A union-sponsored corporate rip-off.

For much of the past two years, the labor movement has been in a near-perpetual state of righteous high dudgeon. The predations of executives who simultaneously lined their pockets as stocks plummeted and companies went bankrupt, thus rendering workers' retirement savings worthless, provide excellent fodder for old-time organizing.

But the unseemly shenanigans at a union-owned life insurance company—ULLICO—show that the labor bosses have learned a thing or two from the corrupt CEOs of the 1990s. Thus far, the ULLICO scandal has been significantly underplayed—because it's complicated, because it doesn't involve a publicly held company, because the sums involved pale in comparison to other scandals, and perhaps because it oddly envelopes union leaders affiliated with both Democrats and Republicans. But these mitigating factors don't make it any less troubling.

The Union Labor Life Insurance Co. was founded in 1925 to provide death benefits to families of union members. Over the decades, the Washington-based company evolved into a modest labor-owned financial services conglomerate—ULLICO. By and large, the company's stock was owned by unions, whose leaders sat on the large, 32-person board.

In the 1990s, Michael Steed, a former Democratic National Committee-staffer-turned-financier, helped usher ULLICO into the modern era. In 1992, the company joined forces with the Carlyle Group—the access capitalism pioneer—to purchase a unit of the bankrupt defense contractor LTV Corp.

ULLICO then started a program under which directors could purchase shares and sell them back to the company. The company would set the price once annually—after an audit by an accounting firm—and keep the price constant until the following year. For much of the 1990s, the price hovered at about $25 per share.

For a predictable little insurance company—ULLICO had assets of about $4 billion in 2000—keeping the price at which it is willing to buy shares from insiders steady for a year doesn't sound inherently corrupt. The valuations of insurance companies typically aren't subject to wild gyrations. But once you hitch the steady plodder to a shooting star of the New Economy, it's easy to see the potential for abuse.

In 1997, ULLICO invested $7.6 million—or $1 per share—to gain an early stake in Global Crossing, the fiber-optic company founded by the charismatic Gary Winnick. Other early investors, it will be recalled, include former President George H.W. Bush and DNC Chairman Terry McAuliffe.

Global Crossing went public in August 1998 at $18 and quickly soared to $64 in May 1999. Suddenly, ULLICO's stake was worth about $2.1 billion—a sum far greater than the value of the small insurance company.

Guess what happened next? In May 1999, the value of the shares of ULLICO more than doubled to $53.94 and was fixed at that price for a year. But in the latter half of 1999, Global Crossing—on whose fortunes the price of ULLICO apparently now depended—started to slump. Still, at its May 2000 meeting—by which time Global Crossing was down almost 50 percent from its May 1999 peak—the board decided nearly to triple the price of ULLICO stock, to $146. Of course, ULLICO had sold some of its holdings in Global Crossing in the interim, thus realizing significant profits. But throughout 2000, as Global Crossing and the rest of the high-flying telecommunications complex fell to earth, ULLICO continued to buy back shares from directors at that inflated $146 price.

In fact, according to the Wall Street Journal, in November 2000, with Global Crossing having dropped below $25 a share—less than half its December 1999 value—the ULLICO board voted to buy back $30 million in stock from shareholders at $146 a share and said directors could continue selling at that price through May 2001. In May 2001, based in large part on the demise of Global Crossing, ULLICO's stock price was nearly halved, to $74. Global Crossing filed for bankruptcy in January 2002, effectively rendering its stock worthless.