US House panel wants Global Crossing boss to testify
By Jeremy Pelofsky
WASHINGTON, Aug 29 (Reuters) - The U.S. House Energy and Commerce Committee on Thursday threatened to subpoena Global Crossing Chairman Gary Winnick to explain his personal stock sales made when bad news about the company's financial outlook was coming to light.
Investigators also want to discuss a last minute deal the now bankrupt company, operator of a fiber-optic telecommunications network connecting more than 200 cities in 27 countries, completed just before its books were closed for the first quarter of 2001.
Global Crossing has been under investigation by the Securities and Exchange Commission and other agencies for contemporaneous swaps of network capacity that may have inflated the company's balance sheets, as well as massive insider stock sales.
The investigators have been trying to set up an interview with Winnick for a month but so far they have been unable to reach an agreement for him to appear, committee spokesman Ken Johnson said.
"He's willing to talk about his first grade experiences and who he dated in high school but he steadfastly refuses to discuss any of the allegation under investigation by the SEC," Johnson told Reuters. "That's unacceptable and Chairman (Billy) Tauzin is strongly considering subpoenaing him."
A spokesman for Winnick did not respond to requests for comment. Global Crossing said it was cooperating with the investigations but declined further comment.
The company succumbed to bankruptcy in January 2002 after amassing $12.4 billion in debt and facing a glut of capacity.
Earlier this month, Hong Kong's Hutchison Whampoa Ltd. <0013.HK> and Singapore Technologies Telemedia Pte agreed to acquire 61.5 percent control of Global Crossing in exchange for an immediate $250 million cash infusion and more when it emerges from bankruptcy.
Global Crossing is just one of many companies being investigated by Congress for alleged accounting shenanigans, including Qwest Communications <Q.N>, WorldCom Inc. <WCOEQ.PK> and, most famously, the collapse of energy giant Enron Corp.
WHO KNEW WHAT, WHEN
One of the primary areas under investigation is whether Winnick and other company executives knew that Global Crossing was heading for troubled waters and sold their shares before telling investors.
The company told investigators that its vice president for finance was ordered in late May 2001 to assess the outlook for the telecommunications industry and the possible impact on Global Crossing.
Winnick sold some $123 million worth of Global Crossing shares on May 23, 2001, while other insiders sold some $20.6 million in stock that month too, just before the report came back on June 4 that showed it might have to cut its financial forecast, Johnson said.
The trading window for insiders was closed that day, but former Global Crossing Chief Executive Officer Thomas Casey told committee investigators that he received a forecast in April 2001 that indicated at that time revenue would be $300 million less than forecast.
"Clearly these allegations raise suspicions about possible insider trading," Johnson said. "If Casey was told that there was a possible problem, what did Winnick and others know?"
Current Global Crossing Chief Executive Officer John Legere told Reuters on Aug. 9 that Winnick would remain chairman of the company's board until the bankruptcy reorganization was completed.
Global Crossing's shares hit $64.25 in May 1999, a split-adjusted high, giving it a market value of about $47 billion. Now, the company's common stock is worthless, closing on Thursday at just under 3 cents.
TRADING CAPACITY QUESTIONS
One of the centerpieces of the various investigations into telecommunications companies has been the contemporaneous swaps of network capacity and how they were booked.
The committee released an exchange between Casey and the company's general counsel Jim Gorton in which they debated whether incentives for contemporaneous sales should be cut, although such deals were crucial to meeting Wall Street expectations.
"If we don't get these deals, we miss our quarters; if we don't incentivize the sales force, they won't do the deals," Casey said.
A whistleblower also told committee investigators that several officials objected to Global Crossing completing a lucrative but complex deal with struggling rival 360networks <TSX.TO> hours before the first quarter of 2001 closed, he said.
"After all the objections were raised, Winnick, according to our source, ordered everyone off the teleconference and a few minutes later Casey informed other company officials that the transaction had been approved," Johnson said.
If the deal had not been completed, Johnson said the company would not have met Wall Street expectations for the quarter and could have sent the stock plummeting.
Global Crossing's losses for the quarter in question were smaller than expected by Wall Street, although wider than the same period during previous year. "We saw the effect of the macro-economic conditions clearly, but our performance was quite good despite that," Casey told Reuters at the time.
(With additional reporting by Jessica Hall in Philadelphia)
08/29/02 20:00 ET |
