Global Crossing CEO Foresaw Collapse In 2000Oct 1, 2002 | FT.com
Leo Hindery, then chief executive of Global Crossing, the bankrupt telecommunications group, warned chairman Gary Winnick more than two years ago that the company was headed for collapse and should sell itself to a rival before investors realised it was doomed, according to a memo uncovered by congressional investigators.
According to the memo, labelled "confidential" and sent to Mr Winnick and two other executives, Mr Hindery said other large fibre-optic companies were also looking to be acquired and Global Crossing should move to sell before Wall Street figured out it was being "fooled".
"Like the resplendently coloured salmon going up river to spawn, at the end of our journey our niche too is going to die rather than live and prosper," the June 5, 2000 memo reads. "The stock market can be fooled, but not forever, and it is fundamentally insightful and always unforgiving of being mislead," the June 5 2000 two-page memo reads.
Later in the memo, Mr Hindery wrote: "Without looking like we are shaking our bootie all over the world, [we should] sell ourselves quickly to whichever of the six possible acquirers offer our shareholders the highest value."
Mr Winnick is scheduled to appear before a congressional hearing on Tuesday, and despite early indications he would not testify, committee staff said he would answer questions posed by investigators.
Ken Johnson, a senior aide to committee chairman Billy Tauzin, said investigators intend to press Mr Winnick on how much he knew about Global Crossing's questionable accounting. "After months of giving us the run-around, Mr Winnick, having been served a subpoena, is now feeling a little more chatty," Mr Johnson said. "But if he tries to portray himself as an out-of-the-loop ceremonial chairman, we intend to remind him he's under oath."
The Hindery memo is one of several committee staff intend to present to argue Mr Winnick was "in the loop" on many of the controversial deals currently being investigated by the Securities and Exchange Commission. These "capacity swaps" involved Global Crossing buying allegedly useless fibre-optic capacity from rivals in return for their buying a similar amount in return. Both companies would then book the deals as revenue.
In one e-mail from June 2001, Mr Winnick wrote Tom Casey, now Global Crossing's chief executive, saying he had spoken directly with Jeffrey Skilling, chief executive of Enron, about one such swap, adding "the lines of communication are open".
Other e-mails show that Mr Winnick was regularly briefed on the sometimes desperate quarter-end efforts to complete such deals. In one chart prepared by senior sales executives, Mr Winnick's involvement is listed as a "support requirement" for two deals that the sales staff was being pressured to close by the end of the 2001 second quarter.