Global Crossing Chairman Gary Winnick Tuesday pledged $25 million of his own money to cover employees’ losses in their 401(k) retirement plans following the telecommunications company’s bankruptcy.
“I am personally, along with my family, going to guarantee $25 million to the people who have lost their money in the 401(k) plan,” Winnick told a congressional committee Tuesday. “They had nothing to do with the loss.”
Winnick also called on other executives in similar situations to do the same.
Winnick appeared before the House Committee on Energy and Commerce subcommittee on investigations Tuesday to answer questions about his $123 million sale of company stock on May 23, 2001, and about his knowledge of so-called “swap” transactions for network capacity that artificially inflated revenue.
The massive stock sale along with declining revenue amid the telecom slowdown, caused Bermuda-based Global’s stock to tumble, inflicting severe losses on employees’ retirement savings.
Winnick defended his stock sale, saying it was not based on inside information.
“When I sold that stock, the company had just completed an analyst call reporting its quarterly numbers,” Winnick told the panel. “… I was in Asia at the time when I read this report and our CEO at the time reconfirmed guidance both for the quarter and for the year, so the suggestion that I sold stock based on information that was not readily available is not correct.”
The House committee, which is probing the collapse of the telecom industry, grilled top executives of Global Crossing and Qwest Communications about so-called revenue-boosting network “swaps.”
Global Crossing and Qwest also are under investigation by the U.S. Justice Department, the Securities and Exchange Commission and Congress for their accounting practices.
Disclosures of revenue shortfalls led to the bankruptcy of Global Crossing and a severe drop in the price of Qwest shares, wiping out the savings of many employees and investors.
Qwest President Afshin Mohebbi, Chief Financial Officer Oren Schaffer and former CEO Joseph Nacchio also are scheduled to appear Tuesday.
Qwest said last week it was reversing about $950 million in revenue booked from swaps of capacity on its network and may have to adjust $531 million more in revenue from other sales.
Also testifying Tuesday were Global Crossing CFO Dan Cohrs, Vice President of Finance Joe Perrone and former company lawyer James Gorton.
Lawmakers zeroed in Tuesday on Winnick’s May 23 sale last year of Global Crossing stock, which came more than a month after an April 9 internal management meeting in which CEO Tom Casey told executives the company faced a $1 billion revenue shortfall. Casey gave similar warnings at subsequent meetings. The company publicly reaffirmed guidance in early May, Winnick told the committee.
Winnick, who testified that he was not present at these management meetings, said he was never told of the potential revenue shortfall and that he sold the stock in order to eliminate a line of credit at his investment firm, Pacific Capital Group. Winnick said Pacific Capital, which he founded, had been working on the May 23 stock sale for months.
Addressing allegations that Global Crossing participated in improper “swap” deals for network capacity that artificially boost revenue, Winnick said Tuesday he went along with swaps because management believed it was necessary for the company to increase its fiber optic capacity, not to boost sales.
Winnick’s testimony appears to contradict earlier reports Tuesday that he endorsed swap deals. Documents disclosed Tuesday suggest Winnick played a more active role than he previously has acknowledged.
Dan Cohrs, Global’s CFO, told the committee Tuesday that the company needed to boost its backup network capacity across the Atlantic Ocean and that there was not enough time to build new cable. That meant a swap, in which Global could obtain capacity from someone else, was the fastest way to proceed.
“It is true that deal contributed significantly to our financial results, but it is not the primary reason for doing that deal,” Cohrs said.
Lawmakers in Washington also heard from ex-telecom employees who lost their life’s savings amid the collapse of Global Crossing and Qwest Communications.
Lenette Crumpler, a single mother from Rochester, N.Y., told lawmakers she lost $86,000 she had saved up over 31 years working for Frontier, a local phone company that was acquired by Global Crossing.
“They have collapsed and shattered the dreams of many working middle-class people and their families,” Crumpler told the committee Tuesday. “Now is the time for government to clamp down on corporations. It is the responsibility of this government to restore the confidence of working-class middle Americans.”
Global Crossing filed for Chapter 11 bankruptcy protection in January, saddled with $12.4 billion in debt and stuck with a glut of fiber optic capacity.