Panel to Examine Global Crossing Allegations
Under pressure to defend its accounting methods, Global Crossing Ltd. said Monday that a committee of independent directors will review a former employee’s allegations that the company used misleading financial statements to mask its deteriorating condition.
The Bermuda-based telecommunications company, which filed for bankruptcy reorganization a week ago, also stepped up its attack on the credibility of Roy Olofson, the former finance vice president who wrote a letter Aug. 6 raising concerns about the company’s accounting.
Global Crossing said Olofson, through separate attorneys, twice sought multimillion-dollar settlements in return for dropping plans for a wrongful termination lawsuit.
Company executives, who are based in Beverly Hills, said they refused to pay Olofson’s original request, an annual compensation package and a later demand for less than one-tenth the original settlement figure.
In a statement, executives said their accounting practices are sound, were fully disclosed, and added that “there were reasons to question the motives” of Olofson.
Brian Lysaght, Olofson’s attorney, called Global Crossing’s extortion accusations “silliness,” saying that it is “responsible litigation practice” to send a defendant company a draft copy of a complaint, to invite it to negotiate a settlement and to propose a starting number.
“We’ve been expecting a carefully orchestrated smear campaign against Mr. Olofson to be Global Crossing’s first line of defense,” Lysaght said.
“But the question is whether Global Crossing’s financial statements are accurate or inaccurate, and this [statement] from Global Crossing is designed to divert attention from that central question,” he said.
Company executives refused to disclose how many board members--and which ones--are on the new special committee, or release further details about its initial review of the accounting issues.
Monday’s developments were triggered last week after a letter surfaced that Olofson wrote to Global Crossing executives in August, outlining bookkeeping methods he viewed as misleading.
Olofson’s letter, first disclosed by the Los Angeles Times, included detailed allegations involving long-term network capacity contracts, and asked James Gorton, then Global Crossing’s general counsel, to investigate the matter.
The use of such contracts is common between telecommunications companies, but the way those contracts are accounted for has come under fire from analysts and others, who believe that such deals allow the companies to aggressively pump up revenue figures.
Gorton referred the matter to Global Crossing’s outside attorneys, who concluded that Olofson’s allegations were without merit.
The company did not disclose the letter to its board of directors audit committee or to its outside auditing firm, Andersen.
Both entities, after receiving copies of Olofson’s letter last week, asked Global Crossing to conduct a new investigation of the allegations, this time using an independent auditing committee, independent attorneys and accountants other than Andersen.
*
RELATED STORY
Profile: A look at the author of the Global Crossing letter. C3
