Global Crossing Settlement Called Wrist Slap as Case Ends

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The Securities and Exchange Commission’s settlement last week with Global Crossing Ltd. and three of its executives puts an end to a three-year investigation into the conduct of those running the company, which went bankrupt in 2002.


Global Crossing executives, led by founder Los Angeles financier Gary Winnick, sold billions of dollars of stock before some $40 billion in shareholder equity evaporated. Later, allegations emerged of reciprocal transactions that made the Beverly Hills-based firm appear to be healthier than it was.


No fraud charges were ever filed against Winnick or any other Global Crossing insiders, and none has admitted to any wrongdoing.


In last week’s settlement, former Global Crossing Chief Executive Thomas Casey, former Chief Financial Officer Dan Cohrs and former Executive Vice President of Finance Joseph Perrone agreed to pay a $100,000 civil penalty without admitting or denying SEC allegations that they knew about reciprocal transactions that had a material impact on Global Crossing’s financial statements. The SEC also alleged that the three either knew or should have known that the company was providing incomplete information to investors.


The company and the executives also agreed not to violate certain federal securities laws in the future.


“The combination of not being required to admit wrongdoing and a mere $100,000 fine when there was clear and determined violations of fiduciary duty and breach of trust was a nominal penalty,” Los Angeles-based attorney Lance Kimmel told Minnesota Public Radio’s “Marketplace” last week.


Global Crossing emerged from bankruptcy in December 2003, after washing itself of some $12 billion in debt, including $116 million lost from the company’s 401(k) plans that covered 20,000 current and former employees.


Legal proceedings are still under way against former auditor Arthur Andersen LLP which itself collapsed as well as advisors J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Merrill Lynch & Co. and four other banks for underwriting or issuing fair-value opinions about the company’s stock while allegedly misrepresenting its finances.


Winnick escaped penalty in December 2004, when the SEC dropped all charges against him.


He pocketed an estimated $860 million through sales of Global Crossing stock before capacity swaps that allegedly inflated revenue were disclosed to investors. He agreed to pay $55 million to settle employee pension fund and shareholder complaints.


Global Crossing, now based in Florham Park, N.J., ran up $12.4 billion in debt building a 100,000-mile fiber-optic network.


The so-called reciprocal transactions entailed selling capacity to other carriers while at the same time purchasing capacity from the same carriers.

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