Global Crossing Chairman Gary Winnick told lawmakers Tuesday he had no inkling of the fiber-optic company’s deteriorating finances until shortly after he sold a large chunk of stock last year.
He pledged to donate $25 million to company employees who lost money when the stock plunged.
Winnick said he talked almost every day to the company’s chief executive, Thomas Casey, who participated in management discussions about revenue shortfalls and issued warnings to other executives.
But Winnick said he did not learn of looming problems in the company he founded until June 2001, from Global Crossing’s top lawyer, James Gorton, who was advising the chairman that executives no longer would be able to sell company stock because of a changing financial picture. Winnick had sold $123 million in stock in late May.
“I was upset,” Winnick told a subcommittee of the House Energy and Commerce Committee, because he said he knew there would be inferences that he had early warning of trouble. Global Crossing filed for bankruptcy protection seven months later, in January.
When Global Crossing’s stock collapsed, investors including company employees whose retirement savings were invested in company stock, lost billions of dollars. Winnick said his pledge of $25 million was to offset the retirement losses.
Rep. Billy Tauzin, R-La., the committee chairman, told Winnick his stated ignorance of Global Crossing’s financial condition was “a little hard for us to understand.”
Congressional investigators are looking into whether Global Crossing Ltd. and Qwest Communications International Inc. used misleading accounting to boost revenues artificially and thus give investors and financial analysts a false picture of the companies’ financial health.
Qwest already has announced it is reversing $950 million in revenue from suspect transactions and probably will revise its revenues even more, Qwest chief financial officer Oren Shaffer said.
Other Global Crossing executives who testified Tuesday joined Winnick in denying that they pushed for deals that had no purpose other than increasing revenues. Their testimony contradicted internal e-mail exchanges and lower-level executives who appeared before the same committee last week and related intense pressure from Casey, Winnick and others to strike deals that would allow Global Crossing to meet analysts’ expectations.
Casey did not appear at Tuesday’s hearing because he was seriously ill, committee spokesman Ken Johnson said.
Winnick sold 10 million shares worth $123 million in late May, having received approvals from Gorton, the attorney, and CEO Casey. It was the last of several stock sales that brought him $734 million.
Winnick promised to write his check to help reimburse employees for some of the money they lost “very soon.” He challenged other corporate executives to follow his example.
Joseph Nacchio, the former Qwest chief executive who testified later Tuesday, firmly refused. Nacchio sold $235 million in Qwest stock but said the company is not bankrupt and maintains retirement plans.
Rep. Diana DeGette, D-Colo., whose district includes Qwest headquarters, had challenged Nacchio to match Winnick’s pledge. When he refused, DeGette said: “I guess your answer is … tough luck.”
The committee earlier heard from a Global Crossing employee who lost her $86,000 retirement savings and from a laid-off Qwest employee whose 401(k) retirement plan had lost $230,000 because of the drop in Qwest stock.
Paula Smith worked for 20 years for Qwest and its predecessors in the local telephone business in the West.
Lenette Crumpler said she believed in Global Crossing because its executives provided frequent reassurances.
“That’s why I held on, believing the statements the Global Crossing executives made when the stock was failing,” Crumpler said.
Winnick insisted there was no fraud. Rather, he said, Global Crossing was forced into bankruptcy because of the slump that hit the telecommunications industry.
Global Crossing has since been bought by two Asian companies for $250 million, a fraction of the $22 billion in assets listed in the bankruptcy filing.