicated.  And 
what I would like to say about this is, and the up-shot is that again I'm plagiarizing the testimony of 
my colleague here on the panel, the remedy that ERISA offers for a breach of duty is the remedy 
that the wrongful gains be returned.  That's the remedy.

	That is also the remedy for a breach of state corporate law fiduciary duty.  And that is the 
remedy, whether or not laws have been broken, and it is not the company's job, ultimately, to 
enforce the law.  That belongs elsewhere.  But it is the company's job to protect its interest and the 
interest of its shareholders and the interest of its policyholders.  And the company is seeking the 
return of the money.

	Whether or not at the end of the day someone finds an ERISA violation here or not, by the 
time that happens, at least with respect to those moneys that Governor Thompson has given us a 
clear direction on, we will have sought the return of that money.  And as I think they say in some 
parts of this country, you really can't hang a man twice.

Chairman Boehner. The Chair recognizes the gentleman from New 
Jersey, Mr. Andrews.

Mr. Andrews. Thank you, Mr. Chairman.  The facts before the Committee 
today are very grave and very serious, which is why the U.S. Attorney, the SEC, the Department of 
Labor, and the Maryland State Insurance Commissioner are investigating this.

	I don't think the Committee's hearing quite rises to the level of grave seriousness of the 
facts.  We have one witness who relies on his rights not to testify, as is his right to do under the 
Constitution.  We have another witness, Mr. Nowlin, who, quite appropriately, says he only knows 
the public record of the facts, and then as a very prudent and careful lawyer refuses to answer 
hypothetical questions, as any competent and well-thinking lawyer would.  And then Mr. Silvers, 
who's here to give us a report, which I'm sure, disappoints the majority, of the proper remedial 
steps that have been taken at the company in recent days.

	It strikes me that there's a clear contrast here between the Committee's pursuit of this very 
serious matter in this rather curious way, and the Committee's unwillingness to pursue what I 
believe is a far more serious matter that's clearly within our jurisdiction that we haven't paid a lot of 
attention to.

	Early in 2001, when the Enron scandal first broke, we had the Secretary of Labor take 
certain actions and promise certain remedial measures to protect the pensioners under ERISA under 
Enron.  On the 10th of September of 2002, the deputy secretary, Secretary Combs, was here and 
indicated to us that no action had yet been filed against Enron by the Department of Labor.

	And she returned here on February 13th of this year. And I again asked her whether an 
action had been taken by the Department of Labor against Enron's pension plan, given the billions 
that were lost there, and here was her answer.  I asked her when can we expect the department will 
disclose publicly whether it will pursue a civil action here or not? Here's what the secretary said:

	"I am very hesitant to give you an exact date, because I don't have an exact date.  I don't 
know the answer to that question.  We are wrapping things up.  I realize that I am saying the same, 
giving a similar response that I gave eight months ago, and had a similar question that you had. 
What can I say to the Committee, because you deserve a fuller answer?  But we are not there yet.  
And it is difficult.  You can't compromise an investigation by talking about it and putting it at risk.  
I am confident that we will do it soon. I don't want to put an exact date on it, because, as I said, I 
don't know the exact date."

	That, Mr. Chairman, was February the 13th of 2003. We are now sitting here, by my count, 
about four months past that date, and the Committee has not ordained to bring the Secretary back to 
answer the question as to what remedial actions have been initiated against Enron.

	Now, I don't in any way mean to dissuade anyone of the seriousness of the matters that are 
before this Committee. They are very serious matters.  But as Mr. Silvers has testified, there doesn't 
appear to be any record that any pensioner has lost any pension funds as a result of this scandal.  
There may well be changes we should make in the pension laws, as Mr. Nowlin points out, that 
would make sense. But we compare this to the Enron scandal, where there is documented proof that 
thousands of people have lost billions of dollars.

	We had a promise in September of 2002 we'd get a report on what the Department of Labor 
was going to do about it.  We had a reiterated promise in February of 2003 that we'd have a report 
as to what the department was going to do about it.  It is four months later.  There has been no 
action. There has been no report.  There has been no hearing.  There has been no inquiry.  It seems 
to me an odd juxtaposition of concern about this issue.  

Chairman Boehner. Would the gentleman yield?

Mr. Andrews. I would be delighted to yield, yes.

Chairman Boehner. Let me deal with several points. First, you 
expressed your opinion that the majority was disappointed in the testimony from Mr. Silvers.  And 
let me just make it perfectly clear that I'm not at all disappointed that ULLICO's new board has 
decided to clean up their act. And frankly, I think the testimony from Mr. Silvers was excellent.

	But let's not do what the leaders of this Congress did in 1991, when the House Bank came 
along.

Mr. Andrews. Reclaiming my time.  If you'd like to have a hearing about 
the House Bank, we can. I bounced no checks, by the way, for the record. We can have a hearing 
about the House Bank.  But I thought the purpose of the Committee was to study and enforce the 
pension laws.

	We have in front of us a case where, apparently, no one has lost any pension money.  We 
have another case where people lost billions of dollars of pension money, about which we're doing 
nothing.  I don't understand that.

Chairman Boehner. Will the gentleman yield?

Mr. Andrews. I would.

Chairman Boehner. Does the gentleman understand that this 
Committee has the responsibility for ERISA, and that we also have responsibility for the Labor-
Management Reporting Disclosure Act, two issues that were excluded from the Thompson 
Committee report?  And I believe that on behalf of union members from one coast to the other, this 
Committee has a responsibility to act.

	And if I could make one other point.  The Department of Labor's investigation of ULLICO 
has been going on for about the same time as its investigation into the potential pension abuses at 
Enron and others.  Now, the gentleman knows how long the wheels of justice take to turn.  I wish 
they would turn quicker.

Mr. Andrews. Well, reclaiming my time.  What I also know is that we had 
testimony this morning that funds were returned to the ULLICO company, and are going to be 
returned.  We also have no evidence of what happened to the assets of the principals involved in 
Enron that could have been recovered in the ensuing months that have gone by since the illegalities 
were committed.

	And the point that I made to the Secretary last time when she was here is why are we sitting 
back and doing nothing as these assets are evaporating, instead of taking appropriate action in court 
to do something about it?  I think that's a question the Committee should be taking a look at.

Chairman Boehner. The Chair recognizes the gentleman from 
Texas, Mr. Johnson.

Mr. Johnson. Thank you, Mr. Chairman.  I just want to add that I believe 
the Justice Department is getting after those guys, and they're about to go to jail.

Chairman Boehner. Will the gentleman yield for just a moment?

