Global Crossing Ltd. Chairman Gary Winnick was directly involved in a frenzied push for sales at the telecommunications firm in 2001, a time when the company was making questionable deals to mask its deteriorating finances, according to documents made public Monday.
In a series of company e-mails sent to Winnick or copied to him, Global Crossing executives discuss ways to tap the personal influence of Winnick and others to help the company land “big deals” in time to meet financial targets, according to copies of the correspondence released by the House Energy and Commerce Committee’s oversight and investigations panel.
The disclosures put additional pressure on Winnick in advance of his scheduled appearance today before the House subcommittee, when he is expected for the first time to answer questions publicly about Global Crossing’s collapse.
The evidence appears to contradict his attorney’s contention that Winnick was not involved in the company’s controversial “swap” deals because he was not a hands-on chairman.
“Based on what we’ve uncovered to date, there are going to be a lot of tough questions for Mr. Winnick about using these questionable capacity swaps to meet Wall Street expectations,” said Rep. James C. Greenwood (R-Pa.), who will chair the hearing.
Global Crossing operates a worldwide fiber-optic network, built with billions in bank debt and funds raised in stock and debt offerings on Wall Street. Dragged down by its crippling debt amid an industrywide slump, the company filed for bankruptcy protection Jan. 28.
For months, Winnick has resisted participating in a public hearing involving Global Crossing, citing ongoing investigations by the Justice Department and the Securities and Exchange Commission into his stock sales and possible wrongdoing at the company.
His appearance today was made mandatory by a subpoena, and it was widely assumed that Winnick would decline to testify by asserting his 5th Amendment right against self-incrimination. Sources said Winnick had struggled with his attorney’s advice not to testify and ultimately decided to answer questions at the hearing.
Scott Tagliarino, a spokesman for Winnick, confirmed that the chairman intends to testify. He declined to discuss the issues raised by the e-mails.
A spokeswoman for Global Crossing also declined to discuss the specifics of the documents released Monday, but said that the committee is publicizing “selected documentation” and that the deals discussed should be viewed in context to better understand their meaning. The same information was provided to the SEC and other investigators, the company said.
In a June 11, 2001, e-mail, Winnick recounts a recent conversation with Enron Corp.’s then-Chief Executive Jeffrey K. Skilling about forging a deal between the two firms. That deal was never completed.
One e-mail, marked “URGENT” and dated Aug. 18, 2001, from the former president of carrier sales, Patrick Joggerst, underscores the personal involvement of the company’s top executives: “Gary Winnick, [former CEO] Tom Casey and [former President] David Walsh have asked carrier sales and corporate development to work together to come up with creative deals that we can tee up for 3rd and 4th quarter this year.”
A memo from June 5, 2000, by then-CEO Leo Hindery to Winnick, Casey and Co-Vice Chairman Lodwrick Cook bluntly warns that Global Crossing is destined to fail because of overcapacity and too many companies chasing the same customers.
“The stock market can be fooled, but not forever,” Hindery said in the memo. He urges the executives to consider selling several units, boost the company’s image and then sell the firm to the highest bidder.
“Hindery was telling the big three–Winnick, Casey and Cook–that the gig is about up, and they’d better get out while the getting is good,” said Ken Johnson, spokesman for the House committee.
That memo could represent the first evidence that the top executives might have known as far back as mid-2000 that the company was on the way down. That would call into question stock sales dating to the last half of 2000, not just those in 2001.
Winnick will appear alongside several current and former Global Crossing executives, including Walsh; Chief Financial Officer Dan Cohrs; Joseph Perrone, executive vice president for finance; and former general counsel James Gorton.
Winnick, who has personified the company since its founding in 1997, was the firm’s largest shareholder and one of its biggest beneficiaries through salaries, bonuses, consulting fees and the sale of more than $600 million in Global Crossing stock over the years.
Investigators suspect that Winnick and others knew that the company was on the verge of failing when they sold company stock in early and mid-2001, and also knew that the firm’s condition was not yet known by the public or other shareholders.
At least seven directors and officers sold shares from March to May of that year, but Winnick’s sale has been in the spotlight because of its size: He sold nearly 10 million shares worth about $124 million on May 23, 2001.
Employee e-mails and testimony indicate that Winnick’s last stock sale came after top executives had begun warning internally that Global Crossing’s deepening financial crisis might trigger a default on key bank agreements, an event that could have accelerated the company’s bankruptcy filing by six months.
Winnick’s attorney repeatedly has said the chairman’s stock trade was legal and proper. He and others also have asserted that Winnick was not involved in day-to-day operations at Global Crossing and thus didn’t know inside information about the company’s worsening condition when he sold the stock.
To former employees at Global Crossing, the idea is laughable.
Interviews with current and former employees paint a picture of a man who involved himself in almost everything, even the tiniest details.
They said Winnick personally managed every aspect of an elaborate renovation of the company’s Beverly Hills offices, picking out light fixtures and paint colors. He made changes to the cafeteria menu, ordered flowers replaced, chose the color of the company’s logo and the font to be used on its letterhead and other documents.
The company paid Winnick a handsome annual salary and periodic bonuses, an unusual move if the chairman was not involved in the company’s operations.
In 2000, the last year for which figures are available, Global Crossing paid Winnick $785,833 in salary, plus a $1-million bonus and $55,635 in other compensation. In 1999, he collected a $169,615 salary and a $850,000 bonus.