Lawmakers Probe Global Crossing's TiesAug 22, 2002 | AP
A congressional investigation of bankrupt telecom firm Global Crossing Ltd. is probing the company's ties to a controversial financial analyst and its sale to two Asian companies.
The House Financial Services Committee is demanding information from Global Crossing about its relationship with Jack Grubman, the former telecommunications analyst for Salomon Smith Barney. Grubman resigned last week amid growing controversy over his alleged conflicts of interest in touting the shares of Global Crossing, WorldCom Inc. and other failed companies.
The committee also is seeking similar information from Citigroup, Salomon's parent. The requests were sent Wednesday in letters from Rep. Michael Oxley ( news, bio, voting record), R-Ohio, the panel's chairman.
Global Crossing also is being asked to provide records relating to its sale to Hutchison Whampoa of Hong Kong and Singapore Technologies, which was approved Aug. 9 by the judge overseeing Global Crossing's bankruptcy case.
Once worth tens of billions of dollars, Global Crossing is being sold for $250 million to the same investors who only months ago agreed to pay three times as much for the world's most extensive fiber-optic network.
Oxley noted that the sale price also was for "a small fraction of the $22.4 billion in assets declared in the bankruptcy petition."
Citigroup and Global Crossing have until Sept. 4 to respond. Spokesmen for the companies said they are cooperating with congressional investigators.
Grubman, whose research reports once sent stocks soaring, has been under scrutiny for his unwavering recommendations for companies that were also paying millions of dollars to his firm for investment banking services.
The most notable of those companies were WorldCom and Global Crossing, which he remained bullish on almost up until the time that those companies landed in bankruptcy, scandalized by disclosures of deceptive accounting.
Oxley's committee previously issued a subpoena to Citigroup in a similar investigation of whether the banking giant offered potentially lucrative stock to WorldCom executives.
Global Crossing's financial practices are under investigation by the Securities and Exchange Commission, the FBI and another congressional committee. The House Energy and Commerce Committee has been exploring the company's acknowledged shredding of documents while under investigation.
Global Crossing, which was founded by investment banker Gary Winnick in 1997, piled up its debt building a vast worldwide communications network at the height of the Internet boom.
That state-of-the-art network spans 100,000 miles, connecting more than 200 cities in 27 countries around the world.
The system includes 20 percent of undersea bandwidth connecting the United States with the rest of the world, according to the telecom research firm TeleGeography.
One of Global Crossing's most valuable assets is its 59 percent stake in Asia Global Crossing, which operates unrivaled fiber-optic links between Japan, Taiwan, South Korea ( news - web sites), Singapore, Malaysia, the Philippines and potentially China.
The Bermuda-based company had hoped to dominate the market for high-speed data communications, and at one point, enthusiastic investors boosted the company's value to nearly $50 billion.