Mr. Johnson. I will.

Chairman Boehner. To finish my point, when we had the House 
Bank scandal, the leaders, frankly, from both parties, went running down the well of the House and 
basically said, "We've done nothing wrong, and we won't do it again." And we were going to save 
the House Bank by sweeping the dirt under the carpet.

	Now, the fact is that this Committee does, in fact, have a responsibility to union members 
and workers across this country, and we intend to fulfill our responsibility.  In addition,  we had 
one of the first hearings within weeks of the Enron debacle and brought those people right here.

	I yield back to my colleague.

Mr. Andrews. Is it still my time?

Chairman Boehner. No.  Your time expired.  The Chairman had 
already recognized Mr. Johnson.

Mr. Andrews. Are we going to have a second round today?

Chairman Boehner. Yes.

Mr. Johnson. Will you restart my time, Mr. Chairman?

[Laughter.]

Chairman Boehner. The gentleman has four minutes remaining.

Mr. Johnson. Well, I'd like to associate myself with your opening 
remarks, Mr. Chairman, and stress the seriousness and importance of the matter before us, just as 
Mr. Andrews has stated.  I'm proud of the work this Committee has done in making sure that the 
workers of this country, whether union or otherwise, are protected.  In the last Congress, we did 
witness corporate corruption, taking with them hard-earned retirement savings, as you said.  And I 
think this Committee took strong, swift, and effective action, both in investigating and in proposing 
strong reforms.

	I'm sad to say I see too many parallels in the situation presented before us by the ULLICO 
scandal.  At the simplest level, I'm concerned with what I see is a leadership of a corporation 
profiting at the expense of its shareholders. And I'm doubly concerned whereas here, the leadership 
of the company, union leaders themselves, have both moral and legal obligations to protect the 
interests of their rank-and-file members, which I'm glad to see you're doing now.

	And we're committed to insuring the workers of this country are protected.  ERISA makes 
perfectly clear that trustees of pension plans owe a fiduciary duty to those plan members to act in 
their best interest.  And I'm troubled that the Committee will not hear testimony from perhaps the 
best witness today.

	As I understand it, the shareholders of ULLICO were some of this country's largest unions 
and union pension funds. At the same time, many of the members of the ULLICO board were 
themselves also pension fund trustees for the union.

	Morton Bahr of the Communications Workers was a pension fund trustee for CWA.  Martin 
Maddaloni of the Plumbers Union sat as a pension fund trustee, as did Arthur Coia of the Laborers 
International Union, among others.  I would have liked to have asked how it is possible that they 
profited at the expense of pension funds. I would also have liked to have asked Mr. Georgine to 
explain what and when the board of ULLICO knew.  It doesn't appear to me that this issue was ever 
addressed by the ULLICO board.

	The issue of whether ERISA was violated is a question this Committee will have to find the 
answer to, and we've already discussed it some.  In that effort, I understand the matter is being 
investigated by the Department of Labor, over which we have oversight.  And I would, in the 
strongest terms, hope that the DOL will file or will make this investigation a priority, and give us 
the answer which rank-and-file union members deserve.

	I do have a question for our expert here this morning, Mr. Nowlin.  I mentioned earlier that 
my Subcommittee has oversight of ERISA.  As you may be aware, the Department of Labor has 
proposed for the first time in decades to upgrade those regulations to ensure that our country's 
largest unions provide meaningful and accurate information to its members. I'm pleased to support 
the Department in making sure those reforms go forward, and ensure that the union rank-and-file 
members are protected.

	My question to you, sir, is would increased financial disclosure requirements have helped to 
detect this issue more quickly, and will it help us in the future?

Mr. Nowlin. The answer is certainly, they would have helped reveal these 
problems more quickly, assuming that the proper disclosures are required under the rules.

	You know, I think one of the proposals is to compress the period from 270 days to 90 days, 
and obviously, that would be very helpful.  I think in the future, what this Committee should 
consider in terms of protecting the plans and their beneficiaries from a disclosure standpoint. If you 
simply would look at, I won't say misalignment, but the divergence of the reporting to plan 
beneficiaries of the investments of their pension plans as compared to corporate reporting, it strikes 
me that to some extent, the reporting obligation should be aligned.

	If you look at the size of pension assets in this country, pension assets, frankly, have driven 
certain components of the economy during the boom time of the '90s, within a doubt.  Without 
pension money, the venture capital industry would not have had the level of funds that it had.

	And increasingly, regarding these moneys that are concentrated in pension funds, there 
needs to be a more, I won't say comprehensive system for disclosure, because there is a system for 
disclosure.  But the disclosure needs to be aligned.  If you look at the value of the money invested 
in corporations, public companies in America, and the money that is in pension plans in this 
country under management, those pension beneficiaries are not getting the same level of disclosure, 
and it's their money in the pensions.

	So the answer is yes.  In this case, it probably would have helped reveal the problems 
sooner, assuming that there is a requirement that related-party transactions of this nature be 
disclosed.  But I think there needs to be scrutiny of aligning, for example, in a public company 
context, or the Committee requirements incentive comp.  This was an incentive comp plan, in 
effect, that was intended to align the interest of the directors of ULLICO with the company itself,  
and that is ultimately the corporate purpose that's supposed to benefit the shareholders.  It's aligning 
those interests.

	I query whether that happened here.  I'm not going to answer the question.  But you've got 
to try and find the benefit for the shareholders of ULLICO.  It's clear that in this case, the board 
benefited.  Typically, you're looking to align those interests so that if the company does well, the 
board does well, to some extent, through their incentive comp. But in this case, because of the way 
the plan was crafted, the shareholders were boxed out, to some extent.

Chairman Boehner. The Chair recognizes the gentleman from 
Massachusetts, Mr. Tierney.

Mr. Tierney. I thank the Chairman.  

	Mr. Silvers, the Administration has recently proposed significant expansion in the LMRDA 
reporting requirements for unions.  I think you're familiar with that.  If those new requirements had 
been in effect since 1997, would they have had any impact on disclosing what transpired in 
ULLICO?

Mr. Silvers. No, they would not.  And let me say I think that the 
comments of my colleague on the panel here that preceded me if you followed them through, really 
point the direction to where the problem lies with disclosure.

	The Administration's LMRDA proposals are really extraordinary. I mean, they require 
unions to disclose essentially every line item of economic activity. If you were to take that 
document and walk it across the hall to the Financial Services Committee, people would start 
jumping out of the windows.  It really is an extraordinary imposition, outside the realm of any other 
disclosure regime out there.

