Global Crossing Ltd., the bankrupt fiber-optic network operator that once had a $38.9 billion market value, won’t face US criminal charges over its accounting practices, according to people close to the investigation.
Prosecutors were investigating a former Global Crossing official’s claims that executives overstated revenue and misreported costs. The US attorney’s office in Los Angeles, which also explored document-shredding allegations, decided there’s insufficient evidence for criminal charges, the people said.
”Obviously, there was no smoking gun,” said Robert Mintz, a former federal prosecutor. ”There was no insider upon whose shoulders the government can build a solid criminal case.”
Top executives of several major corporations, including Enron Corp., WorldCom Inc., and Adelphia Communications Corp., have faced criminal charges in the past year stemming from accounting problems that plunged their companies into bankruptcy. Global Crossing filed what was then the fourth-largest US Chapter 11 bankruptcy in January and remains under Securities and Exchange Commission investigation.
”Often prosecutors, after reviewing the evidence, make a judgment that their resources are better directed elsewhere and allow the SEC to handle the matter,” Mintz said. The SEC might still bring civil charges, the people said.
Global Crossing spokeswoman Tisha Kresler and Thom Mrozek, spokesman for the US attorney’s office in Los Angeles, declined to comment. Justice Department spokesman Mark Corallo also declined to comment.
Accounting irregularities and document handling practices have preoccupied investigators in several of the year’s largest bankruptcies. Former accounting giant Arthur Andersen LLP was convicted in June of obstructing justice in connection with its handling of Enron audit records. Andersen also was Global Crossing’s auditor.
Global Crossing, founded in 1997 by former Drexel Burnham Lambert executive Gary Winnick, said in October it will restate results for the first nine months of 2001. The announcement followed an SEC decision in August that companies can no longer book revenue from some exchanges of network capacity. The company will reduce assets and liabilities by $1.2 billion each and cut sales by $19 million.
Qwest Communications International Inc. has said it overstated 2000 and 2001 revenue by $1.86 billion in part because it booked too much revenue from exchanges of network capacity. Long-distance phone-service provider WorldCom Inc., which in July filed for the largest US bankruptcy, has said it misreported more than $9 billion and in November settled a SEC fraud lawsuit.
Hamilton, Bermuda-based Global Crossing sought protection from creditors on Jan. 28 after amassing $12.4 billion in debt building a 27-nation network before prices for line use plunged amid a glut of fiber-optic capacity. Shares that rose as high as $64.25 in May 1999 yesterday traded over the counter at 24 cents at the close of New York trading.
The company’s bankruptcy recovery plan, which calls for Hutchison Whampoa Ltd. and Singapore Technologies Telemedia PTE to pay $250 million for a stake in Global Crossing, won a bankruptcy judge’s approval this month.
SEC and Federal Bureau of Investigation officials started examining Global Crossing’s accounting after Roy Olofson, a former vice president of finance, alleged the company inflated revenue from leasing space on its lines, while underreporting costs for buying space on rivals’ networks.
The company booked revenue in some cases where no cash changed hands, Olofson said.
The investigations widened after Global Crossing employees said in court documents that the company shredded documents at its Madison, N.J., headquarters in February after the SEC began investigating. Global Crossing denied the allegations, while acknowledging that some records were destroyed at five other offices. The company said it didn’t believe any shredded documents were relevant to the case.
Prosecutors also examined allegations by lawmakers that Winnick, Global Crossing’s chairman, sold shares based on information that wasn’t available to the public. Winnick sold Global Crossing stock worth $578 million since taking the company public in 1998. Winnick’s lawyer, Gary Naftalis, of Kramer Levin Naftalis & Frankel, has denied Winnick acted improperly.