14 Global Crossing Insiders Sold Stock
$482 Million in Shares Unloaded in 2 Years
By Christopher Stern
Washington Post Staff Writer
Wednesday, February 27, 2002; Page E01
During 2000 and 2001, a period when Global Crossing Ltd.'s stock was falling along with demand for its international telecommunications network, 14 company insiders sold more than $482 million worth of shares in the firm.
Global Crossing chairman and founder Gary Winnick reaped the biggest gains over those two years -- a total of more than $280 million, according to figures provided by Thomson Financial/Lancer Analytics. Winnick's windfall includes $149.2 million worth of stock sold by Pacific Capital Group, a Beverly Hills, Calif., investment firm he controls.
Winnick and other company officials have defended the sales, saying the transactions were fully disclosed to investors and others as part of Global Crossing's routine reports to federal regulators.
But the sales were made during a period now under scrutiny by the Securities and Exchange Commission and the FBI. The agencies are looking into charges that the company, which filed for bankruptcy protection last month, reported inflated revenue numbers in an effort to mislead investors, creditors and regulators about its financial condition.
In a statement released by his attorney, a former Global Crossing vice president for finance, Roy Olofson, claimed officials refused to lower projections for the company's performance in June 2001 because it would raise concerns about Winnick's decision to sell $124 million worth of stock the previous month.
In all, Winnick sold $734 million of Global Crossing shares since the company went public in August 1998. During the two-year period when he sold $280 million of that total, more than a dozen other Global Crossing executives sold $200 million worth of stock. It was a time when the company's financial condition was rapidly deteriorating.
The company filed for Chapter 11 bankruptcy protection in January. Under a deal proposed as part of that filing, Global Crossing's assets would be sold to two Asian companies for $750 million -- rendering worthless current shareholders' stock. Some shareholders are opposing the deal in hopes a higher bidder will emerge.
If a sale goes through, it would bring a sudden end to a company that went public less than three years ago and whose stock was briefly valued at more than $50 billion -- making it bigger, at least on paper, than General Motors Corp. Global Crossing was able to quickly build itself into one of the world's biggest telecommunications firms by laying high-capacity fiber-optic cables between North America, South America, Europe and Asia.
Along the way, Global Crossing became a powerful player in Washington, where it was among the biggest campaign contributors to both Democrats and Republicans. Former president George H.W. Bush was given shares eventually worth millions of dollars in return for making a speech on behalf of the company. Democratic Party Chairman Terry McAuliffe has made up to $18 million selling shares in the company he received before it went public.
At the same time that Washington insiders were receiving shares in the company, Global Crossing was seeking favorable treatment from regulators and was also competing for lucrative government contracts.
But the company eventually failed when a scarcity of international capacity turned into a glut, leading to a collapse in the market for transporting data and voice communications around the world.
As the downturn began, David Lee, a founder of Global Crossing who left the company in 2000, sold $39.9 million in stock in April of that year. At the same time, Barry Porter, former senior vice president for corporate development, sold $41.2 million worth of shares. William Carter, president of a subsidiary, Global Crossing Development Co., sold almost $22 million worth of stock in several transactions during the past two years.
"To the best of our knowledge, all of the Global Crossing individuals covered by . . . the SEC's trading rules have made their trades in accordance with SEC policies that prohibit trading when individuals have material, nonpublic information -- and have had those trades approved internally by the company's general counsel," Global Crossing spokeswoman Becky Yeamans said.
Yeamans added that there were no trades by Global Crossing executives after May of last year, in the months leading up to company's bankruptcy filing.
Some analysts say the insider sales suggest company officials may not have been confident about Global Crossing's future, particularly as the field filled with competitors and weaker players began falling by the wayside.
"These guys must have understood what was going on in the marketplace and started to unload their shares," said David Neil, vice president at the Gartner Group, a research and consulting firm.
The glut developed after Global Crossing had built up more than $12 billion in debt in less than three years. In addition to constructing a 100,000-mile network, the company used its stock as currency to acquire other telecommunications firms.
As the telecommunications market was softening, Global Crossing and other companies, including Enron Corp., which operated its own fiber-optic network, began trading capacity on each other's systems. The companies boosted their revenue by claiming income from the trades, even though in many cases the deals included capacity swaps of equal value, according to Olofson and some analysts.
Company officials have defended the deals, saying the trades represented an effective way to extend the reach of their networks. Instead of laying their own telecommunications lines, a company could simply trade or buy capacity on an existing system.
A Global Crossing subsidiary, Asia Global Crossing, said last night it had retained an attorney to investigate Olofson's charges. The company said it could not release a final financial statement for the fourth quarter and for the full year until the investigation was complete.
Global Crossing, in also releasing a partial financial statement for the fourth quarter last night, disclosed that its accounting treatment of capacity swaps is under investigation by the U.S. attorney's office for the Central District of California as well as the SEC. The company said it would release a complete financial statement when it files its 10-K annual report with the SEC.
Meanwhile, some investors and creditors have begun to raise questions about the company's proposal to sell its assets to two Asian companies, Hutchison Whampoa and Singapore Technologies Telemedia Pte.
Winnick negotiated the proposed sale before the company filed for bankruptcy and he presented the agreement to creditors and investors as a prepackaged deal. Some creditors are concerned the deal was struck after Winnick invested in another Asian company, K1 Ventures Ltd., which has indirect ties to Singapore Technologies.
Winnick has denied that his investment in K1 would in any way benefit from Singapore Technologies' purchase of Global Crossing's assets.
Staff researcher Richard Drezen contributed to this report.
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btw KLP, I'm not sure on the Enron numbers...will have to do some checking.
Global Crossing has had a HUGE meltdown too and I hope The Justice Dept. and The SEC aggressively investigate what went on and if it truly was legal. |