	The only thing it won't do is fix this problem.  The reason why it won't fix this problem is 
because this problem is fundamentally a problem of executive compensation and transactions at a 
private company.  And that's also why it's my opinion that ERISA disclosure, while there are many 
ways in which ERISA can be improved, I don't want to suggest opposition to any particular 
concept, also would not really have prevented this.

	What this situation lacked, and I think it's evident in the way in which the constituencies of 
ULLICO responded once the information was in people's hands, was comprehensive disclosure of 
compensation practices and director and officer stock transactions within ULLICO, a private 
company.  Our laws at the federal level do not, and in no state that I'm familiar with, impose that 
kind of disclosure requirements on private companies.  That's the problem.

Mr. Tierney.  Let me ask you this.  Since the problems arose at ULLICO, 
has that company itself done anything to address that issue?

Mr. Silvers.  At ULLICO I do credit the prior management for doing this.  
This is not the doing of the current management.  In the most recent proxy statement, which was 
the one for the annual meeting on May 8th where a change in management occurred, that proxy 
statement was put together pursuant to the corporate governance recommendations of the 
Thompson report.  The prior management adopted a number of those corporate governance 
recommendations, and one of them was that ULLICO's proxy statement in the future essentially 
complied with the executive compensation disclosures that a public corporation would have to 
comply with.  ULLICO will do that in the future, but we're doing so voluntarily.

	And there are many, many, many other private companies in this country in which literally 
billions of dollars of ERISA money is invested, either directly or indirectly, through private capital 
funds of various kinds that make no such disclosures and are not required to.  ULLICO has done so 
and will continue to do so voluntarily.  That is the kind of disclosure that would have changed the 
situation, would never have allowed it to occur, in my opinion.

Mr. Tierney. Mr. Nowlin, in your opinion, is that the kind of disclosure 
that other companies, private companies, ought to be required to make?

Mr. Nowlin. Well, no, not necessarily.  Because in the private company 
context, shareholders have the ability to invest or not invest and determine the terms on which they 
make their investment.  Pension funds don't have to invest in private companies.  And if they do go 
into an investment, make an investment in a significant way, in any event, they can dictate the 
terms of their investment, including what's going to get reported to them.

	So I don't necessarily think you have to have increased regulation or reporting requirements 
on private companies.  That's up to the private individuals that determine to invest.

Mr. Tierney. Thank you.  Mr. Silvers, let me ask you this.  Are there any 
losses that you know of by any union member that this Committee ought to be investigating in 
terms of trying to find some mechanism to make them whole again?

Mr. Silvers. As I said, the nature of this particular event was a "relative" 
disadvantage.  The unions and the pension funds that were disadvantaged in these transactions 
actually did not lose money.  They were deprived of an opportunity to have their stock repurchased 
at a very favorable price, an opportunity that officers and directors enjoyed.

	Now, they have to have a little tiny bit of their stock repurchased.  The repurchase offer that 
occurred in the late fall of 2000 was prorated.  If a pension fund or a union tendered shares into that 
repurchase offer, it had approximately 2 percent of its tender repurchased.  If you had less than 
10,000 shares, and the officers and directors that transacted here did, and they tendered, you we 
able to have 100 percent repurchased.  So there was an opportunity missed there, a very lucrative 
one.  If there had been a completely fair treatment here, instead of having about 2 percent of their 
shares repurchased, the institutional holders, the unions and the pension funds, would have had 
about 5 percent repurchased.

	As my testimony states, I mean, the current management of ULLICO and the labor 
movement board is very upset about this.  This was not right, in our opinion.  But it did not 
constitute a loss to these funds.  The funds are carrying the ULLICO stock on their books at a 
profit, and in particular, at a profit comparable to what they would have had had they been 
investing in the S&P500.

	As I've said repeatedly, not only is there no human being out there who has lost a pension 
benefit, there is no institution out there that's showing a loss on an investment as a result of this 
activity. This is, again, an enormous contrast with pick-your-company. Just an enormous contrast.  
It doesn't make this right.  In fact, quite the opposite.  But it nonetheless puts it in perspective.

Chairman Boehner. The gentleman's time has expired.  

	The Chair recognizes the gentleman from Oklahoma, Mr. Cole.

Mr. Cole. Thank you very much, Mr. Chairman.  I want to first thank you for 
calling this hearing today, as others have said this morning.  I think the seriousness of the situation 
we're discussing, and I think all parties have acknowledged it, can't be overlooked.  And I, 
unfortunately, as a new Member of Congress, did not have the opportunity to participate last year 
in the hearings on Enron. Although I can assure you, as someone who owned Enron stock, bought 
it at the top and watched it go to the bottom, I followed that rather keenly.

	And in the course of looking at the scandals that have unfolded over the last several months 
basically I have come to the conclusion this is not a business issue.  This is not a labor issue.  It is, 
at heart, an issue that revolves around two things.  First, ethical behavior in positions of 
responsibility; and secondly, the fine points of corporate governance.

	I also want to commend this Committee for taking its oversight responsibilities seriously.  
We've got a duty to tell the employees of this country that we're going to ensure their legal 
protections, and we're going to make sure that what we've put in place is effective.  And I think 
perhaps that has been the greatest loss here, rather than a financial loss, the loss of confidence and 
trust that the participants in this particular enterprise have experienced.

	When I go home to Oklahoma and talk to my constituents, my neighbors, my friends, I hear 
the same thing over and over again.  They're sick of business as usual. Every week, they hear about 
another insider trading deal, more corporate shenanigans, and they tell me the same thing.  They 
don't care if it's Democrats or Republicans.  They don't care if it's labor or management.  They just 
want it stopped.  And they think their future is at risk.

	I regret, Mr. Georgine, that most of my questions were directed at you.  I certainly respect 
your right to exercise the Fifth Amendment.  I regret that you've chosen to do so, because I think 
you could shed considerable light on the subject.

	I know it's your position and the position of the board at the time that "nothing wrong was 
done."  I think, frankly, many union members would disagree with that.  I think many objective 
observers would disagree with that.  I would have asked you whether or not you agreed with 
Governor Thompson's precise words, that there were violations of state securities laws and 
fiduciary duties here.

	And even assuming that what occurred was perfectly legal, I don't think any objective 
observer would suggest that it wasn't wrong.  I think quite the opposite.  It's certainly discouraging 
to see the leadership of some of our company's largest unions, presidents and officers of labor 
organizations dedicated to protecting workers, profiting to the tune of $6 million at the expense of 
rank-and-file union members.

