Why on earth is Global Crossing still in business?
Anderson is gone, Enron has been minimized to a shell of its former self and Adelphia is being sold off in bits and pieces. But Global Crossing, which was started by L.A. financier Gary Winnick, can still be traded on Nasdaq every day, and it’s still losing big time money, with zero relief in sight.
Just last Monday, Global lost nearly 20 percent of its market value when the company announced a loss of $225 million for the first six months of the year, almost double the loss for the like period a year earlier. It recently cut 15 percent of its workforce. It has drawn down a $100 million bridge loan from its largest shareholder, Singapore Technologies Telemedia and will need at least $40 million to keep operating and the end of the year “substantially” more in 2005.
And guess what government-controlled Singapore Technologies, which owns 61.5 percent, appears willing to hand over the cash to keep Global afloat.
The question is why. Could this massive conglomerate be waiting for a turnaround in the telecom networking business, which remains a joke of an industry because of overcapacity? Does it hope to eventually sell off Global’s assets for any more than pennies on the dollar? Perhaps the explanation is more straightforward: that Singapore Technologies made a horrible mistake when it acquired a majority stake in Global after the company filed for bankruptcy protection and now it’s desperately trying to shore up its investment. Good money chasing bad.
JPMorgan Chase can speak to that. The U.S. banking giant led a group that loaned Global $1.7 billion in August and September of 2001 money that was lost in the midst of the telecom freefall. And now JPMorgan has gone to court claiming that Winnick & Co. not only realized the company was imploding but finagled the financials in what’s described as a “massive scam” to make the numbers appear much better than they actually were. Winnick denies he did anything wrong and said the banks should have been aware of how the company counted its beans.
So far, the claims and counterclaims have been woefully inconclusive (the feds dropped a criminal investigation about a year ago) because it’s been nearly impossible to figure out what Winnick knew about the accounting shenanigans and when he knew it. In March, Winnick, Global Crossing and some former executives agreed to shell out $325 million to settle several lawsuits from investors and employees claiming that Winnick inflated revenue numbers (and cashed out millions of dollars in stock before the bad news hit). All told, the bankruptcy wiped out $40 billion in stock value.
The bankers appear less willing to settle and U.S. District Court Judge Gerald Lynch refused to throw out the suit, which means it’s possible Winnick might have to stand trial before a jury. In an early court hearing, Lynch offered this delicious if somewhat prejudicial assessment of the matter: “I am prepared to look at this case as, with all respect to the people involved, a bunch of crooks getting sued by a bunch of bankers who are too dumb to stop throwing money down the toilet.”
Yet here it’s 2004 and nothing has really changed except now, the dummies are from Singapore and the business is arguably in worse shape than when Winnick ran things. And all that money billions of dollars poured into an enterprise that was built more on gullibility than good sense.
Mark Lacter is editor of the Business Journal.
