Global Crossing Exec TestifiesOct 1, 2002 | AP
Global Crossing Ltd. Chairman Gary Winnick denied that he sold stock in the fiber optics company based on inside information that the company was in financial trouble.
"The suggestion I sold stock based on information not readily available is not correct," Winnick told a subcommittee of the House Energy and Commerce Committee on Tuesday.
He sold $123 million in Global Crossing stock in May 2001. A week earlier, at a meeting of the company's management committee, executives discussed a $360 million shortfall in expected revenue for the quarter.
Rep. James Greenwood, R-Pa., chairman of the House Energy and Commerce Committee investigative subcommittee, said the projections sounded "like an earthquake."
But Winnick responded that there was often uncertainty about the company's revenues until the very end of the quarter.
Congressional investigators are looking into whether Global Crossing and Qwest Communications engaged in "sham transactions designed to boost revenues" and thus give investors and financial analysts a misleading picture of the companies' financial health.
Winnick is one of five current and former Global Crossing executives scheduled to appear at the congressional hearing Tuesday. Qwest Communications chief operating officer Afshin Mohebbi and former chief executive officer Joseph Nacchio also are included.
The committee earlier heard from a Global Crossing employee who lost her entire $86,000 retirement savings.
Lenette Crumpler of Rochester, N.Y., said she believed in Global Crossing until it filed for bankruptcy in January.
"That's why I held on, believing the statements the Global Crossing executives made when the stock was failing," Crumpler said.
Documents released Monday show Winnick took part in efforts to bolster the fading fiber-optics company and took a far more active role than he has previously acknowledged.
Greenwood said Monday that his committee's review of documents and interviews with Global Crossing employees have established that Winnick "was well aware of Global Crossing's strategy to use an ever increasing number of swaps to meet Wall Street's revenue expectations."
Lawyers for Winnick and the company have consistently painted a picture of a ceremonial chairman who was not active in day-to-day affairs, including the company's participation in swaps of capacity between telecommunications companies, said Ken Johnson, spokesman for the House Energy and Commerce Committee.
Qwest said last week it was reversing about $950 million in revenue booked from swaps of capacity on its network and may have to adjust $531 million more in revenue from other sales.
Winnick's efforts to bolster his fading company included reaching out to Enron Corp., the energy-trading company that also traded telecommunications bandwidth, and other companies to help Global Crossing close $400 million in deals in the last half of June 2001. "I spoke to (then-Enron chief executive) Jeff Skilling and there are three people vying for the business â€” we're one of them," Winnick wrote in an e-mail to Global Crossing chief executive Thomas Casey in June 2001.
In addition to examining potentially misleading accounting, investigators also have been looking at whether Winnick and other executives acted on inside knowledge in their decision to sell company stock.
The documents released Monday all were dated after Winnick's last major stock sale, which brought him $123 million in May 2001. He sold $734 million in Global Crossing stock before the company filed for bankruptcy protection in January. It has since been bought by two Asian companies for $250 million, a fraction of the $22 billion in assets listed in the bankruptcy filing.
In June 2000, before the glut of fiber-optic capacity soured investors on Global Crossing and other companies, a Global Crossing executive told Winnick, Casey and co-chairman Lodwrick Cook that they should move quickly to sell the company.
"The stock market can be fooled, but not forever, and it is fundamentally insightful and always unforgiving of being misled," wrote Leo Hindery, who briefly served as Global Crossing's chief executive.