	Now, many of those people were wise in the sense that they knew when to cut their losses, 
and knew when to reverse course.  That doesn't change the fact that the transgression occurred in 
the first place.

	Let me conclude simply by saying it's a sad episode. You know, I suspect this is a sad 
moment for you.  Certainly a difficult moment, I know, for the company that you headed, and I 
commend them, frankly, for the actions that they've taken in recent years to restore confidence and 
to restore the integrity of that business.  That's something that they should be commended for.

	I would conclude with a question, since most of mine were preempted by the exercise of 
your Fifth Amendment rights, and direct that to our experts on the panel.  Assuming nothing 
wrong, nothing illegal, was committed, what laws would you suggest, what actions would you 
suggest we take to make sure that situations like this don't happen again?  What particular piece of 
corporate governance would you change so that we would know about this sooner, and be in a 
position to act more rapidly?

Mr. Nowlin. I'll be happy to answer the question first.  I think there should 
be appropriate checks internally whenever there is an interested-party transaction like this stock 
plan.  If you look at Sarbanes-Oxley, for example, in terms of the way it may require shareholder 
approval of an equity incentive plan like this, in this case, it wasn't so much the plan as it was how 
the plan was implemented and the decisions that were made under the plan.

	But,  I think if there is an independent, impartial approval of incentive comp plans in this 
context as there is for public companies, more independence at the audit committee level for a 
private company like this that's comprised predominantly by pension fund investors.  I think those 
are the leading areas that I would focus on that could have avoided this type of a problem.

Mr. Silvers. Congressman, I think that my colleague on the panel has 
essentially stated my views about this.  I'll elaborate for a moment, though.

	As we know, there are tens of thousands, hundreds of thousands of private companies in 
this country, and the category ranges from everything to a little hot dog stand to a Bechtel, a Cargo, 
a Frank Perdue, you know, an industrial economic giant.  It doesn't make any sense to me to make a 
hot dog stand comply with Sarbanes-Oxley.  It just really seems ridiculous.  On the other hand, 
ULLICO is committed in a number of ways to doing just that.  We recognize we're not a hot dog 
stand.

	It strikes me that Frank Perdue and Cargo and so forth, and ventures that have large 
amounts of ERISA money invested in them that are private companies as a legal matter might want 
to also do the same.  And I know this is not this Committee's jurisdiction, or perhaps it is in some 
very roundabout way through ERISA.  But that seems to me to be the hub of the matter, that there 
are private companies that aren't really private companies in the sense that they have larger 
consequences and involve the money of a lot of people spread out directly and indirectly.  And it 
seems to make sense that there should be some standards to make sure that all those far-flung 
people are protected.

Chairman Boehner. The gentleman's time is expired.

	The Chair recognizes the gentlewoman from Georgia, Ms. Majette.

Ms. Majette. Thank you, Mr. Chairman.  And I thank the witnesses for 
being here today.  

	Certainly, as a lawyer and as a former judge, I have full respect for Mr. Georgine's 
invocation of his rights under the Fifth Amendment. And as I would instruct a jury that when 
someone does that, that is not to be held against him or her.

	But I share the dismay and disappointment of my colleagues, and I'd like to associate 
myself with the remarks of my colleague from across the aisle, Mr. Cole.  I think this whole 
situation is a very regrettable one.  And whether or not there is any actual illegality discovered in 
this case, this situation really, I think, has to do more with not the loss of funds, but the loss of 
confidence and trust.

	And I understand your comments, Mr. Silvers, that there weren't really any moneys lost.  
But you did say, if I understood you correctly, that the people affected by this were deprived of an 
opportunity to have their stock repurchased at a favorable rate that the directors and officers 
enjoyed, and that clearly, there was a missed opportunity, a very lucrative one, but you characterize 
that as not being a loss.

	I would disagree with you.  I consider that to be a very great loss.  And frankly, I think it's 
analogous to the unlevel playing field that so many times, the representatives of unions, 
representatives of working people have been very strong advocates for, and who I would hope 
would continue to be strong advocates for leveling the playing field and making sure that everyone 
has an equal opportunity access to resources, making sure that people get a fair shake.

	And frankly, with the events that have transpired and been revealed to us so far, I think 
there is a great deal of work that is going to need to be done by the unions and certainly in the other 
cases that we've talked about, alluded to, the people involved with Enron and WorldCom and those 
other situations as well, are going to have to do more than just repay the money.  They're going to 
have to work very hard to rebuild that trust.  And ultimately, that's the most important thing with 
respect to those people, as well as those of us, who have been entrusted with the public's welfare 
and well-being.

	I just would briefly ask one question, though, for my clarification.  You said that the board 
was split over what to do.  What was the nature of that split?

Mr. Silvers. Congresswoman, may I first just say a word to you?  I did not 
mean to suggest that the deprivation of the opportunity to get that money was not as serious as a 
"loss."  And if I seem to suggest that, I really did not mean that.

Ms. Majette. Thank you.

Mr. Silvers. All I was intending to say was that as an accounting matter, 
the institutional investors in ULLICO have not had a loss on their books.  But I share completely 
your view, that the deprivation of that opportunity to obtain stock at a very favorable price was as 
serious a matter as a loss, and in many senses, economically comparable to one.  I completely share 
that, and I apologize to you if I was not clear about that.

	In terms of your question about the board, I was not a member of the board, obviously, 
during that time.  I have reviewed the minutes of the board meetings during that period.  And I 
know something about what went on, and I will try to give you an account of that for a moment.

	ULLICO, in the spring of 2002 had, and has today a rather large board, 28 people I think.  
I'm not sure exactly whether it was 29 or 30 at the time. Certain members of that board, most 
prominently the President of the AFL-CIO, John Sweeney, asked Mr. Georgine in his capacity as 
chairman to empanel a special investigative committee of the kind that union pension funds had 
asked the management of Enron to do at the time of the Enron affair, when the Enron affair first 
became known in October of 2001, and to have that committee hire an independent person of 
stature as counsel.

	There was a disagreement on the board as to whether or not to have a committee.  Mr. 
Georgine suggested, ultimately, that Governor Thompson, who was the kind of independent 
investigator that President Sweeney and other members of the board had wanted to have, that 
Governor Thompson be hired as an investigator, but that he report directly to the full board.  
President Sweeney's view was that there ought to be a committee of independent directors who had 
nothing to do with the transaction.  And President Sweeney, having been on the board during the 
time of some of these events, felt that he himself was not qualified to serve on such a committee, 
but that there should be a committee.  There was a disagreement about that.

