- The Washington Times - Sunday, October 13, 2002

Spearheaded by a Justice Department task force and a House Energy and Commerce subcommittee, the federal government has made substantial progress recently in unraveling the greed-related causes that contributed to the colossal bankruptcies of Enron and Global Crossing. As a result of those two implosions, investors left holding the bag of worthless securities lost more than $120 billion.
In the Enron matter, the government filed a criminal complaint charging former Chief Financial Officer (CFO) Andrew Fastow with conspiracy, fraud and money-laundering. Mr. Fastow was known to be obsessed with what he considered to be Enron's failure to adequately compensate him. This, despite his admission to a board member that he received $45 million for managing Enron's off-the-books partnerships, which were mired in illegal conflicts of interests and Mr. Fastow's reaping nearly $25 million from dumping inflated Enron shares on a gullible public. Mr. Fastow's obsession with his compensation may explain why he greedily exacted kickbacks of $10,000 from subordinates managing other partnerships, as the charges allege.
It is now clear that Enron exploited those off-balance-sheet partnerships for which CFO magazine bestowed upon Mr. Fastow its "Excellence Award for Capital Structure Management" in 1999 to hide debt and generate fictitious earnings. As the complaint notes, Enron's culture developed its own vocabulary, including the Enron "time machine," which made it possible to backdate documents in order to increase quarterly earnings. "Nuclear waste" referred to loss-generating assets that were temporarily "parked" in off-the-books partnerships, later to re-emerge in profit-producing deals.
Meanwhile, the House Energy and Commerce Subcommittee on Oversight and Investigations grilled Gary Winnick, the former chairman of Global Crossing who reaped $734 million from stock sales before the firm he founded collapsed in January. In fact, on May 23, 2001 one year after Global Crossing's chief executive warned Mr. Winnick in writing that the firm was doomed to implode and eight months before the firm declared bankruptcy Mr. Winnick sold $123.5 million worth of Global Crossing stock.
Altogether, Mr. Winnick netted a profit of more than $700 million from Global Crossing stock transactions, according to a Wall Street Journal analysis. Mr. Winnick turned a $20 million investment, the Journal reported in August, into $734 million in proceeds from selling Global Crossing shares before the firm collapsed. (As impressive as Mr. Winnick's nearly 4,000-percent profit from a bankrupt enterprise is, it's worth putting it in context. Democratic National Committee Chairman Terry McAuliffe, who arranged for Mr. Winnick to play golf with then-President Clinton, turned a $100,000 investment in Global Crossing into a $18-million killing, representing a profit of nearly 18,000 percent, while earning millions of dollars more trading the firm's options.)
In an apparent effort to assuage his conscience, Mr. Winnick announced at the congressional hearing that he was prepared to write a check for $25 million to compensate Global Crossing employees whose 401(k) retirement savings were eviscerated by the firm's bankruptcy. Apart from the fact that the offer would replenish less than 10 percent of the more than $250 million in retirement assets that went down the tubes with Global Crossing, subcommittee Chairman James Greenwood noted that investors lost $54 billion. Well, not all investors, a fact about which Mr. McAuliffe was once only too happy to brag to the New York Times.

Sign up for Daily Newsletters

Copyright © 2019 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