Global Crossing’s Investors Say They Were Kept in Dark
By DEBORAH BELGUM
Staff Reporter
Michael Ruel took out a $42,000 line of credit on his home last month to buy 51,250 shares of Global Crossing stock. Four weeks later, the firm filed for Chapter 11 bankruptcy protection.
“When I heard the shareholders were not going to participate in any new company formed after the bankruptcy, I nearly passed out,” said Ruel, a 39-year-old used car salesman from San Diego County. He was counting on the money to provide his three children with a college education.
Ruel is one of the thousands of shareholders left with worthless Global Crossing stock under a proposed deal to reorganize the company under Chapter 11 bankruptcy protection. Their frustration is voiced on various Internet message boards.
Ruel’s loss forced him to close the small used-car lot he ran in Bonita. He is now selling collectible cars and used vehicles on the Internet. “It was the straw that broke the camel’s back (in deciding to close the car lot),” Ruel noted. “I don’t know what the next thing to do is.”
While Ruel believes he will be able to make his mortgage payments and pay off his line of credit, it leaves him with more debt and no funds for his children’s future. “That was our life savings,” he said.
Many investors feel duped after company executives offered assurances last November that there was at least $2 billion to make it through 2002.
“I don’t think there has been another example of where you can pull quotes from printed and audio material showing management has so blatantly misled investors,” said John Defeo, a 39-year-old information technology consultant who last year bought 65,000 shares of Global Crossing for nearly $100,000. “I will think twice now before I take a CEO at his worth.”
Some stockholders say they are stunned that under the company’s reorganization plan, existing common and preferred shareholders will not get a stake in the restructured company. Under the reorganization, Hutchison Whampoa Ltd. and Singapore Technologies Telemedia agreed to provide $750 million in cash for a 79 percent equity stake. The proposed investment is conditional upon approval of the reorganization plan by the courts before the end of August.
Global Crossing’s major creditors will be lucky to get pennies on the dollar.
Stockbrokers are also feeling their fair share of investor fury. “My stockbroker called and left a message with a concerned voice. But that’s a lot of BS. It was his firm who told me I had a good position with the stock and that it was going to turn around. I am not too eager to return his phone call,” said Lou Capolino, who started buying Global Crossing shares in 1999 and eventually accumulated 42,000 shares for $1.3 million.
He says the Global Crossing loss wiped out 80 percent of his stock portfolio. Instead of retiring in the next few years, the 59-year-old telecommunications consultant is trying to figure out how to augment his income.
“I have decimated all my life savings. I am in as bad a shape as those people crying on TV about Enron,” he said. “My net worth went from nice figures to not-so-nice figures.”
Angry stockholders have joined 18 class-action lawsuits filed across the country, three in California. They say they were given false and misleading financial statements about the company.
A class-action lawsuit filed in Los Angeles Superior Court for those who held stock between Jan. 2, 2001, and Oct. 4, 2001 claims that Global Crossing executives disseminated false and misleading statements to deceive the public regarding the company’s business and common stock price. This enabled Global Crossing insiders to sell more than $149 million of their Global Crossing stock to an unsuspecting public, the suit claims.
“There is a strong case for showing that this company did not treat its investors fairly,” said attorney Jim Krause, who represents one bondholder who lost more than $90,000.
At least 300 shareholders have banded together over the Internet. They want the Securities and Exchange Commission and the Department of Justice to investigate allegations of insider trading and misuse of funds. The stockholders are also trying to stop the bankruptcy from going forward until an investigation is complete, but they have made no formal request to halt proceedings.
“We have been trying to maintain ourselves as a cohesive group because there is strength in numbers,” said John Hovel, a 46-year-old disabled veteran who lives outside of Chicago and lost $25,000. He established an e-mail address at where shareholders can exchange messages.
Shareholders like Brian Solner believe that Winnick, who sold $734 million in Global Crossing stock before the company collapsed, should take the millions of dollars he earned off stock sales and return it to investors.
“Winnick knew what was going on when he sold those shares,” said Solner, a 34-year-old real estate broker who lost $80,000. “I feel like I have been kicked in the teeth.”
Angry Notices
Message board postings from angry Global Crossing shareholders.
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“Don’t you just love the way these executives protect
their own hides and moan for us poor stockholders???
‘really nothing else we could do…’ blah, blah, blah…
bubbaluvs
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“Winnick and Legere will go absolutely unpunished. They’re filthy rich and they always will be. End of story. What I find laughable is that Winnick will surely turn around and start another fake company a couple of years from now and suck another billion dollars from honest, hard-working folks.”
Onecommoner
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…We will make a deal with you. Return all the dough and we will stop trashing you. LOL”
Brook
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“If we are in a war of ‘good vs evil’ where you are either ‘with or agin us’ doesn’t that make Winnick and Legere the enemy?
Yertletheturtle
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“GX is taking a pounding on CNBC Yea!!!
I for one am glad to see it. We may not get our money but at least the evil doers are getting theirs… Keep on pounding.”
Moonraider2