	Ultimately, President Sweeney and the directors who agreed with them that there should be 
a committee, agreed to have Governor Thompson report to the full board, because that way, there 
could be consensus and the investigation could move forward.  And upon some consideration, it 
was the belief of those directors who wanted that committee that Governor Thompson was a person 
of such stature, and his firm had the resources, and they would be able to do an acceptable job.

	There was a dispute about whether there should be a stock repurchase program in 2003 on 
the same terms as the stock repurchase program in years past.  And there were members of the 
board, Linda Chavez-Thompson, the Executive Vice President of the AFL-CIO and John Wilhelm, 
the President of the Hotel Workers, who thought that there should not be, and voted against it.  
Finally, the real dispute, the dispute that really got going, was the dispute of whether to release the 
Thompson report to the shareholders and when to do so.  And that, I think, is pretty amply covered 
in the press.

	That's a brief catalog of some of the matters I'm familiar with.  I'd be happy to extend that, 
if you wish.

Ms. Majette. Thank you.

Mr. Hoekstra. [Presiding]  The gentlewoman's time is expired.  I will 
yield myself my five minutes.

	You know, we're not really looking at the conduct of any individual or group today.  What 
the oversight hearing is intended to do is to take a look at the strengths and the weaknesses in our 
systems of law, and determine what we need to do to hopefully prevent these kinds of situations 
from occurring again in the future.

	We did a similar investigation into the International Brotherhood of Teamsters.  We spent 
19 months going after that, and a lot of resources were invested.  You know, this Committee and 
this Congress were able to help the Teamsters take the steps to self-regulate their internal union 
problems.  That is, once the law and once Congress had helped them cut out the corruption, the 
union's new leadership I believe has been able to clean house on their own.

	The important thing there is that once the corruption was cut out, Congress felt it was best 
to allow the union's leadership to clean house on their own. We didn't believe that it was the 
responsibility of Congress to do that, and we felt that what we needed to do was to monitor whether 
the Teamsters had the appropriate tools to make those changes themselves.

	And that's, I think, where labor law needs to go. We're taking a look at whether labor law, 
and I think the examples of  Enron and others is business and labor law, is sufficient to inform 
people so that they can hold their leadership accountable in the business world or in the unions to 
the behavior that we think is appropriate and good.

	I reviewed the facts surrounding ULLICO, and evaluated the strengths in our current 
pension laws and many of the weaknesses in our more general labor laws.  I found myself 
continually questioning how the union movement could have been so slow in meeting its obligation 
to self-police and self-regulate such conduct.

	The issue that was perceived was how could the sitting presidents of many of our most 
respected unions have been so blind to what was going on.  Those are the same kinds of questions 
that we asked back with the Teamsters investigation about the conduct of Ron Cary and his 
management team.  How could so many have been blinded for so long while their union leadership 
decimated the union to the detriment of their own rank-and-file?  That's why I think it was so 
important that Congress help the IBT right their problems.  And I think that's what we need to take 
a look at here.  What procedures do we need to put in place?

	You know, I'm thinking that this Committee ought to consider making a strong 
recommendation to look at this, based on what's occurred in the past. There's an opportunity to step 
up to the plate and take action, and better and more effectively monitor internal conduct within the 
union movement.

	My suggestion is that this Committee seriously considers the same recommendation we 
made following our investigation of the Teamsters.  That is, with due speed, this Committee should 
strongly suggest that effective and enforceable codes of ethical practices be promulgated and 
implemented across all unions.  I'd also be interested in seeing how that might apply to 
corporations in the business world.

	The Teamsters heard this Committee loudly and clearly several years ago.  And based upon 
what they heard Mr. Hoffa diligently made efforts to promulgate and implement a code of ethical 
conduct and enforce it.  That may be the model.  I suggest that what these codes, along with more 
transparency, would accomplish for the labor movement is insuring the rank-and-file that their 
officials operate ethically and in the best interest of the rank-and-file.  I think that the way that this 
objective would be satisfied is very effectively described in the Teamsters draft code.  The mission 
of this code is to provide for the well-being of workers, their families, and their communities by 
establishing a system to ensure accountability by enforcing the provisions of the code impartially.

	The Teamsters describe the objective for this code using very simple language.  They write, 
"This purpose is to make future attempts at abuse of the system apparent to the membership of the 
union."  I'd suggest that this is precisely the role that Congress intended for the labor movement to 
perform internally, and that a code, along with more transparencies, the precise supplement that 
will assure Congress that union democracy can work as intended.

	I hope that as we go through this process that we outline the steps that are needed to clearly 
define what conduct is desirable and necessary, and that leadership in both the union and the 
business world should be held accountable.  And then we put in place the steps to make sure that 
behavior is transparent to the members of the business world or the labor organization, so that they 
can hold their leadership accountable to this code of ethics.

	With that, I will yield to Ms. Woolsey.

Ms. Woolsey. You didn't ask a question.

Mr. Hoekstra. Good observation.  Thank you.  I didn't have enough 
time.  

Mr. Woolsey. All right, Mr. Chairman.  Thank you. 

	I hope we are listening to this knowing that what is important about today's hearing is that 
ULLICO is an example of a mistake and some accomplishments.  Mr. Silvers, you talked about the 
mistake.  And we've talked and talked, and we're going to keep talking about it.  It's not over.  But 
if you would, tell us how the company has tried to regain the trust of the employees, what they've 
done, and is it working.  Because that, indeed, could be an example for the rest of business.

Mr. Silvers. Actually, I'll try to touch on a few things.  We've been 
extremely busy at ULLICO since May 8th. As I mentioned in my prepared remarks, we have hired 
an acting president, Edward Grebow, who is with us today in the audience.  He is an expert in 
turnaround situations and in dealing with troubled companies in a variety of sectors, with 
experience at Sony and CBS and the Dime Savings Bank in New York, which presented some 
comparable problems to those that we have at ULLICO today.

	We have reached out to all the various regulators and investigative bodies that the company 
has been involved with, sought to cooperate with them in every way possible, and sought to 
communicate with them about our business plans.

	We have retained the management consulting firm the Boston Consulting Group to help us 
develop a short, medium, and long-term business plan.  And we've retained the Blackstone Group 
to assist us with certain restructuring issues we have at the company, some lines of business that, 
frankly, don't make sense anymore.  Actually, at this point, just one line of business that doesn't 
make sense anymore. And it's also going to help us with state buys in the company's capital 
structure.

