Investigators Review Global Crossing Papers
Congressional investigators met with a former executive of Global Crossing Ltd. for five hours Tuesday, going over internal company documents and discussing allegations that the company engaged in questionable accounting practices to help prop up its financial statements in the year before filing the fourth-largest bankruptcy in U.S. history.
The investigators are working for the House Energy and Commerce Committee, which last month requested a long list of documents from the company as part of an ongoing probe into the accounting practices and other allegations. It’s the same committee that has been at the forefront of the investigation into alleged wrongdoing at Enron Corp.
Two committee representatives met with Roy Olofson, former finance vice president, and his attorneys, Brian Lysaght and Paul Murphy, at the attorneys’ offices in Santa Monica, Lysaght said.
“I can’t comment on the documents shown to us because they were delivered to the committee under a confidentiality agreement, but I can say that every single one of those documents supported our case beyond our wildest dreams,” Lysaght said. He called them “incredibly incriminating.”
Lysaght said that committee representatives indicated that the panel is leaning toward holding hearings on the matter in May, and that Olofson will be there to testify.
Olofson, who was laid off by the company late last year, recently filed a lawsuit accusing Global of defrauding the employee investment plan through misleading financial statements. The move, Olofson contends, prevented employees from knowing the true state of the company, which may have caused them to redirect their investments.
Specifically, Olofson cited examples of telecommunications capacity deals that he believed had no purpose other than to pump up a key financial figure used by lenders and others to assess the company’s health. Olofson raised the accounting issues in a letter in August to Global’s top attorney. Subsequently, many other former employees have substantiated Olofson’s claims.
Global has not yet answered Olofson’s lawsuit, but in the past, the company has dismissed his allegations as being motivated by his desire to get a cash settlement from the company. More recently, company executives have softened that stance, saying that if the accounting was misleading, it was an industrywide problem.
Also on Tuesday, Global disclosed in a Bankruptcy Court filing that three new directors added to the board last week would be paid $500 an hour for working on an internal review of the fiber-optic network operator’s accounting procedures.
The company is seeking court approval for the unusual hourly rate for the outside directors, in addition to normal board fees of up to $5,000 for each meeting attended. Global said the hourly fees will not “unduly burden” the corporate coffers because each director’s pay already is capped at $100,000 a year.
In the last two months, three outside directors quit because they couldn’t devote the time to issues tied to the company’s large and complex bankruptcy case, and Global said in court papers that work on audit, compensation and special committees “has come to a halt.” The special committee is looking into a former executive’s allegations that the company inflated revenue by failing to account properly for certain expenses.
The new directors--Jeremiah D. Lambert, Alice T. Kane and Myron E. “Mike” Ullman III--agreed to join the board as long as the court approves the hourly compensation and the “normal director indemnification” against lawsuits and other adverse actions, court papers state.
The hourly rate and the annual cap didn’t upset compensation expert Graef “Bud” Crystal of Las Vegas, who usually is quick to criticize overly generous executive pay.
“You almost have to be a masochist to join the board of a bankrupt company,” Crystal said. “That’s dirty work. This is probably heavy lifting for these people. And there could be a big downside to their reputations if things get worse. “
While $500 an hour is “handsome,” he said, “it’s not wildly out of line.” Rates for top-level business consultants to handle reorganization chores are running about $700 an hour, he said, and good business lawyers are charging $600 to $700 an hour.
The three new directors, none of whom has had prior dealings with the company or its executives, take over the committees overseeing major issues that have plagued the company.
