Update 3: Global Crossing Settles With Regulators
04.11.2005, 07:40 PM
Global Crossing Ltd. has reached a settlement with federal regulators, with
three former executives agreeing to pay fines but with no finding of fraud in
the "capacity swap" deals made before the once high-flying telecommunications
company collapsed in bankruptcy.
In the agreement announced Monday, the company pays nothing but former CEO
Thomas Casey, ex-chief financial officer Dan Cohrs and former executive vice
president of finance Joseph Perrone each pay a $100,000 civil fine. They were
not required to admit to any wrongdoing, however.
The Securities and Exchange Commission had been investigating Global Crossing's
swaps of fiber-optic network capacity with other companies for more than two
years. The company's founder and former chairman, Gary Winnick, escaped a
penalty in December.
The SEC previously alleged that Qwest Communications International Inc., one of
the companies that engaged in the deals with Global Crossing, used them to
artificially boost revenue by hundreds of millions of dollars. Qwest agreed to
pay $250 million to settle SEC fraud charges last fall without admitting
The SEC had charged that Global Crossing deceived investors by failing to fully
disclose information about the swaps, which it allegedly booked as revenue and
used to pump up its financial position in 2001. In its statement on the
settlement, the agency said Casey, Cohrs and Perrone "knew material information
regarding the (swap) transactions and their past and likely future effect on the
company's financial condition and results of operations."
It said the three executives reviewed and approved the company's financial
reports, which failed to disclose this information.
"Global Crossing's senior executives failed to discharge one of their most
important responsibilities - to communicate with investors in a clear and
straightforward manner about the company's business and financial condition,"
Randall Lee, director of the SEC's Los Angeles office, said in a statement. The
company had been based in Beverly Hills, Calif.
Global Crossing CEO John Legere said: "We're happy to have reached a settlement
with the SEC and that we can put these issues solidly behind us without a
finding of fraud or a financial penalty against the company."
Jeffrey Cunard, an attorney representing Casey, Cohrs and Perrone, said they
"are grateful to have it all behind them.
"There was no finding that the transactions were sham or that they were without
business justification," Cunard said.
In December, the attorney for company founder Winnick said he had been told that
his client would not be charged or fined by the SEC.
Enforcement attorneys at the SEC had recommended a fine against Winnick as part
of a settlement with the agency. But the SEC commissioners voted 3-2, on party
lines, to reject the staff attorneys' recommendation. SEC Chairman William
Donaldson is said to have sided with his fellow Republican commissioners Paul
Atkins and Cynthia Glassman in opposing the sanction at a closed-door meeting.
Winnick headed the fiber-optic giant, which epitomized the boom and bust of the
telecom industry and careened into one of the biggest corporate bankruptcies
ever in January 2002.
In March 2004, Winnick and other former company executives agreed to pay a
combined $325 million to settle a class-action lawsuit alleging fraud brought by
shareholders. They did not admit wrongdoing in the settlement.
Winnick, who sold $123 million worth of Global Crossing stock as the company
fell toward bankruptcy, agreed to pay $55 million under the deal. The founder
and former chairman, who had been a heavy campaign donor to both Democrats and
Republicans, came under fire in congressional hearings in 2002 for selling his
stock before the company's fortunes plummeted.
The company, registered in Bermuda and based in Florham Park, N.J., emerged from
bankruptcy protection in December 2003 with new top executives, a work force cut
in half and all but $200 million of its $11 billion in debt erased. Its majority
shareholder now is Singapore Technologies Telemedia Pte.