	We have, and again I'm talking about just in the last five weeks, reached out to our investor 
community and reversed what had been a draining of funds from our flagship real estate product, J 
for Jobs.  Key consultants operating that marketplace have reversed our recommendation that funds 
withdraw.  Hundreds of millions of dollars of money has returned to that product, a key product 
that provides a very healthy rate of return, and also creates jobs and helps build our local 
economies.

	We have set forth a whole new policy of communication within the company with 
employees.  And there was understandably a great deal of concern among employees about what 
was happening within the company before and after May 8th.  We've had town meetings with 
employees at our headquarters.  We've had a whole variety of different kinds of inter-business line 
communication that hasn't existed before.

	And we are really focused on returning ULLICO to a position in which it is viewed as what 
it has always been historically, which is an institution of tremendous value for working people and 
their unions and their pension funds, an effort to restore that trust that Congressman Cole referred 
to, which we do believe is in need of being restored.

Ms. Woolsey. So in your response, tell us how you're communicating that 
to your employees.  I mean, you're doing all this.  How are they hearing about it, and are they 
getting it all the way down to the bottom?

Mr. Silvers. Well, the main way in which we've done this is through large 
meetings and telephone hookups to all our offices around the country, where Terry O'Sullivan, and 
the new CEO, Mr. Ed Grebow describe the company's plans and take questions.  We've done that, 
you know, for several hours. And we've done that through the usual sorts of things one does in the 
company, through group e-mails and letters and so on and so forth.

	The key message that we've been sending to people is, one, that we are refocusing this 
company on its historic mission, and two, as I said in my written testimony, this is going to be a 
tough time for the company, and it is a tough time for the company, but what sacrifices are 
necessary will be shared, and people will be involved.

	Terry O'Sullivan has met with all the shop stewards of all the unions, an interesting and 
novel experience for him in his new role as CEO, and had just exactly that kind of conversation 
with them about specific business decisions.  In those areas of the company where real structural 
change is necessary, we are meeting with all the employees before any decision is made, giving 
them an opportunity to hear what they can contribute.

	I must say, whether accurately or inaccurately, in this sense, ULLICO is no different from 
any other corporation. The perception that there is a special deal for somebody out there is 
tremendously, tremendously corrosive.  And no more so than in a company where people are very, 
very proud of what they do, and very proud of the service they provide to working people, and 
long-time employees, with a real sense that ULLICO is different, that it's not just about making 
money.

	Whether accurately or inaccurately, many employees develop the impression that maybe 
that wasn't true.  And that has been a terrible thing.  And it's really been our first priority as a new 
management team to reverse that, to give people the sense that this is a working people's company, 
that this is a noble thing they do every day when they come to work, and that those values infuse 
everyone from top to bottom, and that we will abide by those values and stick to them, even when 
it's hard to do.  That's really been our message.

Ms. Woolsey. Well, I thank you, and I think it's very good for your new 
CEO to meet his clients and know who they are.  That's good.  Thank you.

Chairman Boehner. The gentlewoman's time has expired.  

	The Chair recognizes the gentleman from Pennsylvania, Mr. Greenwood.

Mr. Greenwood. Thank you, Mr. Chairman.  I also want to thank you 
for convening this hearing.

	As the Chairman of the Energy and Commerce Subcommittee on Oversight, I can say with 
certainty that we in Congress have a particular responsibility to ensure that the laws which we enact 
are, in fact, being followed; where they are not, to do something about it; and where they are 
lacking, to strengthen them.

	In that light, I would associate myself further with your remarks, Mr. Chairman.  We are not 
sitting here this morning in judgment, but rather to determine exactly what transpired at ULLICO, 
and whether the laws within our jurisdiction are adequate to prevent this sort of behavior from 
recurring.

	I am particularly frustrated with Mr. Georgine's refusal to testify.  A number of my 
colleagues have raised some of these issues with respect to the law, but I think it's important that 
we make sure we understand the facts as well. I had wanted to take the opportunity to examine Mr. 
Georgine and determine whether he could shed some light on these facts.

	Essentially, as I understand it, in 1998/1999, the board members of ULLICO were offered 
the opportunity to purchase shares in the company, and that Mr. Georgine was authorized by the 
company's Executive Committee and Compensation Committee to offer these shares.

	But as I review the record, it appears that under the by-laws of the company, neither he nor 
either of these committees was, in fact, authorized to grant these shares. Specifically, ULLICO's 
by-laws expressly state that neither the chairman nor these committees had the authority to issue 
stock.  And, in fact, even if they had this so-called authority, these board members were prohibited 
from determining matters that affected their own compensation.  And it appears that's exactly what 
they did.

	Now, given that ULLICO had board members purchasing stock that it appears they should 
never have been authorized to purchase, a little more than a year later, in December 2000, the board 
then offered to repurchase that stock at $146 per share, notwithstanding the fact that the company's 
investment in Global Crossing had plummeted, that it was obvious when ULLICO's books closed 
some days later, the value of the stock would be significantly lower.

	And, in fact, when this repurchase program was authorized, it was rigged so that officers 
and directors of the company who held 10,000 or fewer shares could sell back all their stock, but 
that bigger shareholders, such as unions and union pension funds, were only able to sell back 
something like 2 percent of their stock.

	I had hoped that the Committee would have had the benefit of Mr. Georgine's testimony to 
determine if the understanding of our facts is correct, and more important, how he justified what 
appears to me to be questionable transactions, at best.  Mr. Georgine is entitled to avail himself of 
his Fifth Amendment rights.  It does this Committee and, more importantly, Mr. Georgine himself 
little service to leave these questions unanswered.

	So I do have a question I'd like to ask our legal expert, Mr. Nowlin.  I'd be interested in 
hearing from your perspective about the issue of this authorization.  As I see it, the company's by-
laws prohibited directors from issuing stock without board approval, or voting on matters directly 
related to their own compensation.  To me, these transactions appear to violate corporate laws, and 
I'd like to know, sir, do you agree?

Mr. Nowlin. I haven't seen the by-laws.  But assuming that they have that 
prohibition, then it would clearly be prohibited.

	That having been said, there is nothing in state law that really prohibits a board approval of 
an interested party transaction.  So in this case, if you do have a by-law prohibition, clearly, it's in 
violation of that by-law.  The problem here is that there was no independence anywhere in the 
process of approving these transactions.

	And indeed, clarifying an earlier remark I made today, I suggested that had the stock plan 
been approved by the shareholders, perhaps we wouldn't have had this problem. The irony is that 
the shareholders were, in many cases, the directors that did approve it, because they were serving in 
that fiduciary capacity.  So it may not have helped.  That's why you have to go one step further, in 
this case, and require truly independent authorization of comp plans and things like this.

