Associated Press
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 wrongdoing.

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.

From Forbes.com