More than 18 months before Global Crossing sought bankruptcy protection, its then-CEO suggested it be sold because its niche ”is going to die.”
The executive, Leo Hindery, urged Global Chairman Gary Winnick to sell, saying Global could fetch up to $50 a share.
Global didn’t follow through, and investors lost billions as its stock plunged along with the telecom sector. The House Energy and Commerce Committee is now investigating whether Global hid Hindery’s worries from investors by booking revenue that masked Global’s financial condition.
The committee has hearings today. Winnick is expected to testify. Global filed for bankruptcy protection in January, the second-biggest telecom filing ever. It’s also being investigated by the Securities and Exchange Commission and the Justice Department.
Winnick will appear with other executives from Global and Qwest Communications, including former Qwest CEO Joseph Nacchio. Lawmakers are investigating whether the telecoms engaged in phony network swaps solely to boost revenue. They’re also looking into whether Winnick and other telecom executives benefited inappropriately from special deals with investment bankers.
When Hindery wrote his memo in June 2000, Global shares traded at about $42. Hindery said there were at least six possible suitors — including WorldCom, which has also sought bankruptcy protection.
The documents, released by congressional investigators, don’t include Winnick’s reply. Hindery resigned four months later, when Global was trading as low as $11.25 a share. Winnick and Hindery could not be reached for comment. The documents also show for the first time that Winnick and other Global board members were closely involved in urgent efforts to book network swaps before the end of last year’s second quarter.
A June 11, 2001, e-mail from Winnick to then-CEO Tom Casey shows that Winnick spoke to former Enron CEO Jeff Skilling about a potential deal. Global was one of three companies vying for the deal.
Qwest’s Afshin Mohebbi, president and chief operating officer, will also likely face tough questions about a June 2000 e-mail in which he was warned by another Qwest executive that a deal being considered could get Qwest in trouble if discovered by auditors.
”If we could do this (which I’m not sure we can), then all we have to do is get audited, get caught and get screwed,” operations executive David Boast wrote. Mohebbi replied: ”I know it is risky. I will take the fall for it.” Qwest declined comment on the e-mail.
People familiar with Mohebbi’s testimony say he will tell lawmakers that the deal, which Qwest needed to make its revenue targets, was ultimately not done in the way that spurred Boast’s concern.