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  • authored by Hugh Finnamore

The Global Crossing Scandal Shone a Light on North America's Union Elite

The self-righteous union elite wax angrily in their denunciation of Enron and Global Crossing Ltd. The union fat cats say corporate executives are greedy, insensitive and enrich themselves at the expense of ordinary workers. However, their foot-stomping bluster is more likely designed to deflect attention from their own involvement in pocket stuffing and financial pillaging than to correct any wrongs in the business world.

A slew of union top dogs run ULLICO Inc., formerly called Union Labour Life Insurance Company. It is a huge North American pension and insurance fund manager ostensibly owned by union members and their pension funds. ULLICO put a bundle into, the now infamous, Global Crossing Ltd. and offered shares to the union honchos who sit on its board at bargain basement prices. When Global share prices were heading for the toilet, some of the most influential labour leaders in North America were allowed to sell all their shares back to ULLICO at pre-bust peak prices. Collectively these high-rolling active and retired union bosses pocketed close to $10.2 million CAD. Now a Washington DC grand jury is investigating allegations that the wealthy union bosses put their own interests before those of union pension funds and union retirees.

In 1997, ULLICO bought a 7.7 stake in Global Crossing Ltd. Two years later, even though ULLICO was losing money on its operations, it pumped up its coffers by selling $192.8 million CAD in Global stock. The insiders knew that the sale would boost ULLICO shares from around $82 CAD to $222 CAD when its books closed on December 31, 1999. Like all union-owned businesses, ULLICO is privately held, and it sets its share prices annually.

Before that fiscal year end, ULLICO offered each director 4,000 of its shares at the $82 CAD price. Many of the union big wigs sitting on the board were also shakers within their own unions' pension funds, but the union pension funds that own nearly all of ULLICO weren't even told about the offer. By January 2001 when Global stock was starting to nosedive, insiders knew that ULLICO stock prices would slide nearly 50 percent from $222 CAD to $114 CAD. Not to worry. ULLICO allowed those with less than 10,000 shares to sell 100 percent of their holdings, so officers and directors could take full advantage of selling at the higher price, but pension funds couldn't. By January 2002, Global is in flames, and ULLICO's insiders know that its shares are about to drop from $114 CAD to about $67 CAD. ULLICO buys back an additional 200,000 shares, allowing officers and directors who hadn't sold before to dump their shares at the higher price.

The ULLICO scandal is not a one-off event that has little or relevance to Canadians. Consider that the ULLICO board is made up of people with direct and indirect influence for the majority of unions that control Canada's labour bureaucracy. The guys at this trough include Arthur Coia, a former laborers union president and convicted felon, Jake West, former head of the ironworkers and recently indicted on federal embezzlement charges, and Marty Maddaloni, head of the plumbers union who is under investigation for pension irregularities involving a billion-dollar hotel investment fiasco. These guys and the heads or former heads of every major union in North America including the Head of the AFL/CIO were all part of the ULLICO board who approved the stock scheme.

Even though there were some union heads who resisted the temptation to profit as insiders, the fact remains that all 32 board members voted for the pocket-lining scheme and rubber-stamped each transaction, including their approval of a five-month extension to give the directors more time to sell back additional shares to ULLICO.

If ULLICO had been a Canadian operation, the pocket lining would probably still be undetected. It is only because the US government and its law enforcement agencies take union corruption seriously that the pocket lining was even discovered. The ULLICO investigation arose out of a separate criminal probe of Jake West, the former ironworkers president, according to a report in the Wall Street Journal. Mr. West is now awaiting trial in Washington on charges of embezzling funds from the union he once headed.

Union bosses have their fingers in the running and managing of all sorts of businesses. For example, Canadian laws allow Labour Sponsored Investment Funds, and through them, union bosses now hold sway over three billion dollars or over a third of all Canadian institutional venture capital. Many of these funds are called Rent-a-Union funds because slick operators pay unions to act as fronts for high-risk, low-return ventures. Billions more are sloshing around in union pension funds. Some of these funds are well managed, but some engage in questionable practices with little or no enquiry by government or its agencies. Some of these funds operate private entities run by the union elite.

Some Canadian union education funds are used more to buy real estate than to educate union members. Sometimes union offices are paid for by employer contributions to an education fund. In one case I witnessed a scam designed to avoid paying GST on the purchase of a million-dollar building where the union claimed it was an "education center." I've seen a flurry of real estate transactions in one week where, when the dust cleared, a union president ended up personally owning a mortgage-free suburban luxury home. The RCMP claimed to be too overworked to respond and at the time, an official of the then Revenue Canada told me that they "have a tacit understanding that they don't bother unions."

