- The Washington Times - Saturday, February 9, 2002

From combined dispatches
The Federal Bureau of Investigation and the Securities and Exchange Commission are investigating charges that Global Crossing Ltd. deceived investors by inflating earnings and revenue in its financial statements.
Global Crossing spokeswoman Becky Yeamans said the SEC informed the company Wednesday that it was upgrading its investigation of accounting practices into a "formal" investigation.
The company has received an SEC subpoena for documents, including press releases, contracts and correspondence, and on company practices, she said.
Like Enron Corp., which also is under investigation of misrepresenting its financial condition to investors, the Bermuda-based operator of fiber-optic networks has filed for bankruptcy protection.
Also like Enron, Global Crossing's auditor was Arthur Andersen. Global Crossing's former vice president of finance, Roy Olofson, and investors have charged that the company misreported revenue and expenses on financial statements approved by the Big Five accounting firm.
Global Crossing's stock, which once sold for as high as $61.38 a share in May 1999, now trades at about 7 cents.
One prominent investor in Global Crossing was Terry McAuliffe, chairman of the Democratic National Committee. He parlayed a $100,000 exclusive investment in the start-up firm in 1997 into an $18 million fortune when he cashed in his shares in the late 1990s, according to Worth magazine.
After receiving the exclusive investment offer from company founder Gary Winnick, Mr. McAuliffe arranged for Mr. Winnick to play golf with President Clinton. Mr. Winnick afterward contributed $1 million to help build the Clinton presidential library.
Mr. Winnick, a former Drexel Burnham Lambert executive, founded Global Crossing in 1997. It grew exponentially to become the owner of one-fifth of the fiber-optic cables leaving the United States before mounting debts forced it into bankruptcy Jan. 28.
In its Chapter 11 bankruptcy filing the fourth-largest ever Global Crossing listed $22.4 billion in assets and $12.4 billion in debts.
The FBI, like the SEC, is focusing on accounting issues, according to sources familiar with the investigation. An FBI spokesman declined to comment.
"The SEC informed us that this investigation does not mean they have concluded that anyone in the company has broken the law," Miss Yeamans said. "We're confident that the investigation will determine that these allegations are false and that the company's actions have been appropriate."
Another spokesman said the company wasn't aware of the FBI investigation.
Dave Tabolt, an Andersen spokesman, said the auditor will cooperate with any investigation. He wouldn't say whether the firm had been contacted by the SEC.
"This is a very serious problem for them," said Michael Granof, an accounting professor at the University of Texas. "The SEC has obviously done a preliminary investigation, and they've decided to pursue this and are taking this very seriously."
Mr. Olofson said Global Crossing "substantially inflated" its cash revenue and earnings before interest, taxes, depreciation and amortization, according to a statement issued this week by Mr. Olofson's attorneys at O'Neill, Lysaght & Sun LLP in Santa Monica, Calif.
In a letter to corporate officers last August, Mr. Olofson said the company increased sales in the last few days of some quarters by "round-tripping," that is, booking a sale of capacity to a customer and then purchasing a similar amount of capacity back from the client. In the second quarter of 2001, Global Crossing did approximately 13 round-trip transactions, he said.
"Global Crossing was giving the impression that it was generating cash revenues when, in actuality, these transactions did not increase the cash position of the company in any material sense," said Brian Lysaght, one of Mr. Olofson's attorneys.
Mr. Olofson also charged that seven months before the company filed for bankruptcy protection, the company's chief financial officer wanted to warn investors that sales were slowing but felt he couldn't because the chairman had just sold nearly $124 million worth of stock, Mr. Lysaght said.
Mr. Olofson was fired Nov. 30, along with others, as the company cut jobs to reduce expenses. He said he was wrongfully dismissed.
Global Crossing said it investigated all of Mr. Olofson's claims and found them without merit. The firm also said his motives are "questionable," as he is seeking a multimillion-dollar settlement after his termination.
Paul Murphy, another of Mr. Olofson's attorneys, said Global Crossing is engaging in a "carefully orchestrated smear campaign" against his client.
Staff writer Patrice Hill contributed to this report.



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