- The Washington Times - Wednesday, March 13, 2002

The lead House committee investigating Enron Corp. yesterday began an inquiry into accussations that Global Crossing Ltd. also inflated its revenue and stock price in a scheme to defraud investors before filing for bankruptcy Jan. 28.
On the surface, the case against the Bermuda-based fiber-optics firm seems to be a carbon copy of Enron, from its use of creative accounting to pump up its stock price to gross profiteering by company executives who got rich cashing in millions in stock while employees and investors were left with nothing. Like Enron, Global Crossing and its auditor Arthur Andersen face dozens of employee and investor lawsuits and investigations by the Securities and Exchange Commission and Justice Department.
But the meteoric career of Global Crossing, which rose to national prominence, lavished campaign contributions on top politicians and then fell into insolvency within five years, in other ways poses substantially different issues since the start-up company never actually posted a profit or proved to be economically viable.
"As in the case of Enron, we're trying to determine whether accounting hocus-pocus created an illusion of profitability. But was Global Crossing really a giant toppled by revelations of accounting irregularities, a recession and bust in telecommunications, or a paper tiger created by creative bookkeeping?" asked Ken Johnson, spokesman for the House Energy and Commerce Committee.
The committee sent a letter to Global Crossing Chief Executive John Legere yesterday demanding that it produce within two weeks documentation of its accounting practices, executives' stock sales and other internal papers. Whether the committee holds highly publicized hearings like it has on Enron depends on what it finds in those documents, Mr. Johnson said.
"We look forward to working with the committee," Mr. Legere said after receiving the request for documents yesterday.
Like Enron, Global Crossing frenetically lobbied for its interests in Washington, and even managed to outdo the energy giant in providing more than $3.5 million in political donations with a tilt toward Democrats since 1997. Those contributions appeared to have paid off in the favorable regulatory treatment the company received from various agencies.
The committee investigation is focusing in particular on a $400 million contract Global Crossing won from the Defense Department to provide fast and secure Internet services in July, but which the department later withdrew when competitors complained that Global could not perform the services and was ineligible because it was based in Bermuda.
The committee asked for records of all contacts between Global's officers and defense officials. The company added former Clinton administration Defense Secretary William Cohen to its board of directors last year and hired a Washington law firm to lobby on defense issues.
The main focus of the committee investigation is Global's practice of booking revenues from swap arrangements to use the fiber-optic networks of other companies, such as Qwest Communications. Those transactions are also the focus of the SEC inquiry, which began last month with Global Crossing and since then has been widened informally to include Qwest.
Yesterday, WorldCom disclosed that it had received a request for records from the SEC on unrelated accounting and disclosure issues.
In the Global Crossing case, the committee and the federal agencies are relying partly on assertions by former Vice President for Finance Roy Olofson, who has charged in a lawsuit that the accounting for the swap transactions was fraudulent. Internal correspondence from Global's chief financial officer, Daniel Cohrs, to then-Chief Executive Tom Casey in August also raised questions about the swap arrangements.
The House committee's move to widen its investigation of questionable accounting practices came as Senate Majority Leader Tom Daschle, South Dakota Democrat, and Senate Judiciary Committee Chairman Patrick J. Leahy, Vermont Democrat, proposed legislation to toughen the penalties for corporate fraud. The measure goes beyond the stiffer penalties outlined by President Bush last week.
A former Global Crossing employee, Scott Johnson of Fairfield, Conn., sued company founder and Chairman Gary Winnick and other directors of the firm yesterday, claiming they violated the federal Employee Retirement Income Security Act.
Mr. Johnson says he and other current and former employees lost tens of millions of dollars in retirement savings.
The suit, filed in U.S. District Court in Los Angeles, seeks class-action status and full compensation from Mr. Winnick and the other defendants.


Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.

 

Click to Read More and View Comments

Click to Hide