Shades of Enron at Global Crossing
By Frank J. Murray
THE WASHINGTON TIMES

www.TheWashingtonTimes.com

     Global Crossing — the telecommunications company whose Jan. 28 bankruptcy court filing has been eclipsed by the growing battles over Enron — remains an enigma to the public even after joining Enron under the FBI microscope.

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     While Global Crossing lacks the star power to rank higher on the scandal scale, similarities are uncanny between two bankruptcy filings 57 days apart, with Enron ranked the largest-ever and Global in fourth place:
     •Both high-flying firms were politically hyperactive, with Enron more heavily invested in Republican causes while Democrats dominate Global's gift lists. Top brass at both firms had ready access to the lawmakers they supported.
     •Each stands accused by a former top executive of accounting tactics that inflated its apparent worth on balance sheets and produced enormous profits for shareholders who somehow knew just when to sell.
     •The corporate auditor that vouched for bookkeeping at both firms was Arthur Andersen LLP, which fired or demoted more than a half-dozen senior partners after the Enron debacle but says accusations about Global were hidden from them until Jan. 29.
     •Employee 401(k) plans at both companies blocked trading while changing administrators, a freeze during which employees could not dispose of remaining shares shortly before they became worthless when companies sought bankruptcy-court protection.
     One huge difference is the fact that Global creditors — big names including U.S. Trust Co., which is in for $3.8 billion, J.P. Morgan Chase, Merrill Lynch, Citigroup, Chase Manhattan, Lucent, Alcatel, Tycom, SBC (Southwestern Bell), Verizon, Nortel and Cisco — still hope to be paid. The company consulted many of them to head off objections to its "pre-packaged bankruptcy plan."
     Global and 54 affiliated companies went into court with about $600 million in cash, reporting debts of $12.4 billion and total assets of $22.5 billion. The deal would keep its international fiberoptic communications network ticking, but shareholders get nothing.
     Simply put, the 5-year-old Global incurred too much debt in an overbuilt industry that had 34 other bankruptcies in the past year.
     The Enron story is already being made into a two-hour Artisan Pictures television movie featuring a mysterious suicide and offshore ghost partnerships supposedly rife with cash. The Enron saga has also instantly become part of the language — with usages like "enronize" and "enronish."
     But except in stockbrokers' offices, the words "Global Crossing" still draw blank stares because its grim news has largely been relegated to financial pages; meanwhile, Enron has dominated Page One and television like no story unrelated to the war on terrorism since September 11.
     Only trial lawyers seem to sense the stakes at Global, and they are gathering at the blood in the water just as they have at Enron.
     On Wednesday, a coalition of eight law firms in New York, Pennsylvania, Florida and Arkansas filed a class-action lawsuit in Rochester, N.Y., on behalf of shareholders, asking for refunds, punitive damages and attorney fees for those who bought stock from April 28, 1999, through Oct. 4, 2001.
     A New York City lawyer sued in Manhattan with overlapping claims to the "class" of shareholders that bought stock from Feb. 14, 2001, until Global filed bankruptcy on Jan. 28.
     Both legal teams are trolling the Internet for shareholders to join their lawsuits and accepting offers to become the lead plaintiff though April 2.
     But despite obvious national-security concerns about control of Global Crossing's 100,000-mile fiber-optic network on which government offices — including the U.S. Navy and British Foreign Office — rely for sensitive communications, Congress shows no interest. Other big customers include Microsoft, American Express and The Washington Post Corp.
     Two Republican members of the House Energy and Commerce Oversight Committee, active in grilling Enron witnesses, did not respond to requests to discuss Global Crossing's situation.
     News-hungry 24-hour cable networks barely find time to squeeze in a few words about the fourth-largest bankruptcy in history. The Global story is so far on the back burner that Brian C. Lysaght, the Santa Monica lawyer for whistle-blower Roy Olofson, was left standing in the green room by CNN on Thursday.
     The network had invited him in to discuss his client's accusatory August letter about Global's accounting, then continued live broadcasts of the Enron congressional hearing instead of putting Mr. Lysaght on the air.
     Mr. Olofson, Global's vice president for finance, put his accusations in writing to corporate officials in August and was fired Nov. 30. He seeks compensation for what he calls wrongful termination.
     Patrick Dorton, spokesman for Arthur Andersen Co., said in an interview Friday that questions raised about Global's accounting practices were hidden from Andersen auditors who didn't hear of them until last week.
     "It's a matter of serious concern that we weren't informed of the allegations in a timely manner. We insisted when we learned — which was Jan. 29 — we insisted that there be an investigation and we insisted that a special committee be appointed to investigate," Mr. Dorton said.
     The dearth of reporting by TV news operations — and virtual blackout of Global's political connections to President Clinton, Democratic National Committee Chairman Terry McAuliffe and former President George Bush — continued over the weekend even after separate probes were started Friday by the Securities and Exchange Commission and the FBI.
     On Saturday, The Washington Times and the New York Times prominently displayed front-page reports on the new investigations. The Washington Post gave that news one paragraph on page E2.
