- The Washington Times - Thursday, September 12, 2002

The intensifying investigation by the House Energy and Commerce Committee into the bankruptcy of once-highflying Global Crossing appears to be targeting Gary Winnick, the firm's billionaire chairman who cashed out nearly $750 million before the firm collapsed. The bankruptcy cost stock investors more than $50 billion and bond investors billions and billions more. Democratic National Committee Chairman (DNC) Terry McAuliffe exited early, pocketing a reported $18 million profit from a $100,000 investment and millions more trading Global Crossing options.

What concerns congressional investigators as well as the Securities and Exchange Commission and federal prosecutors is the role Mr. Winnick played in arranging highly questionable capacity swaps with other telecoms. With only one day remaining in the first quarter of 2001, Mr. Winnick reportedly overruled the objections of other board members and Global Crossing's general counsel and approved a crucial capacity swap with 360Networks. The last-minute deal added what proved to be an effectively fictitious $150 million in revenue to Global Crossing's sales. That gambit permitted the struggling firm to meet Wall Street's growth expectations for the quarter. However, in May, after an internal April forecast indicated Global Crossing's revenues would fall $300 million short of projections for the second quarter, Mr. Winnick sold $123.5 million in Global Crossing stock. Investigators want to know if Mr. Winnick improperly acted on inside information. For his part, Mr. Winnick steadfastly maintains that he was essentially a passive chairman of the board in 2001, uninvolved in the day-to-day business matters of the firm he founded four years earlier.

In pursuit of its laudable investigation of insider-trading activity relating to capacity swaps, Mr. Winnick is not the only the Global Crossing profiteer who should be subpoenaed by the House Energy and Commerce Committee. The committee ought to put Mr. McAuliffe under oath as well. After all, as National Review's Byron York recently reported, Mr. McAuliffe served on the board of directors of now-bankrupt Telergy, a Syracuse-based telecom that engaged in revenue-hyping capacity swaps with Global Crossing.

In August 1999, Mr. McAuliffe became a Telergy director. In September, Global Crossing invested $40 million in Telergy, a transaction that generated a payoff of $1.2 million to Mr. McAuliffe for, as Telergy put it, "assisting us in raising capital." It was during that same month that Telergy and Global Crossing began participating in the highly questionable practice of capacity swaps.

In his recent hypersensitive refusal to discuss the huge killing he made on his Global Crossing investment, Mr. McAuliffe explained to Sam Donaldson of ABC News why he had done nothing wrong. "I was merely an investor in a company," Mr. McAuliffe argued on Aug. 11. "The issue is: Did you work for the company? Did you make management decisions? I never worked for [Global Crossing]. I never went to a shareholder meeting. I wasn't on the board."

The first thing to be said about Mr. McAuliffe's defensive explanation is that he is wrong. He is, after all, precisely describing the situation that has befallen Martha Stewart, who is being aggressively investigated for insider-trading relating to her investment in ImClone. Secondly, Mr. McAuliffe's passive-investor explanation in no way applies to his role at Telergy. Not only did he attend board meetings of Telergy; he was, in fact, a member of the board of directors while questionable capacity swaps were being consummated with Global Crossing. Moreover, as DNC spokeswoman Jennifer Palmieri told Mr. York, Mr. McAuliffe sold his Global Crossing shares in the fall of 1999. In other words, Mr. McAuliffe reaped his huge Global Crossing profit during the quarter following the month that his firm, Telergy, helped to inflate Global Crossing's revenues and, hence, its stock price.

Mr. McAuliffe owes an explanation for his actions. And the committee also needs to know precisely when Mr. McAuliffe reaped the additional millions of dollars in profits he has acknowledged earning by trading Global Crossing options. Did he benefit from inside information relating to Global Crossing's pending, and later canceled, 1999 merger with US West?

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