	One further elaboration.  This company arguably, while it was private, if you look at the 
ownership, let's just say it was owned by 15 unions and their pension plans, it was ultimately 
owned by the union members and the union pension beneficiaries.  Now, ERISA basically doesn't 
treat it that way.  It says that there's no attribution rule in certain instances. But had there been, then 
it would have opened up a much broader level of disclosure.

Mr. Greenwood. Let me see if I can squeeze one more question in.  Mr. 
Hoekstra spoke at some length earlier about unions adopting codes of ethics governing behavior.  
Now, as I understand it, ULLICO didn't have such a code of ethics.  But in November 2002, 
Governor Thompson, who was commissioned to investigate and make recommendation in this 
matter, made his first recommendation that ULLICO adopt such a code of ethics addressing 
conflicts of interest, legal compliance, and unethical behavior, as well as clear corporate 
governance guidelines.

	My question is to Mr. Nowlin.  In your practice, can you tell me, is this something most 
corporations have?

Mr. Nowlin. Well, they do now, for the most part. They didn't always, prior 
to Sarbanes-Oxley.  But under some of the exchange rules, the public companies have to have a 
code of ethics now.  Sarbanes-Oxley basically made it a disclosure requirement as to whether you 
had one, and if not, why.  But the stock exchanges took that a step further and actually required you 
to have one.

	In the case of private companies, many private companies are following that route, although 
they're not legally mandated to do so.  But, you know, as a corporate counsel, I think it's always a 
great thing for corporations to have codes of ethics, because it instills confidence in their 
shareholders and in their employees.

Mr. Greenwood. Mr. Chairman, it appears to me that Mr. Silvers would 
like to respond to some of my comments, and I would ask unanimous consent that he have time to 
do so.

Chairman Boehner. The gentleman may proceed.

Mr. Silvers. Thank you, Congressman.  I just wanted to let you know that 
the board of ULLICO,  before the current management arrived, adopted that recommendation that 
ULLICO adopt a code of ethics following the language of the Thompson report, and that that code 
is currently being drafted.

	We have been somewhat focused on the more practical side of applying those sorts of 
principles in the last four or five weeks.  And we're hopeful that we will be able to have the board 
adopt a draft code, if not at the meeting in July, then in the fall.  I think my testimony, and my 
written testimony at greater length, shows you some of the matters we've been engaged in, in the 
meantime.  But we intend to have such a code.  Although, as my colleague says, there's no legal 
requirement that we do so.

Mr. Greenwood. It seemed to me, Mr. Silvers, that you were nodding 
affirmatively when I was stating in my opinion the committees in question did not have the 
authority to issue stocks.  Were you, in fact, concurring in that?

Mr. Silvers. Well, I think there were multiple issues regarding those 
transactions.  And I think one of them is authority, and the other is simply the fairness of the 
transaction, even granted the authority.

	The Thompson report recommended that all the profits from those transactions, from the 
transactions that flowed from the issuance of stock to directors, be unwound and the profits 
returned.  That recommendation was adopted by the new ULLICO board on May 13th.  The 
demand letters have been sent to every person who benefited from that, and a number of 
individuals have already returned those profits.

	Earlier, Mr. Morty Bahr was mentioned.  He has returned profits from that transaction.  Mr. 
Maddaloni has committed to the board he will do so, and we are awaiting his check.  And Mr. Coia 
was mentioned earlier.  Mr. Coia had never profited from these transactions.

Chairman Boehner. The gentleman's time has expired.  As we 
conclude our hearing this morning, I think we've established by now we're not going to be getting 
any responses from our key witness, Mr. Georgine.  Needless to say, we respect his right to invoke 
the Constitution, but let me also make clear how disappointed I am both with the answers that we 
aren't getting and, frankly, with some of the statements that we've heard.

	We've repeatedly heard that the ULLICO situation doesn't compare with the outrages at 
Enron and other corporations last year.  But at least the Enron officials who were called to testify 
before this Committee were willing to cooperate and provide answers.  However that simple fact 
doesn't excuse the wrongdoing that appears to have occurred there, which wrecked many innocent 
lives.

	But I also question the suggestion that Mr. Silvers made that no one has been harmed by the 
actions that took place at ULLICO.  And it appears clear that at the very same time some union 
leaders were joining the chorus of well-deserved criticism for the leadership of Enron Corporation, 
ULLICO apparently set up a system of insider stock deals that made millions for the company's 
leadership at the expense of rank-and-file union members.  And many of these same union leaders 
who spoke out so publicly on corporate accountability were or are still ULLICO board members.  
And this issue today isn't what took place at Enron, but rather what happened at ULLICO.  And I 
think in both cases, it's clear there's a violation of trust, and possibly an illegal one.

	Now, I appreciate Mr. Silvers' representations of the new board and the work that they're 
doing to clean up the mess that they inherited.  And I wish you good luck in your continued 
endeavors to do that.  But as you do that, let me just reiterate Section 501 of the Labor- 
Management Reporting and Disclosure Act that provides, and I'm going to quote this: "The 
officers, agents, and other representatives of the labor organization occupy positions of trust in 
relation to such organization and its members as a group.  It is, therefore, the duty of each such 
person to refrain from holding or acquiring any pecuniary or personal interests which conflicts with 
the interest of such organization, and to account to the organization for any profit received by him 
in whatever capacity."  Now, that language, to me, puts the board members who represent the large 
unions and their members in a particularly touchy situation with regards to their service on the 
board of directors of ULLICO and some of the actions that took place.

	I appreciate the testimony that we've received from two of our witnesses.  I'd be happy to 
yield to my colleague, Mr. Miller.

Mr. Miller. I thank the Chairman for yielding.  

	I think that this hearing has brought out some very important points about fiduciary 
responsibilities and codes of ethics.  And I would hope that if we are going to proceed, I don't know 
what the Chairman has in mind, but rather than us get into a labor-management back and forth, I 
think we ought to recognize that millions and millions of Americans have great exposure in their 
pension plans, be they 401(k) plans, be they defined benefit plans, be they multi-employer plans, 
and that at a minimum, we ought to insist upon a duty of trust in the fiduciary duty for these plans.

	You just cited in the reporting act the duty there.  I don't know if there's a comparable duty 
in corporate or civil law, whether there is that same duty or not.  But I certainly believe that the 
pensioners and the employees and the shareholders, and even the customers of Enron, would have 
liked to have had that same duty exhibited by the corporate CEO and others at Enron. And we 
would have been more than happy to have Mr. Lay subpoenaed to this Committee and come in and 
decide what he was going to share with us.  Because everybody in the country is still waiting to 
hear him share a single thought on this matter.

