Global Criminal Case Closes

Federal prosecutors in Los Angeles have decided not to file criminal charges against Global Crossing Ltd., Chairman Gary Winnick or any of its other executives over the company’s aggressive accounting practices or alleged document destruction, sources close to the investigation said Monday.

The U.S. attorney’s office in Los Angeles simply lacked enough evidence to show that executives at the telecommunications company had misallocated costs or had obstructed justice by shredding sensitive documents, one source said.

The decision closes the books on the U.S. attorney’s probe into the fiber-optic network builder, which rocketed to prominence under Winnick and filed for bankruptcy in January under $12.4 billion in debts and soft demand for its 100,000 miles of cable worldwide.

“While there was a great deal of smoke, prosecutors obviously concluded the evidence was not sufficient to bring a case,” said Robert Mintz, a former federal prosecutor in Newark, N.J., who has tracked the Global Crossing situation. “These cases, from the outset, are extremely difficult to make because they often fall into gray areas where overt criminality is difficult to find.”

Neither Thom Mrozek, a spokesman for the U.S. attorney in Los Angeles, nor Tisha Kresler, a Global Crossing spokeswoman, would comment. Representatives for Winnick, a Los Angeles financier, could not be reached.

The end of the criminal investigation doesn’t halt an inquiry by the Securities and Exchange Commission or ongoing civil litigation by investors.

“It doesn’t affect our case,” said Sidney S. Liebesman, whose Delaware law firm is lead counsel in about five dozen securities fraud class actions that have been consolidated for trial in federal court in New York.

Claims that Global Crossing and its executives cooked the books are at the heart of the civil cases and the SEC probe, according to lawyers and court documents.

In exchanging fiber-optic capacity with other telecommunications firms, Global Crossing counted as revenue the capacity it sold to others, but didn’t list as an ordinary expense the cost of buying capacity from others. The practice allowed the company to enhance its financial results, which in turn helped boost its share price and allowed executives such as Winnick to cash in stock options at high prices. Winnick sold more than $575 million in Global stock.

Such swaps have come under intense scrutiny in two congressional hearings, and companies such as Global Crossing and Qwest Communications International Inc. in Denver have had to restate financial results and halt the bookkeeping practices.

Swaps between Global and Qwest are part of separate SEC investigations in Denver and Los Angeles.

The evidence in criminal cases has to prove guilt beyond a reasonable doubt; civil cases require a lesser standard -- a preponderance of the evidence -- to show liability. One source close to the criminal probe said the evidence just didn’t demonstrate criminal culpability. The decision to close the case clears “everybody of everything” in the criminal matter, the source said.

The criminal investigation was launched on the strength of allegations from Roy Olofson, a former Global Crossing vice president of finance. He told a House Energy and Commerce subcommittee in September that the company entered into more than a dozen deals in early 2001 designed to overstate revenue and make the company appear financially sound.

Mintz said the decision not to prosecute does not necessarily reflect on Olofson’s credibility. Prosecutors need corroboration, he said, and probably didn’t find enough to support bringing charges.

Evidence of document shredding at five U.S. and Canadian offices was always weak and was mostly resolved in Bankruptcy Court.

A shareholder in one of the civil fraud suits uncovered allegations from two employees that they heard -- but never saw -- a shredding machine operating behind a closed storage room door. The company denied that any sensitive documents were destroyed at any of its offices.

For some former Global Crossing employees, the news that the criminal case had come to a close was disappointing.

“I can’t believe this,” said Paula J. Johnson of Colorado Springs, Colo., who once worked as a senior manager of special services for the company and lost $49,000 in retirement savings when Global Crossing went under.

“I would have liked nothing better,” she said, “than to see [Winnick] in leg chains and handcuffs being walked out of his home.”