     "Politics may be playing the whole thing, but I think the reason Global Crossing is not getting the attention Enron is getting is because Enron happened first," said Chris Studdard of bankruptcydata.com and editor of Bankruptcy Week, which tracks businesses going bust.
     "Instead of having hearings, they should be writing new bankruptcy laws. They knew Global Crossing was falling apart, and they're leaving a lot of people high and dry because they came in with a packaged bankruptcy, worked out with creditors and new lenders alike before they went to court," Mr. Studdard said.
     The core of Global's plan involves two Asian suitors to invest $750 million in a bargain deal — Hutchison Whampoa Ltd. of Hong Kong, and Singapore Technologies Telemedia Pte. Ltd. Both have long been active in joint ventures with Global Crossing, and the separate Asia Global Crossing, which is not part of the bankruptcy.
     Asia Global's chief executive John J. Legere took the reins of both companies Oct. 5 when the firm was still promising dividends on a Web site that declares "This way to the future. Stay tuned."
     Hutchison Whampoa's role troubles Rep. Dana Rohrabacher, California Republican, because that firm is owned by billionaire Li Ka-shing, who has close ties to China's communist government and whose companies comprise 15 percent of the entire value of Hong Kong's stock market.
     Before the bottom dropped out, insiders sold some $1.3 billion in stock, with Global founder Gary Winnick accounting for an estimated $800 million. Among the others is Lodwrick Cook, retired Arco chairman and longtime Republican financial angel.
     A Winnick spokesman said his stock sales left him still owning 80 percent of his shares, which are now worthless.
     Mr. Winnick was a White House guest at President Clinton's Millennium New Year's Eve party, golfed with Mr. Clinton and pledged $1 million to the Clinton library.
     DNC spokeswoman Jennifer Palmieri said Mr. Winnick fulfilled just $100,000 of his $1 million pledge, but she confirmed that Mr. McAuliffe, the chief party fund-raiser in the Clinton years, did well on his $100,000 investment in Global.
     "He definitely made millions of dollars. He did very well. His profit was clearly in the millions, but it was somewhere less than the $18 million that is reported," she said.
     Mr. McAuliffe was not available for comment but earlier told Fox News Channel that "You invest in stock; it goes up, it goes down. You know, if you don't like capitalism, you don't like making money with stock. Move to Cuba or China."
     Miss Palmieri said Mr. McAuliffe believes Congress should give equal treatment to the two huge business failures but not because the companies donated to politicians or because politicians invested.
     "Political money is never a problem," she said. "The problem is if you give something back. Republicans gave back to Enron by giving unprecedented access to the White House, including input on its energy policy."
     Global gave $3.6 million since its 1997 startup compared to $3.9 million for Enron in the same period. But Global outspent Enron in the 2000 election cycle, giving 55 percent of donations to Democrats, while Enron gave 72 percent of its share to Republicans.
     "By all means, Global Crossing should be investigated, too, if Congress or the SEC thinks that there are some questions that they should look into, but I haven't seen anything to suggest that Global Crossing had the access, or made use of the political access, the way Enron did," the Democratic spokeswoman said.
     Former President George Bush received $80,000 worth of Global stock as a speech fee and it is not known whether or when he sold it, but at its peak that stock would have been worth $14 million.
     Despite its secrecy, the Olofson letter in August coincided with what in retrospect looks like the beginning of the final slide.
     On Aug. 17, the Defense Department dumped Global from a cherished $400 million government contract to provide a secure private Intranet called the Defense Research and Engineering Network. The contract was awarded about five weeks earlier, in what critics call a political prize left over from the Clinton administration.
     The combination of bad news from inside and out shook stock prices so much that Global's corporate headquarters in Bermuda tried to calm shareholders in an Aug. 29 note.
     "We believe our stock has been trading irrationally based on highly inaccurate rumors and groundless speculation. Our cash position remains solid," the notice said.
     Two months later, the stock was trading at less than a dollar a share, and the New York Stock Exchange delisted the company.
     Among those hurt worst by the failure were Global workers whose retirement plans were heavily invested in Global stock. Prices had already dropped to 67 cents a share when Global's 401(k) plan was frozen.
     On Dec. 31 the plan's asset value was $141.8 million, with only 6 percent of that still representing Global stock, company spokeswoman Tisha Kresler said.
     She said the stock price was already at 67 cents a share when the freeze on trading began after weeks of warning, and many employees had long since switched investments.
     While the British Parliament debates the wisdom of leaving its massive Foreign Office communications network with Global under Asian owners, the company touts new business in press releases.
     On Jan. 22, it announced WashingtonPost.Newsweek Interactive's Web site complex contracted to use Global.
     Don Marshall, spokesman for The Post Internet operation, says that contract was actually signed in October when prospects seemed brighter.
     "They've been giving us good service but, as with any important relationship, we have to make sure we have backup plans, and we do. When we heard the news, we thought that it's smart that we've got backups in place," Mr. Marshall said.

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