Sometimes, these union officials haven't made astounding business decisions on where and with whom they invest members' money. Some of those decisions have seen a sizable chunk of union members' money go south to some place called "oblivion."

How easy is it to get Canadian union guys to part with large sums of cash? I'll give you an idea.

The United Food and Commercial Workers Union (UFCW) controls the Canadian Commercial Workers Industry Pension Plan (CCWIPP). That plan has been furiously trying to dig out from what UFCW Canadian Director Michael Fraser calls, "a correction phase due to solvency requirements." This pension plan should be plagued by a cash surplus rather than pondering how to meet solvency requirements. Huge sums of money are paid into that plan for tens of thousands of part-time retail workers who leave the plan never to be vested (eligible for pension). In actuarial parlance, that money is called "breakage." Breakage must be left in the plan for the benefit of vested plan members.

CCWIPP runs something near 100 numbered companies with "I.F. Propco" in their names. The pension fund's investment committee is run by Mr. Fraser's uncle and former UFCW Canadian Director Clifford Evans. I.F. Propcos have invested heavily in RHK Capital Inc. and its related ventures. RHK Capital is owned by Ronald Kelly, who was identified, in a July 20, 1997 Toronto Sun article, as a retired priest and convicted, and eventually pardoned, pedophile. Likewise, CCWIPP has invested and lost money in ventures controlled by retired and active UFCW International Union and AFL/CIO cronies.

CCWIPP invested $500 thousand in Webgalaxy an Internet provider and its project United Labour Online (ULOL.com), which was run by a bunch of active and retired union officials. Even as it was going down the tubes, Webgalaxy CEO Tom McNutt, a past president of a huge UFCW local union and a retired UFCW International vice-president was telling the world, "WebGalaxy is in an excellent position, having exclusive marketing contracts with five International Unions, representing approximately 3,000,000 Union members." Union member's money in the millions went into and was reportedly lost in that fiasco. However, that didn't stop CCWIPP from further investment activities with the same guys who hatched the Webgalaxy deal.

CCWIPP is reported to have dumped around $1 million into Acubid, a publicly-traded company that started out in 1983 as a mining exploration stock and eventually morphed into Acuvision Systems Inc., a vision products company, and into Acubid, a web-auction company selling sports memorabilia. Today when you try to enter the Acubid web site, you are automatically switched to a site offering cash advances for litigation cases. Affinity Telesystems Inc. (ATI) was also one of the many enterprises UFCW and other union big wigs gambled members' money.

A key non-union player who sticks close to union guys with their fingers on union-controlled funds is 51-year-old John S. Irvine, with an MBA from Western University, Toronto. He was president of both Affinity TeleSystems Inc. of Canada and U.S.A. Affinity TeleSystems. Affinity claims it's "a marketing management company in the telecommunications field with strong affiliation to the labor movement." Mr.Irvine was also an officer and director of WebGalaxy, Inc. Last year he was named, along with Mr. McNutt and others in a formal complaint concerning alleged various violations of the Teamsters' campaign finance provisions regarding a recent Teamsters Union election.

When these guys aren't trying to get Jimmy Hoffa Jr. elected as Teamster president, they are employing the kid of the union elite. Affinity hired the UFCW International President's daughter as Program Director, Affinity Southwest. She was responsible for establishing a union client base in California for Affinity's long distance phone program and WebGalaxy's United Labor Online. She claims to have participated in the development and sales of WebGalaxy's United Labor On-line-the same one that ate CCWIPP's investment.

The ULLICO scandal isn't the beginning of union bosses allegedly taking care of themselves at the expense of those they are sworn to protect. It's just another tale in a continuum of corrupt profiteering and sometime ineptness of some union bosses trying to be businessmen and getting caught up in a bizarre notion of what they are worth and what their members owe them.

The last I heard, the former Newfoundland priest Mr. Kelly was tending business in Panama, after huge cost overruns associated with a Bahamian hotel deal, purportedly financed by a Canadian union pension fund. The Bahamas hotel deal came on the heels of RHK's unloading of a multi-million-dollar London, Ontario shopping mall onto a Canadian union pension fund. Nonetheless, Canadian union bosses are still ready to lend money to projects and so-called friends of labour, which commercial banks shy away from.

Meanwhile, union activists are whining, that they are sure that anti-labour politicians and their right-wing allies will be exploiting the ULLICO mess to harm workers, and so will employers when confronted with a union organizing campaign. You can bet your boots they will, but who is to blame-certainly not the employers, nor the politicians. The blame lies squarely on a corrupt union bureaucracy that is fully aware, but choose to look the other way.

Hugh Finnamore, a former union official, is now a senior consultant at Vancouver-based Workplace Strategies Inc.
E-mail: workplace@telus.net
© 2002 Hugh Finnamore

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