SEC Drops Winnick Charges From Global Crossing Pact, People Say
Dec. 13 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman William Donaldson rejected a staff proposal to sanction Gary Winnick as part of a settlement with Global Crossing Ltd., people familiar with the decision said.
Winnick won't be fined or accused of any wrongdoing, Howard Rubenstein, a spokesman for Winnick, said yesterday. ``That is my understanding,'' Rubenstein said. He wouldn't comment further.
Donaldson sided with two members of the five-person commission in opposing the staff recommendation at a Dec. 9 meeting in Washington, according to people familiar with the matter. SEC officials had sought to fine Winnick, 57, for failing to police the accuracy of the Hamilton-Bermuda-based company's disclosures.
A settlement between Global Crossing and the SEC is still likely to proceed, the people said, ending a three-year probe into whether the company overstated revenue by swapping fiber- optic network capacity with phone carriers, including Qwest Communications International Inc. Winnick, a former executive at Michael Milken's Drexel Burnham Lambert, founded Global Crossing in 1997 and served as the company's non-executive chairman until 2002 before the company filed for Chapter 11 protection.
John Heine, an SEC spokesman, declined to comment, as did Becky Yeamans, a spokeswoman for Global Crossing, which is run from Florham Park, New Jersey.
Under the pact recommended by SEC enforcement staff, Global Crossing would be accused of faulty disclosure, not fraud, and wouldn't be fined. Donaldson and other commissioners supported a settlement on those terms, the people said.
Division
The division is a sign that the presidentially appointed officials who oversee the federal market regulator are wrestling over the agency's power to punish.
Republican commissioners Cynthia Glassman and Paul Atkins have opposed levying large fines against companies including Denver-based Qwest, which agreed in October to pay $250 million to settle SEC fraud claims. Donaldson, a Republican, has until now sided with the two Democratic Commissioners, Roel Campos and Harvey Goldschmid, in those debates.
Donaldson and other commissioners at the Dec. 9 meeting said the SEC would be stretching the law by accusing Winnick of fraud for not detecting and preventing the company's improper financial disclosures, the people familiar with the matter said.
Unlike company managers, Winnick didn't prepare or review the accuracy of the financial documents, the people said.
Perrone, Cohrs
The planned Global Crossing settlement also calls for sanctions against Joe Perrone, a former Global Crossing finance executive, and Dan Cohrs, who was the company's chief financial officer, the people said. Cohrs and Perrone may refuse to settle now that Winnick has been dropped from the case, the people said.
Joseph Goldstein, a lawyer representing Cohrs, and Clyde Szuch, Perrone's attorney, didn't return calls seeking comment.
Global Crossing amassed $12 billion of liabilities building a 100,000-mile fiber-optic network across the globe. It filed for Chapter 11 protection in January 2002 after demand for the network from corporate users fell short of expectations. About $40 billion in stock-market value was lost.
Winnick sold shares worth more than $578 million before Global Crossing filed for bankruptcy.
Restatements
The company said in October 2002 that it would no longer record sales from capacity swaps and restated results for the first nine months of 2001 to remove $19 million of revenue from the transactions. In October of this year, the company restated 2003 results to reflect underreported costs of $67 million related to the use of other carriers' networks.
A federal judge last month approved a $325 million settlement of a fraud suit by Global Crossing investors, who accused Winnick, Perrone, Cohrs and others of inflating the company's results. Winnick's portion of the settlement was $55 million, including $25 million that wasn't covered by insurance.
Now led by Chief Executive John Legere, Global Crossing's third-quarter sales dropped 11 percent to $617 million as prices for sending calls and data over fiber-optic networks plunged. On Friday, the company said it planned to raise $350 million in a bond sale to institutional investors.
Government-controlled Singapore Technologies Telemedia Pte controls Global Crossing after paying $250 million for a 62 percent stake to help the company exit bankruptcy.
To contact the reporters on this story:
Otis Bilodeau in Washington at obilodeau@bloomberg.net; Dana Cimilluca in New York at dcimilluca@bloomberg.net.
To contact the editor responsible for this story:
Emma Moody at emoody@bloomberg.net.
Last Updated: December 13, 2004 00:02 EST |