	But I think the basic premise of what you've said here, Mr. Chairman, and what our 
witnesses have said is that we have an obligation to make sure that that fiduciary responsibility is 
properly broad enough, and that it is then enforced, and it is then obeyed by those who are charged 
with that duty.  There were many that argued during Sarbanes-Oxley, that nobody could comply 
with it, or they wouldn't comply with it, or what-have-you.  We're watching that unfold, and we'll 
see how that goes.

	But I think also, in the one hearing we had here on Enron, what we saw were huge gaps in 
terms of what should have been a fiduciary responsibility. And in the context of reviewing this, I 
would hope that we would also be able to review those responsibilities to individuals who have 
continued to see their savings and their retirement plans devastated even today by continued 
disclosures of activities that I think all the members of this Committee would find unacceptable.  I 
would hope that we would pursue that activity.

Mr. Silvers.  Mr. Chairman, I'm sorry.  I wish to correct something you 
said that's of great personal importance to me, and I apologize again if I didn't make this clear.

	I very strongly feel that people were harmed by these events.  I feel that the company of 
ULLICO was harmed, that the shareholders of the institutions were harmed.  My only point was 
that no one has lost any pension money.  No one has lost any pension benefit.  But I'm very 
concerned not to be represented as saying that no one was harmed.

Chairman Boehner. I take that into the record.  I ask unanimous 
consent that a certain document entitled Report of the Special Counsel ULLICO, Stock Purchase 
Offer and Repurchase Programs and Global Crossing Investment, prepared by Governor 
Thompson, and those volumes of exhibits which accompany the report, be made part of the record.  
Without objection, so ordered.
	
	I also ask unanimous consent that the correspondence dated June 16, 2003, between 
Committee staff and counsel for Mr. Georgine, Mr. Georgine's letter to the Committee of the same 
date, and the Committee's response to Mr. Georgine's letter, be made part of the record.  Without 
objection, so ordered.
	
Mr. Miller. Mr. Chairman, I had mentioned in my opening statement two 
documents from the Congressional Research Service.  I would ask unanimous consent that they be 
made part of the record.

Chairman Boehner. Without objection, so ordered. And with that, 
this hearing is adjourned.


Whereupon, at 12:40 p.m., the Committee was adjourned.


APPENDIX A - WRITTEN OPENING STATEMENT OF CHAIRMAN JOHN 
BOEHNER, COMMITTEE ON EDUCATION AND THE WORKFORCE 



APPENDIX B - WRITTEN STATEMENT OF WARREN E. NOWLIN, ESQ., 
PARTNER, WILLIAMS MULLEN, WASHINGTON, D.C. 




APPENDIX C - WRITTEN STATEMENT OF DAMON A. SILVERS, ESQ., 
COUNSEL TO THE CHAIRMAN, ULLICO, INC., WASHINGTON, D.C. 




APPENDIX D - SUBMITTED FOR THE RECORD, "BUILDING WORKERS' 
UNION SET TO LIMIT POLITICKING," GREENHOUSE, STEVEN, THE 
NEW YORK TIMES, JUNE 9, 2003




APPENDIX E - SUBMITTED FOR THE RECORD, REPORT OF THE 
SPECIAL COUNSEL, ULLICO STOCK PURCHASE OFFER AND 
REPURCHASE PROGRAMS AND GLOBAL CROSSING INVESTMENT, 
GOVERNOR JAMES R. THOMPSON, CHAIRMAN, WINSTON & STRAWN, 
NOVEMBER 26, 2003




APPENDIX F - SUBMITTED FOR THE PERMANENT HEARING ARCHIVE, 
APPENDIX TO THE REPORT OF THE SPECIAL COUNSEL, ON ULLICO 
STOCK PURCHASE OFFERS AND REPURCHASE PROGRAMS AND 
GLOBAL CROSSING INVESTMENT, AND CD ROM.  TAB NUMBER 
REFERENCES TO APPENDIX INCLUDED IN PRINTED HEARING 
REPORT




APPENDIX G - SUBMITTED FOR THE RECORD, LETTER FROM JOHN 
A. BOEHNER, CHAIRMAN, COMMITTEE ON EDUCATION AND THE 
WORKFORCE, TO ROBERT A. GEORGINE, JUNE 16, 2003



APPENDIX H - SUBMITTED FOR THE RECORD, LETTER FROM 
ROBERT A. GEORGINE, TO JOHN A. BOEHNER, CHAIRMAN, 
COMMITTEE ON EDUCATION AND THE WORKFORCE, JUNE 16, 2003



APPENDIX I - SUBMITTED FOR THE RECORD, LETTER FROM JAMES 
A. PARETTI, JR., ESQ., PROFESSIONAL STAFF MEMBER, COMMITTEE 
ON EDUCATION AND THE WORKFORCE, TO RANDALL J. TURK, ESQ., 
BAKER BOTTS LLP, WASHINGTON, D.C., JUNE 16, 2003



APPENDIX J - SUBMITTED FOR THE RECORD, CONGRESSIONAL 
RESEARCH SERVICE, REPORT FOR CONGRESS, CRIMINAL CHARGES 
IN CORPORATE SCANDALS, ORDER CODE RL31866, UPDATED MAY 
15, 2003



APPENDIX K - SUBMITTED FOR THE RECORD, CONGRESSIONAL 
RESEARCH SERVICE, MEMORANDUM TO MARK ZUCKERMAN, CIVIL 
CHARGES IN CORPORATE SCANDALS, MAY 29, 2003



                         Table of Indexes



Chairman Boehner, 5, 7, 9, 10, 11, 12, 14, 15, 17, 18, 20, 21, 23, 25, 27, 32, 35, 37
Mr. Andrews, 18, 20, 21
Mr. Cole, 25
Mr. Georgine, 5, 10
Mr. Greenwood, 32, 34, 35
Mr. Hoekstra, 29, 31
Mr. Johnson, 21
Mr. Kildee, 14, 15
Mr. McKeon, 16
Mr. Miller, 12, 14, 36, 37
Mr. Norwood, 12, 16, 17
Mr. Nowlin, 16, 17, 22, 24, 26, 34
Mr. Silvers, 7, 10, 11, 14, 15, 17, 18, 23, 24, 27, 28, 31, 32, 35, 37
Mr. Tierney, 23, 24
Ms. Majette, 27, 28, 29
Ms. Woolsey, 30, 32

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