A Global Crossing Ltd. creditors’ group asked longtime Chairman Gary Winnick on Wednesday to resign from the telecommunications company he founded and said it may try to tap the billionaire philanthropist’s personal fortune to recoup corporate funds.
The request, made by a U.S. Bankruptcy Court committee of unsecured creditors, marks the first time that anyone has formally sought the ouster of Winnick from Global Crossing, which filed for bankruptcy protection in January after incurring billions of dollars of debt while building a worldwide fiber-optic network.
Winnick and Global Crossing have maintained an uneasy bond in the face of investigations into the company’s books and Winnick’s stock sales, as well as harsh criticism from shareholders and laid-off employees who watched Winnick continue his lavish personal spending and giving as their stock became worthless.
If the creditors have their way, Winnick, 54, would no longer have a say in Global Crossing’s operations.
“The committee has questioned the propriety of Winnick’s continued role with the company,” said attorney Edward Weisfelner, who represents the unsecured creditors group. “There are a host of reasons for the decision. First and foremost is that the committee may have claims and causes of action against him.”
In Winnick’s case, the committee could pursue reimbursement or compensation from him for any acts of corporate waste, excessive compensation, mismanagement or breach of fiduciary duty or some combination of those claims. Winnick has been criticized for encouraging lavish executive pay packages and perks.
Weisfelner said the committee outlined its position in a letter sent Wednesday to attorneys representing Global Crossing’s board.
Global Crossing executives could not confirm receipt of the committee’s letter late Wednesday. Winnick spokesman Scott Tagliarino said only that “as chairman of the board, Gary has committed himself to helping Global Crossing through its restructuring, and he will continue in that role at the discretion of the board of directors.”
Hamilton, Bermuda-based Global Crossing, which had offices in Beverly Hills, operates a worldwide fiber-optic network that remains the largest of its kind. Battered by the combination of massive debt and an industry-wide slump, the company filed for Bankruptcy Court protection on Jan. 28, listing $22.4 billion in assets and $12.4 billion in debts.
The creditors’ request is binding on neither the company nor its board of directors, and it is not clear whether the board could strip Winnick of his chairmanship without a shareholder vote, experts say. But Weisfelner said he is “cautiously optimistic” that Winnick will indeed leave the company. Bankruptcy and corporate governance experts agree.
“The company and the board knows that it has to work with the creditors committee to get the reorganization to go smoothly,” said attorney Jerry Reisman of Reisman Peirez & Reisman, a bankruptcy firm representing some Global Crossing creditors.
Winnick has been Global Crossing’s chairman since its founding in 1997, but the rest of the board has been unstable. More than 30 directors have served the company over five years. In addition to Winnick, Global Crossing’s current six-member board includes longtime Winnick friend Lodwrick Cook as co-chairman, Global Crossing Chief Executive John Legere and three newly appointed independent directors.
The Department of Justice, the Securities and Exchange Commission and the Department of Labor are investigating allegations that Global Crossing used misleading accounting practices to mask the company’s deteriorating condition. Winnick, in particular, has been under scrutiny because he sold nearly $124 million worth of stock in May 2001, shortly before the company publicly announced that lagging sales would hurt its financial results.